AUO Reports 2017 Results Relatively Flat Y/Y; January is Down
February 12, 2018
AU Optronics and Innolux are the anti OLED panel producers and while AUO has a low volume Gen 4.5 producing OLED watch displays and Innolux has been dabbling in OLEDs, neither is committed. So, we view these suppliers as virtually pure play LCD vendors and their financials can be a proxy for measuring the strength and vigor of the LCD industry.
AUO reported January revenue of 26.21b NT$, up 1.4% M/M but down 7.6% Y/Y. Large panel shipments were 9.53m units, up 1.2% M/M and up 12.4% Y/Y, while small panel shipments were 16.65m, up 2.5% M/M and up 39.49% Y/Y. On the surface these look like good numbers as January is typically a down month sequentially for AUO (5 year avg - ↓7.0%), but on a Y/Y basis, AUO’s January is typically up 7.3% and this year was down 7.6%. With both large and small shipments up substantially Y/Y and M/M, and sales up modestly M/M, but down Y/Y the ASP impact was substantial. Based on January panel pricing data (TV average ↓0.7% - Phone average ↓6.3%), AUO’s efforts to meet the Chine LTPS pricing, while resulting in new sales is driving the gross margins down.
AU Optronics (AUO) also reported 4Q and full year results last week.
Expectations – 2018
AUO has done a good job of differentiating themselves from ‘generic’ panel producers by developing specialized products, which they say represented ~50% of 2017 sales. This has helped them keep utilization and gross margins high, but it also means they have to move quickly to stay on the forefront of new products, which all seem to have compressed development cycles. However, both AUO and Innolux are essentially treading water. They are not investing in capacity so their market shares have been flat and will soon drop significantly as the new China ( Gen 8+ and Gen 10+) fabs reach MP. They have ignored OLEDs and also Micro LEDs, are dropping behind technologically. They have benefited from the reduction in large area capacity over the last two years, but the industry is moving to an overcapacity situation and the average price/sq. m is dropping along with ASPs. The question is how long they can survive and will the Taiwanese government support them in the troubling future?