(Recasts with comments and details)
By Baker Li
TAIPEI, April 22 (Reuters) - AU Optronics (2409.TW), the world's No.3 LCD maker, posted a first-quarter profit well ahead of market expectations, as stronger demand and rising prices for its screens pulled the Taiwan firm out of a downcycle a year ago.
A robust showing in 2008 has been widely anticipated as the Beijing Olympic Games in August is set to fuel demand for LCD TVs, and AU (AUO.N) is also planning to build a new state-of-the-art LCD plant by 2012 to tap future growth.
Despite concerns over a slowing U.S. economy, research firm DisplaySearch said demand for laptop PCs that use liquid crystal displays (LCDs) will also be strong from emerging markets, including China, Brazil, Russia and India, in the next two years.
AU gave a mixed outlook for its shipments and prices of PC and TV panels in the current quarter, but analysts say new technology could be a long-term trigger, including LCDs that use power-saving light-emitting diode (LED) backlight or full high-definition technology on desktop monitors to allow consumers to watch television programs.
That would bode well for AU, Chi Mei Optoelectronics 3009.TW and two bigger South Korean rivals, LG Display (034220.KS) and Samsung Electronics (005930.KS).
"In my crystal ball, I'd say visibility of the LCD industry is clear because it's a growing market," said Kevin Yang, president of Taiwan's Paradigm Asset Management Co Ltd, which oversees T$30 billion ($990 million) in client assets.
"TV is a very promising sector and the pie is getting bigger and bigger," said Yang, whose company owns shares of AU and Chi Mei, Taiwan's two biggest LCD makers.
AU Optronics Corp, which supplies LCDs to top PC sellers such as Dell Inc DELL.O and Hewlett-Packard Co (HPQ.N) and some TV brands, booked January-March net profit of T$26.98 billion despite a stronger Taiwan dollar resulting in a foreign exchange loss.
That was a swing from a year-ago loss of T$5.1 billion and marked the company's second best quarterly profit.
The profit beat a T$15.2 billion forecast according to Reuters Estimates, but fell short of the record T$33.1 billion profit in the fourth quarter, when consumers shopped for more PCs and thinner TVs that use LCDs in the run-up to Christmas.
AU's results came after the Taipei stock market closed on Tuesday. Its stock rose 0.2 percent to T$58.40 while the main TAIEX share index .TWII dropped 0.5 percent.
Given the industry's strong outlook for 2008, Merrill Lynch has an "overweight" rating on the LCD sector, including "buy" ratings on AU, LG Display and Samsung Electronics.
Tight supply is possible in the second half and it is too early to be pessimistic over 2009 after major LCD makers focus more on profitability and returns on equity, instead of aggressive output expansion," Merrill said in a note.
This month, LG Display Co, the world's No.2 LCD maker, posted a record quarterly operating profit, but said Sony Corp's (6758.T) aggressive pricing strategy could affect screen prices and sales in the second quarter. [ID:nSEO169222]
AU expects shipments and prices of PC and TV panels to be mixed in the second quarter, with PCs faring better. [HKG293551]
"On the IT side, demand is healthy and I would be cautiously optimistic for the second quarter and third quarter," Vice Chairman H.B. Chen told an investor conference, where he announced a longer-term plan to build a new factory using more advanced 10th generation or higher technology for making LCDs.
AU has not yet decided the location of the new factory and investment figures, said Chen, whose company sells about half of its panels for thin televisions.
Global shipments of LCD TVs will top 100 million units this year, up from 78.5 million in 2007, according to research firm, iSuppli Corp.
AU's net profit is expected to rise by two-thirds to T$77 billion in 2008, but the profit could fall to T$66 billion in 2009, according to Reuters Estimates.
AU shares fell 17 percent in the first quarter compared with a flat broader market. Smaller local rival Chi Mei, whose quarterly earnings are due on April 29, dropped 12 percent in the same period. (US$1=T$30.3) (Editing by Anshuman Daga and Ken Wills)