AU Optronics Corp (AUO) should rise as LCD industry heats up

AU Optronics Corp. (ADR) (Public, NYSE:AUO) is looking like a buy today on news of rising demand for LCD's. The company expects to return to profitability in the second half of 2009, boosted by improving demand for flat-screen TVs, especially from China.

Sluggish sales and lower prices pushed AU Optronics into the red in the past two quarters, however,  the company has recently benefited from a spate of orders from China, and a recovery in TV demand in North America.

In an interview with Reuters on Thursday, AU Executive Vice President Paul Peng said the company is experiencing a shortage of liquid crystal displays (LCDs) and this will push up panel prices further in the second half.

About one month ago, AU had forecast a rise in shipments and panel prices for the current quarter.

In reply to a question on when AU expected to turn profitable, Peng told the Reuters Global Technology Summit in Taiwan that the firm will be profitable in the second half, even though many analysts predict AU won't be profitable till next year.

"I've a feeling that the demand strength is stronger now," he said at the company's headquarters.

Check out more LCD news coming from Corning today:

Stronger-than-expected demand for LCD glass has caused Corning to raise its expectation for second-quarter sequential volume growth, according to company chairman and CEO, Wendell Weeks.

"Our recent checks indicate the LCD supply chain is in full recovery mode," Weeks said. "The LCD supply chain continues to replenish; glass supply and demand is very tight right now, much stronger than we anticipated. This has led to an imbalance in glass supply and demand that will likely last through the end of the third quarter. As a result, we are raising our second-quarter glass volume expectations."

The company expects glass volume at its wholly owned business to grow by more than 75% sequentially in the second quarter, compared to its original guidance of more than 50%. At Samsung Corning Precision (SCP), the company's equity venture, second-quarter volume is now expected to be up more than 40% sequentially, versus previous expectations of 25%. However, the company is taking a conservative approach to relighting idled glass capacity.

Weeks noted the health of the overall supply chain and significant increases seen in panel maker utilization rates, especially at non-Korean makers. "They need to replenish very lean inventory levels and meet demand from set assemblers," Weeks said. "As a result, we have been working down our glass inventory much faster than anticipated, began relighting tanks earlier than planned, and are taking additional steps to shorten delivery lead times."

On the retail front, Corning cited research firm NPD group as saying that US LCD TV sales in April increased 9% over 2008. Similarly, unit sales increased 77% in China and 18% in Japan, as indicated by research firms CMM and BCN, respectively. As a reminder, the company is forecasting worldwide LCD TV unit sales to increase by 18% for the full year.

The company expects second-quarter glass price declines to be in line with its previous guidance. Given current market conditions, the company now believes that its sequential price declines in the third quarter will be very minor and consistent with customer agreements.