Taiwan LCD manufacturers to see large growth in 2006

Taiwan LCD manufacturers to see large growth in 2006

1H06 mild oversupply to make way for large returns in 2H06

Taipei, Taiwan, Dec. 7, 2005 – Taiwan, the world's largest manufacturing country of LCD panels, is expected to weather a mild oversupply in the first half of 2006 to see tremendous growth in during the second half on strengthened demand for LCD TVs.

According to its Asia Display Quarterly 4Q05, investment bank Lehman Brothers predicts that the LCD industry will experience stable volume growth throughout 2006. Lehman Brothers expects LCD monitor shipments to rise 23 percent to 126 million units and LCD TV demand to shoot up 88 percent to 38 million units in 2006.

Lehman Brothers expects each of Taiwan's four largest LCD manufacturers – AU Optronics, Chi Mei Optoelectronics, Chunghwa Picture Tubes, and Quanta Display – will all see double-digit revenue growth in 2006.

Lehman Brothers predicts AUO to see revenue growth of 41.4 percent in 2006; CMO growth of 60.5 percent; CPT growth of 38.7 percent; and Quanta to experience the largest revenue growth at 64.6 percent in 2006. Similarly, Lehman Brothers sees operating profits of AUO and CMO to grow by 116 percent and 227 percent, respectively, year-on-year in 2006.

Lehman Brothers has maintained its 2-Neutral rating on the Asia display sector, and has given 2-Equalweight ratings to these manufacturers.

Oversupply not cause for concern

Market watchers state that there is a potential for oversupply in the LCD industry as the sector approaches its normal slow season at the beginning of the year. The Market Intelligence Center, a Taiwanese industry research house, indicated that after the second quarter of 2005, several factors were coming together to cause a potential glut.

First, MIC noted that LCD manufacturers are increasing capacity in fifth and sixth generation lines, resulting in more panels being produced. At the same time, product yield rates are improving in the facilities, bringing yet higher numbers. These factors, coupled with a close on the peak year-end buying season could create an oversupply effect of flat panels in the market.

However, iSuppli provides some evidence that the potential oversupply is not a cause for concern. According to iSuppli researcher William Cheng, in the company's On Display FPD magazine, the industry is facing component shortages.

"Booming sales of large-sized panels for big-screen televisions are exacerbating supply constraints for materials and components used in the manufacturing of LCDs, including glass substrates, color filters and Cold-Cathode Fluorescent Lamps (CCFLs)," states Cheng.

Cheng believes that until the LCD supply chain adjusts to the increasing volumes and technological requirements of the television market, material shortages will occur, and thus will shelve the prospects of large oversupply problems.