AU Optronics Corp. (ADR) (AUO)

NetscribeTech (60.64) Submitted: 1/08/07 1:43 AM : Start Price: $13.75 AUO Score: 9.32

AU Optronics Corp. (AUO) is the world’s third largest manufacturer of thin-film transistor liquid crystal display (LCD) panels. Following the merger with Quanta Display, AUO got hold of 19.4% of the global market share. This move helped the company assume greater bargaining power and fight off smaller rivals. Further, the merger will make the firm offer the broadest scope of panel sizes, making it a one-stop shop.

The LCD industry is structured on the back of intensive technology and capital investment, which sets high barriers for new market entrants. However, the competition is becoming intense, driving down panel prices in the past two years. The company mainly competes with LCD suppliers in Japan and South Korea, which possess the core technologies on one hand and strong brands such as Sharp and Samsung on the other. However, the falling prices also have a lot of positives for the company. Due to declining prices of LCD’s, more and more people are opting for LCD products over plasma and cathode-ray tube products as LCD is of a better quality. This will increase the unit sales of the company, directly giving a boost to its top-line.

Additionally, the company has made key investments in important suppliers such as Toppan CFI and in customers such as BenQ and Quanta Computer. These investments place AUO in an advantageous position in the entire value chain. Further, AUO has established module assembly facilities in mainland China, which could help lower operating expenses and better serve Chinese customers. Translating the strong fundamentals and growth oriented and expense saving strategies, the stock will fly with bright colors going ahead.

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