AU Optronics (NYSE:AUO) Continues to Bleed Losses

Even with low expectations for the quarter, AU Optronics (NYSE:AUO) wasn't even able to meet those, as losses continue to mount at the company.

Ticonderoga says, "AUO reported 4Q10 consolidated sales of NT$102.6 billion (down 17.5% Q/Q). In U.S. dollar terms, 4Q10 sales came in nearly 12% lower sequentially at US$3.52 billion and below our US$3.76 billion forecast. AUO reported an EPS of negative $0.45, much worse than our projection of negative $0.07. Despite reporting the most challenged quarter since 1Q09, we believe that investors are likely to once again search for a bottom in the shares. However, we believe any recovery will be muted as the secular shift toward LCD TV slows and the economics of the panel industry remain challenged. With a slowing secular trend in the LCD market we believe investors are likely to pay an incrementally lower multiple for LCD-related names through each cycle. We continue to remain unexcited by our LCD coverage universe, which also includes LG Display (NYSE:LPL)(Sell) and Corning (NYSE:GLW)(Sell).

"For 1Q11, we are raising our revenue estimate to $3.38 billion from $3.28 billion, and we expect AUO to post a loss of $0.10 per share compared with our previous expectation of a loss of $0.13 per share. For 2011, we are raising our revenue estimate to $14.52 billion from $13.92 billion and increasing our EPS projection to $0.36 from $0.17."

Ticonderoga maintains a 'Neutral' rating on AU Optronics (AUO), which closed Friday at $9.58, down $0.29, or 2.94 percent.

AU Optronics (NYSE:AUO) Courts Uncertainty as TV Shipments Remain Flat

AU Optronics (NYSE:AUO) has little in the way of catalysts as it enters 2011, and with there being little in the way of pricing power for TV sets, it appears the year will be another tough one for them.

Ticonderoga says, "TV Shipments Expected to be Flat to Down Q/Q in 1Q11, While IT to Rise. Looking into 1Q11, AU Optronics expects pricing in the TV market to remain flat, while IT pricing is expected to uptick slightly, as many panels are at or below cash cost, as we have been highlighting. For 1Q11 shipments, AU Optronics expects TV shipments to be flat to slightly down, while IT shipments are expected to uptick marginally. Keep in mind, the forecasts from the panel industry have been overly optimistic over the past year. Our estimates are currently under review."

Ticonderoga maintains a 'Neutral' rating on AU Optronics (AUO), which closed Thursday at $9.87, losing $0.13, or 1.30 percent.

LG Display (NYSE:LPL), Corning (NYSE:GLW), AU Optronics (NYSE:AUO) and Economics of Panel Industry

LG Display (NYSE:LPL) continues to struggle enormously, as well as competitors Corning (NYSE:GLW) and AU Optronics (NYSE:AUO) in the panel segment.

Recently Ticonderoga Securities made a statement that a lot are probably wondering about, and that is that the "economics of the panel industry simply are not there."

Assuming that's correct (and it probably is), this is a blow to those with heavy exposure to the panel industry, which continues to struggle to find footing.

On LG Display's recent earnings report, Ticonderoga said this, "...LG Display reported 4Q10 sales of US$5.73 billion that came in lower than our estimate of $5.89 billion. While sales declined 2% Q/Q on a U.S. dollar basis, the decrease was 3% Q/Q in Korean Won and compared to our flat estimate. EPS came in at negative $0.33 (lower tax was big benefit in the quarter) and was significantly lower than our profit projection of $0.13, as the company entered the red again after seven quarters. Keep in mind, the company recorded a $238 million operating loss related to litigation around price fixing and a loss of $150 million from operations. The LCD supply chain stocks continue to meander in search of a catalyst, in our opinion."

LG Display closed Friday at $16.26, down $0.46, or 2.75 percent. GLW closed at $19.33, down $0.05, or 0.26 percent. AU Optronics closed at $9.62, losing $0.28, or 2.83 percent.

LG Display (NYSE:LPL) Still Lacks Catalyst

The disappointing earnings report from LG Display (NYSE:LPL), highlighted not only the lack of a catalyst for them, but for competitors like Corning (NYSE:GLW) and AU Optronics (NYSE:AUO) as well.

Ticonderoga says, "This morning, LG Display reported 4Q10 sales of US$5.73 billion that came in lower than our estimate of $5.89 billion. While sales declined 2% Q/Q on a U.S. dollar basis, the decrease was 3% Q/Q in Korean Won and compared to our flat estimate. EPS came in at negative $0.33 (lower tax was big benefit in the quarter) and was significantly lower than our profit projection of $0.13, as the company entered the red again after seven quarters. Keep in mind, the company recorded a $238 million operating loss related to litigation around price fixing and a loss of $150 million from operations. The LCD supply chain stocks continue to meander in search of a catalyst, in our opinion. The economics of the panel industry simply are not there, in our view. We also believe Corning (GLW)(Sell) and AU Optronics (AUO)(Neutral) will continue to struggle."

