UPDATE 3-AU faces weaker LCD demand after strong Q2

* Q2 net profit T$11.246 bln vs T$7.025 bln forecast

* Sees flat PC panel shipments, ASPs in Q3

* Sees Q3 loading rate 90-93 pct

* Says to build solar plants in Taiwan

* Stock up 0.65 percent before results (Adds details, graphics links)

By Baker Li

TAIPEI, July 28 (Reuters) - AU Optronics Corp (2409.TW) faces weaker demand after returning to profit in the second quarter, and the world's No.4 LCD maker needs to prove it can sell more new displays with fatter margins to sail through a downcycle in the second half.

AU said on Wednesday its utilisation rate would slow after running at almost full capacity in the second quarter, a move following China's tightening policy which hurt sales of PCs and TVs that use liquid crystal displays (LCDs) and also due to the weaker euro.

The company aims to churn out more energy-saving LED (light emitting diode) panels for slimmer monitors and televisions, as the new-generation panels have a 30 percent price premium over conventional LCD TV panels.

In a move to beef up its presence in the energy-related market and to diversify into the solar sector, the LCD maker also said on Wednesday it would build two solar plants in Taiwan as part of its commitment to invest T$400 billion ($12.5 billion) in Taiwan in 2011-2022. [ID:nTPV001790]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on global photovoltaic installations: here For a graphic on Asia solar market: here

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The downturn facing the LCD sector may not be as severe as past ones due to better inventory management, but investors have shunned major LCD shares recently on fears over weaker display sales and prices in the coming months.

"Inventory should go higher if demand remains weak, and panel prices will keep falling through the end of the year," said Michael On, managing director of Beyond Asset Management.

"LED might be an opportunity in the longer term but in the short term, who will pay more money to buy LED TVs?" asked On, who has no LCD shares in his portfolios now.

So far this year, AU's stock has fallen 22 percent, against a 5 percent rise on the TAIEX .TWII. Shares of newly merged Chimei Innolux (3481.TW), which overtook AU as Taiwan's No.1 and world's No.3 LCD maker in March, are down 26 percent this year.

AU, a supplier to top brands such as Dell Inc (DELL.O), Hewlett-Packard Co (HPQ.N) and Sony Corp (6758.T), posted net profit of T$11.246 billion ($350 million) in April-June.

The profit compares with a net loss of T$6.6 billion a year ago and is higher than a net profit of T$7.3 billion in the previous three months. It easily beat a consensus forecast of T$7.025 billion from Thomson Reuters I/B/E/S.

SLOWER LOADING RATE

LG Display's quarterly profit more than doubled from a year ago. [ID:nTOE66J041] Samsung, which forecast this month that second-quarter earnings would come in at a record of 5.0 trillion won ($4.1 billion), may report quarterly operating profit from LCD sales almost tripled to 720 billion won. [ID:nTOE65K05V]

AU expects its third-quarter shipments of TV panels, which make up about half of its total sales, to rise about 10 percent from the second quarter, but the price for both PC and TV panels should be flat in the same period.

AU's capacity utilisation rate will be 90-93 percent in July-September, versus 97-98 percent in the second quarter.

"There's been some noise about the third quarter but I think 2010 will still be much better than 2008 when demand dropped sharply on the global financial crisis," AU President L.J. Chen told an investor conference.

"The loading rate will be down a bit but the second half will remain healthy."

AU has applied to build a new LCD plant in China to tap future demand on the mainland, pending government approval, as China could soon overtake North America to become the world's largest TV consumer.

The company kept its 2010 capital spending forecast unchanged at T$100 billion, and about 10-15 pct of the budget will be allocated for its new business, including solar.

AU released the results after the Taipei stock market closed on Wednesday. AU shares rose 0.65 percent, versus the TAIEX's 0.47 percent gain. Chimei Innolux would report its quarterly earnings in early August. ($1=T$32) (Editing by Valerie Lee)