Summary
- CMO will obey government restrictions after suspicions that it planned AMLCD fab ventures in China.
- AMLCD demand is rebounding from a trough in Q1’09 and CMO was able to secure funding that should sustain it over the mid term despite ending Q2’09 with 113% net debt.
- Larger sums are more difficult to obtain and CMO can only afford to complete fab build-out it suspended in 2008.
- Asahi Glass may take some share from Corning because it is the main supplier of seventh-generation glass to CMO and it is the second-source of eighth-generation glass to Samsung Electronics.
Analysis
Chi Mei Optoelectronics invested more aggressively than other AMLCD leaders did from 2003 through 2008. Its share of capacity rose from 7% to 14% as it stove to join AU Optronics, LG Display and Samsung Electronics in the major league. Unfortunately, this created substantial debt and unproductive assets in 2008 when demand fell rapidly. CMO had planned to match the move to eighth-generation (2.2 x 2.5 meter) glass by AU Optronics (AUO) but it suspended that project after preparing the clean room and taking delivery of some equipment. The announcement suggests CMO will complete installation of monthly capacity for 24 thousand input sheets as soon as possible. That is a modest number compared to competitors who have first-phase capacities of 40 or 60 thousands. Nevertheless, it may preserve the company’s capacity share in 2010 near 14%.
The rebound in sales reported for September looks better at first glance than it does on closer inspection. Sales were flat YoY in Taiwan dollar terms as shipments rose 22% and ASP fell 18%. As with AU Optronics, small panel shipments became a larger portion of the company’s market mix. Despite talk of TV panel demand in China, the panel makers depended more on mobile device markets (netbooks, cell phones, et cetera) than on large panel applications. In fact, disclosures indicate that CMO lost pricing power while AUO gained some. The ASP for AUO fell 5% MoM but rose 8% YoY in September.
For many investors in the USA, the fortunes of Corning are more interesting than other aspects of AMLCD, which is an Asian industry primarily. Corning is a key supplier to CMO, especially for fourth-generation glass, but Asahi Glass supplies about as much. That Japanese glass company became the primary supplier of seventh-generation substrates to CMO early this year. Now that Corning has brought furnaces back on line, it may supply more in the future but Asahi Glass is competing well against Corning’s joint venture company in Korea. Samsung Electronics is buying a significant portion of its eighth-generation glass from Asahi Glass even though it owns 50% of the Corning venture. I suspect we will see AUO and CMO force Asahi Glass and Corning to compete for orders. That and the modest level of capacity CMO will add suggest little impact on Corning over the near term. Adequate supply from any source is more an issue, today. Longer term, Asahi Glass might improve its position in larger substrates. Chi Mei Optoelectronics invested more aggressively than other AMLCD leaders did from 2003 through 2008. Its share of capacity rose from 7% to 14% as it stove to join AU Optronics, LG Display and Samsung Electronics in the major league. Unfortunately, this created substantial debt and unproductive assets in 2008 when demand fell rapidly. CMO had planned to match the move to eighth-generation (2.2 x 2.5 meter) glass by AU Optronics (AUO) but it suspended that project after preparing the clean room and taking delivery of some equipment. The announcement suggests CMO will complete installation of monthly capacity for 24 thousand input sheets as soon as possible. That is a modest number compared to competitors who have first-phase capacities of 40 or 60 thousands. Nevertheless, it may preserve the company’s capacity share in 2010 near 14%.
The rebound in sales reported for September looks better at first glance than it does on closer inspection. Sales were flat YoY in Taiwan dollar terms as shipments rose 22% and ASP fell 18%. As with AU Optronics, small panel shipments became a larger portion of the company’s market mix. Despite talk of TV panel demand in China, the panel makers depended more on mobile device markets (netbooks, cell phones, et cetera) than on large panel applications. In fact, disclosures indicate that CMO lost pricing power while AUO gained some. The ASP for AUO fell 5% MoM but rose 8% YoY in September.
For many investors in the USA, the fortunes of Corning are more interesting than other aspects of AMLCD, which is an Asian industry primarily. Corning is a key supplier to CMO, especially for fourth-generation glass, but Asahi Glass supplies about as much. That Japanese glass company became the primary supplier of seventh-generation substrates to CMO early this year. Now that Corning has brought furnaces back on line, it may supply more in the future but Asahi Glass is competing well against Corning’s joint venture company in Korea. Samsung Electronics is buying a significant portion of its eighth-generation glass from Asahi Glass even though it owns 50% of the Corning venture. I suspect we will see AUO and CMO force Asahi Glass and Corning to compete for orders. That and the modest level of capacity CMO will add suggest little impact on Corning over the near term. Adequate supply from any source is more an issue, today. Longer term, Asahi Glass might improve its position in larger substrates.
Eventually, CMO may join Sharp, LG Display and others in China. It is hard to see how it can remain competitive staying home while competitors transfer fab technology. As that occurs, the big question will be how glass shares develop in China.
David Barnes consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
