AU Optronics – Quick Summary
AU Optronics (AUOTY) reported 2Q sales of NT$95.65b ($3.42b US), up 15.3% q/q and up 50.6%% y/y/. Gross margins increased from last quarter’s 22.0% to 28.7% against last year’s 2.7%, and net margin increased from 14.3% last quarter to 20.8% this quarter, against last year’s -0.2%. As did a number of panel producers in 2Q AU Optronics paid down debt, but there were two points that we believe were most significant in the quarter.
First, AU Optronics saw gross margins hit 28.7%, the highest in a decade, as their fabs saw high utilization. AUO has been one of the few panel producers who has been able to maintain positive gross margins for much of the last few years, falling into the negative only during the steep panel price decline seen in late 2019 and the COVID-19 outbreak in 1Q 2020.
Second, since 2019 AUO has been reducing its exposure to the TV panel business (see Fig. 2) and offsetting that with increasing its exposure to IT products, automotive displays, signage, and industrial applications. While management had no inkling of COVID-19 and how that would boost those segments, the plan was a prescient one that has put the company’s panel product line in the sweet spot since the pandemic. In the TV panel space itself, the company has been focused on a number of high value products where it can be a sole supplier or share leader, moving away from products where they might be competing directly with Chinese panel producers.
This strategy has paid off considerably during the last few quarters and should insulate AUO from the early effects of a flattening or decline in TV panel prices, and should help AUO to generate strong sales for the 2nd half as continuing panel price increases in the segment are expected, at least in 3Q. That said, and we don’t wish to be a downer, but that same leverage toward IT products will be tricky to manage if overall demand weakens in 2022.
AUO gave 3Q guidance that indicated that shipment area would increase by low single digits and ASP (area basis) are expected to increase by mid-single digits, while the loading rate (utilization) rate would remain high. Equally important is their order visibility through 3Q. The company did caution that transportation costs and component shortages could limit sales, but had yet to have an impact on shipment levels.
All in, this was about as expected and while most of the panel industry saw strong results primarily from panel price increases, AUO has been working toward their current product layout before the pandemic and before most other panel producers began to react to the demand changes brought about by same. We give them credit for their commitment to what might be called specialty products far in advance of most others that have more recently adopted the ‘focus on high margin products’ mantra.
First, AU Optronics saw gross margins hit 28.7%, the highest in a decade, as their fabs saw high utilization. AUO has been one of the few panel producers who has been able to maintain positive gross margins for much of the last few years, falling into the negative only during the steep panel price decline seen in late 2019 and the COVID-19 outbreak in 1Q 2020.
Second, since 2019 AUO has been reducing its exposure to the TV panel business (see Fig. 2) and offsetting that with increasing its exposure to IT products, automotive displays, signage, and industrial applications. While management had no inkling of COVID-19 and how that would boost those segments, the plan was a prescient one that has put the company’s panel product line in the sweet spot since the pandemic. In the TV panel space itself, the company has been focused on a number of high value products where it can be a sole supplier or share leader, moving away from products where they might be competing directly with Chinese panel producers.
This strategy has paid off considerably during the last few quarters and should insulate AUO from the early effects of a flattening or decline in TV panel prices, and should help AUO to generate strong sales for the 2nd half as continuing panel price increases in the segment are expected, at least in 3Q. That said, and we don’t wish to be a downer, but that same leverage toward IT products will be tricky to manage if overall demand weakens in 2022.
AUO gave 3Q guidance that indicated that shipment area would increase by low single digits and ASP (area basis) are expected to increase by mid-single digits, while the loading rate (utilization) rate would remain high. Equally important is their order visibility through 3Q. The company did caution that transportation costs and component shortages could limit sales, but had yet to have an impact on shipment levels.
All in, this was about as expected and while most of the panel industry saw strong results primarily from panel price increases, AUO has been working toward their current product layout before the pandemic and before most other panel producers began to react to the demand changes brought about by same. We give them credit for their commitment to what might be called specialty products far in advance of most others that have more recently adopted the ‘focus on high margin products’ mantra.
AU Optronics - Gross Margin - Source: SCMR LLC, Company Data
AU Optronics Product Revenue Breakdown - Source: SCMR LLC, Company Data
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