Ticonderoga maintains a "Sell" rating on LG Display (LPL), which was trading at $16.54, down $0.18, or 1.08 percent, as of 2:02 PM EST. Ticonderoga has a price target on LG Display of $11.

AU Optronics (NYSE:AUO) December Sales Surprisingly Weaker

With December sales for AU Optronics (NYSE:AUO) falling 17 percent, worse than even expected, it doesn't bode well for the LCD industry.

Ticonderoga said, "AU Optronics' December sales report was even weaker than the average December decline of 11.2% over the last four years for the company, which is surprising as 3Q10 was one of the worst quarters on record and sales in 4Q10 already got off to a slow start in October. By comparison, the four leading Taiwan LCD players have experienced an average sales decrease of nearly 13.5% month-over-month during December over the past four years. AUO's December sales decline follows a drop of 16.3% M/M in October and a subsequent rise of 5.0% in November. We now believe the local currency revenue Q/Q percentage decline for the Taiwan LCD players will be worse in 4Q10 (down an estimated 11-13%) versus 3Q10 (down 7%). As such, we continue to remain unexcited by our LCD coverage universe, which also includes LG Display (NYSE:LPL)(Sell) and Corning (NYSE:GLW)(Sell). Keep in mind, AUO is Corning's largest customer."

Ticonderoga maintains a "Neutral" on AU Optronics, which closed Friday at $9.96, down $0.12, or 1.19 percent.

LCDs AU Optronics (NYSE:AUO), LG Display (NYSE:LPL), Corning (NYSE:GLW) Not Much to Get Excited About

Speaking on their LCD univese, Ticonderoga Securities said there are incremental challenges for the sector as a whole, and companies they cover, like AU Optronics (NYSE:AUO), LG Display (NYSE:LPL) and Corning (NYSE:GLW) are unimpressive at this time.

Ticonderoga said, "In light of this week's Consumer Electronics Show in Las Vegas, we wanted to check the pulse of the LCD supply chain following the holidays. Overall, we found the tone incrementally more negative versus our recent China Tech Tour but we expect to hear more during CES. Given the near-term uncertainty and our expectations for meaningfully slower LCD TV growth rates in 2011, we continue to find difficult to get excited about our LCD universe, which consists of AU Optronics (NYSE: AUO)(Neutral), LG Display (NYSE: LPL)(Sell) and Corning (NYSE: GLW)(Sell)."

After an Uptick, PC Monitor Panel Prices Starting to Flatline.

"During our recent China Tech Tour, we highlighted the rise of PC monitor panel prices during October, November and expectations for a continued increase in December. However, our checks are highlighting that the panel price rise hit a ceiling during the second-half of December and have flat-lined. Also during our China Tech Tour, we highlighted another round of PC cuts across the tech supply chain. This morning, a top-three global notebook maker, Acer Group (2353 TT, NT$85.00, NR), was quoted in Bloomberg as saying that demand in 4Q10 "won't be as good as expected" versus the company's sequential revenue growth expectation of up 5-10%."

AU Optronics was trading at $10.27, down $0.10, or 1.01 percent, as of 11:45 AM EST. LG Display was trading at $17.85, losing $0.26, or 1.44 percent. Corning was at $19.06, down $0.01, or 0.05.

AU Optronics (NYSE:AUO), Corning (NYSE:GLW), LG Display (NYSE:LPL) Still Not Compelling

The LED universe covered by Ticonderoga Securities continues to be uninspiring, and AU Optronics (NYSE:AUO), Corning (NYSE:GLW) and LG Display (NYSE:LPL) offer little in the way of excitement for them.

Ticonderoga said, "Despite Japan Subsidy Program, Sony to Fall Short of LCD TV Target. This morning, a Reuters article indicated that Sony may miss its LCD TV sales target of 25 million units in FY11 (ends in March). Keep in mind, Sony has the benefit of the Eco-Point subsidy program in Japan that drove more than a 400% Y/Y increase in LCD TV units during the month of November based on data from a recent Corning presentation. However, the Eco-Point program is expected to end in March 2011. Given the benefit of this program, Sony's weakness is even more concerning, and this disappointment follows in the footsteps of Best Buy's (NYSE:BBY)(NR) negative commentary last week surrounding the LCD TV market. Also, our recent meeting with China-based electronics retailer Gome (493 HK, HK$2.95, NR) highlighted that LCD TVs were the weakest segment over the Golden Week holiday in China. With end-market demand for LCD TVs and notebook/PCs remaining weak, we continue to find it difficult to get excited about our LCD coverage universe of AU Optronics (Neutral), Corning (Sell) and LG Display (Sell)."

