Maturing LCD makers focus on stability, profits

By Baker Li - Analysis

TAIPEI (Reuters) - Asian LCD makers who have bet big on flat screen TVs are starting to see returns as the booming sector matures, but only a handful of companies with strong brand clients or exposure to the most advanced TV panels will see a significant profit boost.

Well-planned investments and better inventory management are helping to stabilize liquid crystal display (LCD) makers, whose stocks and profits have gyrated in past cycles that saw supplies swing from too much to too little every two years.

The biggest manufacturers are likely to stand out in a new crystal cycle that shows signs of evolving into a shorter, more stable pattern as flat-screen televisions gain popularity with more affordable prices.

Companies tipped to succeed in this new climate include South Korea's LG.Philips LCD (034220.KS) (LPL.N) and AU Optronics (2409.TW) (AUO.N), and Chi Mei Optoelectronics (3009.TW) of Taiwan, which sell panels to top TV brands such as Sony (6758.T).

"I'd say LG.Philips, AU and Chi Mei have chances to win in this new game and, for long-term investors, they are worthwhile investments," said Robyn Hsu, a fund manager at Taiwan's Truswell Securities Investment Trust.

"Others are not pure panel makers. Take Samsung (005930.KS) for example, we can't just count on its LCD sales when we take a look at its balance sheet because we have to worry about its memory or cellphone business now."

Still, the industry could risk diving back into oversupply if LCD makers are over-optimistic and pour huge amounts of money into investments as they did in the previous boom, triggered by robust demand for flat-screen PC monitors.

"The entire TFT (thin-film transistor) LCD supply chain needs to be careful," DisplaySearch Vice President of Manufacturing Research Charles Annis said in a statement last week.

"If all panel makers rush to dramatically increase capacity in the next two years, the industry could once again set itself up for a significant over-supply and a repeat of the crystal cycle in 2010."

FASTER REACTIONS

As TV screens get bigger and prices fall, major players which have strong brand clients and which make key components for TV panels have learned to react quickly to strengthen product design flexibility and lower costs and lead times.

LG.Philips LCD, for example, expects to churn out more advanced panels this year for full high-definition TVs, which command a higher price premium and offer better images than conventional models.

"It's only the beginning (for full HD TV) and demand is set to grow rapidly," Eddie Yeo, executive vice president of LG.Philips' TV business unit, said.

The Korean LCD company, which supplies to its namesake firms Philips and LG Electronics (066570.KS), is also looking for more strategic alliance deals with TV set makers.

Flat panel display sales -- most of those using LCD technology -- are expected to increase 12 percent to $106 billion this year, with TV panels taking more than 40 percent of that, according to DisplaySearch.