UPDATE 2-Chi Mei's return to black leads to new LCD supply

* New LCD plant to help boost '10 capacity by up to 25 pct

* Sees weaker PC LCD shipments in Q4 after solid Q3 earnings

* Stock falls slightly before results (Recasts with comments and details)

By Baker Li

TAIPEI, Oct 26 (Reuters) - Chi Mei's (3009.TW) forecast-beating profit, swinging from four quarters of red ink, fuelled optimism over future demand for flat-screen TVs and prompted Taiwan's No.2 LCD maker to push ahead with plans to ramp up production of larger panels next year.

Many industry analysts have expected the LCD market to see panel prices weakening in the fourth quarter and early 2010, while some say the downturn this time may not be as severe as in the past due to the sector's better inventory management.

Chi Mei Optoelectronics Corp said on Monday it would move equipment into its LCD factory using 8.5-generation technology at the end of 2009. The plant would start making panels, mostly for LCD TVs, in the second quarter of next year, helping boost its total capacity by up to a quarter.

"There've been some noise recently in the market but it seems too early to worry about the balance of supply and demand," said John Chiu, a vice president and fund manager at Taiwan's Fuh Hwa Securities Investment Trust.

"New applications such as LED TVs can absorb some output from panel companies in the longer term," said Chiu, who owns a small amount of LCD shares in his portfolios now.

New applications would help drive flat panel display sales -- most of those using LCD technology -- up 5 percent to $93.3 billion globally next year after an estimated 15 percent fall this year, according to research firm DisplaySearch.

"We have to talk about growth in the market now because we've seen some positive signs," Chi Mei President Wang Jyh-chao told a teleconference where he explained the quarterly results and unveiled the plan on the new LCD factory.

Chi Mei earned a third-quarter net profit of T$5.15 billion ($160 million) that beat market expectations, due partly to better inventory control. (Click [ID:nTPU001782] for the results)

Chi Mei's net profit is likely to shrink to T$972 million in the fourth quarter and even dive into the red in the first quarter of 2010, according to Thomson Reuters I/B/E/S. But the data showed Chi Mei could start making money again from the second quarter of next year.

Chi Mei forecast its shipments of panels for computers would decline in the fourth quarter from the third quarter, but it expects shipments of panels for flat-screen TVs to rise 10-15 percent in the same quarter.

Larger rivals LG Display (034220.KS) and AU Optronics (2409.TW) (AUO.N) also gave similar projections for the final quarter of 2009. [ID:nTP80405] [ID:nSEO366638]

The results came after the Taipei stock market closed on Monday. Chi Mei shares closed down 0.6 percent and AU shares lost 0.8 percent, compared with the main TAIEX share index's 0.25 percent rise. (US$1=T$32.4) (Additional reporting by Argin Chang; Editing by Jean Yoon)