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To: - with a K who wrote (37448)	4/19/2004 1:39:26 PM
From: - with a K	Read Replies (1) \| Respond to of 118717

AUO: I received this PM and thought I would answer it publicly after doing more research. in regards AUO: do you know if they have any IPR (patents and the like) or any other advantage, that would differentiate them from their larger competitors, that would provide something like a moat for them? I'm not aware of any patents but I believe they have advantages as a "first mover" with size (3rd largest; market share about 12%). These advantages are bolstered IMO by some product innovations and manufacturing expertise. Keep in mind that they offer panels in sizes ranging from 1.5 inches to greater than 46 inches, making it one of the few manufacturers globally with capabilities to serve from the small- to large-size TFT-LCD sectors. AUO sells its panels primarily to OEMs (e.g. Sony and BenQ), which have the luxury of changing horses mid-stream if the supplier doesn't deliver on price and innovation. (Not a business model I've been drawn to - I could never pull the trigger on contract manufacturers, for example) But this is so early in an explosive market I'm willing to place a bet I'm right. One estimate: 20 mil LCD TVs by 2006, up from 3.6 mil last year. I know my next TV will be a flat panel; who's going to make it? It strikes me that this is like the automobile market: everybody wants an SUV even though they don't really need one (!) and manufactures comply because there's more profit per unit, but they still offer a lower end with thinner margins. It seems to be working: Since 2000, AU has doubled its share of the large LCD panel market, while number-two Samsung lost some shares. As previously mentioned, AUO started building a so-called 7G factory to make panels 40" and larger. According to Reuters, there are no manufacturers making television panels yet from seventh-generation "motherglass." From their website, an August Q2 investor presentation lists what AUO claims are their advantages: - LTPS: self-developed technology ready for mass production - Transflective technology: self-developed technology leading the industry - vital for handsets and PDAs - Brilliant MVA jointly developed with FDTC: high brightness and wide view angle notebook PC - LCD TV technologies: fast response time; high image (premium MVA, high contrast/brightness/color saturation); leading image processing (color mapping, dynamic gamma, black-level extension) - Awards received: Winner, 2003 Gold Panel Display; Greatest Industry Contribution; Best Technology; Best Product (first G5 26" TFT-LCD TV); World's first high efficient, low-power, full color a-SI AMOLED; World's only 8.4" ultra light weight SVGA TFT-LCD - Chart titled "Among the Broadest Product Offering in Industry" - Industry's fastest 15x17" monitor series - Notebook "a new industrial standard" Highlights of 2/10/04 investor presentation: - small and medium panels (A/V) grew 136% YoY (shipments), from 2002 to 2003 (9.1mil to 21.4mil units); large size panels up 42.4% Expect large panel business to grow by "mid single digit percentage from 4Q03" and small/medium "continues to experience seasonal decline by a mid-teem % rate." - ST debt reduced 10% QoQ but LT debt increased 31% QoQ - Inventory turns held steady at 33 days - chart showing improving gross margins from 10% in 1Q03 to 28% 4Q03 - chart showing Q rev breakdown: 60% monitor; 24% notebook; 11% AV; 4.6% TV (up from 1.2% 1Q03 and 0% prior to that) - Fab capacity in L8B(G5.0) 1100x1300mm size forecast to be 70,000 units by 12/2004, up from zero 12/2003. - Capex in 2004 estimated to be NT$85bil for 5G and 6G facilities auo.com Feeling that the valuations are still reasonable even after the run-up but worrying that I may be drinking my own Kool-aide <ggg> I added a trading position here. Chart: stockcharts.com[h,a]daclyiay[pb40!i][vc60][iut!Lb14!Lc20]&pref=G