Taiwan TFT LCD
Double-dip Risk in 4Q09
Where We Differ: As capacity expansion resumes in
2Q09, we see risk of a double dip in 4Q09. 1Q09 was
better than expected on panel shortage due to
component constraints despite low fab utilization. 2Q
will likely show strong growth from the low 1Q base. By
mid-2009, we expect normalized supply chain and
inventory. As panel demand has pulled in to 1Q-3Q, we
see downside risk in 4Q09 on overbuilt supply.
What’s New: 1) We lower AUO to EW from OW, CMO
to UW from EW, as we think the base case is in the price.
On the relative, we prefer AUO to CMO on balance
sheet strength. 2) We upgrade Coretronic to OW from
EW as a laggard to Radiant on regaining market share in
LED NB and new product cycle in pico-projector. 3) We
raise PTs and EPS estimates for TFT plays on higher
revenue and margin estimates. For components, we
prefer backlight module (Coretronic) to driver IC makers
(i.e., Himax/Novatek) as volume plays.
Near-term Risks: 1) LCD monitor panel price has
downside risk in a seasonally soft May/June. 2) On rush
orders, TFT makers are pulling in new fab capacity after
delays; LGD started Gen 8.5 in March, AUO will start
Gen 8.5 fab in June and re-start Gen 7.5 fab (7B) by
3Q09, Sharp will turn on Gen 10 production by 4Q09.
Proprietary Analysis: 1) Historically, TFT stocks have
outperformed in odd years compared to even years,
where we could be wrong on downgrade. 2) Demand
elasticity on panel upsizing has slowed – the shift to 42”
from 32” is slow compared with the shift to 32” from 26”
at the same price point – a negative trend as panel
makers continue to bring on larger-size generation fabs.
Key Debates on End-demand and Pricing: LCD TV
shipments should grow ~15-20%, to 120mn units, in
2009. China will likely grow fastest, by 65% Y/Y, vs. US
at 5-10% Y/Y, Europe ~flat Y/Y. As unemployment is still
rising and consumer credit spending has peaked, with
retail prices falling, we question panel makers’ ability to
raise prices in 2H09 on increased supply. We would look
for re-entry by 4Q09 on end-market sell-through. Long
Term Constructive: Windows 7 touch proliferation will
simulate a new monitor replacement cycle in 2H10-12.