AU Optronics closed Monday at $10.32, down $0.07, or 0.67 percent. Corning closed at $18.92, down $0.07, or 0.37 percent. LG Display closed at $17.17, losing $0.27, or 1.55 percent.

AU Optronics (NYSE:AUO), LG Display (NYSE:LPL), Corning (NYSE:GLW), Best Buy (NYSE:BBY) Confirm Dismal LCD Sector

Even though LCD in November rose about 7 percent, performances of AU Optronics (NYSE:AUO), LG Display (NYSE:LPL), Corning (NYSE:GLW), Best Buy (NYSE:BBY) confirm the dismal outlook for the sector, as demand remains tight.

Ticonderoga noted, "Taiwan Panel Sales Rise 7% in November. November sales for our Taiwan LCD Panel Barometer increased by 7.4% to NT$91.06 billion, in line with our estimate of up 5-10%. We highlighted our expectation for a much better than typical seasonal performance this November (i.e., the four-year average performance in November is down 9.9%) given the extreme weakness experienced during the month of October. Keep in mind, this November performance was preceded by four months of weaker than average monthly panel sales with a poor October (down 13.0% M/M vs. average of down 4.0% M/M), along with a weaker than average September (down 2.4% M/M vs. average of up 8.0%).

"Despite November Uptick, December Quarters Could Disappoint. Even if the Taiwan panel makers turn in an average month-over-month performance during December (down 13.5%), we estimate sales during 4Q10 will decline by 13.3% sequentially, well below the average decline of 3.6% experienced in 4Q. Even if December is flat M/M, we estimate sales will fall by 9.1% sequentially in 4Q10. By comparison, we are modeling a 6% sequential sales decline for AU Optronics and flat performance for LG Display, both of which are conservative estimates vs. the companies' outlooks. Netting this all out, we continue to find it difficult to get excited about our LCD universe, which consists of AU Optronics (Neutral), LG Display (Sell) and Corning (Sell).

"Best Buy Misses, Highlights Weakness in LCD TVs. Yesterday's weaker than expected November quarter performance and outlook from Best Buy provides further evidence of weak Black Friday demand for LCD TVs. The weakness in LCD TVs and consumer notebooks at Best Buy, combined with strength in the smartphone market, is in line with data points from our recent trip to Taiwan and China. During our meeting with Gome in Beijing, LCD TVs were highlighted as the weakest segment over the Golden Week holiday in China. Essentially, Best Buy's results support our thesis that the U.S. LCD TV market is in a recession, and next year we believe Western Europe, Japan and China will slow meaningfully."

AU Optronics closed Wednesday at $10.26, up $0.06, or 0.59 percent. LG Display ended the day at $17.49, down $0.72, or 3.95 percent. Corning closed at $18.64, losing $0.23, or 1.22 percent. Best Buy (NYSE:BBY) ended at $34.50, down $1.02, or 2.87 percent.

Cisco Systems (Nasdaq:CSCO) and China Market

Finishing up a tour of China's tech industry, Ticonderoga Securities ended with a look at several companies, most importantly Cisco Systems (Nasdaq:CSCO), which is optimistic about their opportunities there.

Ticonderoga said, "Our Final Day in China. Today we met with Cisco Systems (Buy-rated), TPV Holdings, GOME and China TechFaith (Nasdaq:CNTF)(NR)...Our meeting with Cisco highlighted the company's continued optimism surrounding growth opportunities in the China market and the company's Smart+Connected Community Solution. Cisco generates approximately 3-4% of sales in China by our estimates, with 15 offices and 4,000 employees. Cisco highlighted success in the financial vertical, and certain customers are willing to pay a premium for Cisco's products. Additionally, Cisco discussed share gains in low-end networking in China over the past year, and total sales have grown at approximately 2x the China networking market over the past year. Although we believe Cisco will compete more with Huawei in the future, the company could potentially partner with ZTE (763 HK, HK$30.80, NR).

"LCD Business Still in the Doldrums. Our meeting with TPV highlighted muted trends in the LCD supply chain in both the PC monitors and LCD TVs. TPV is the #1 PC monitor maker in the world and #3 in the LCD TV market. We sensed PC OEMs continued to reduce forecasts. Overall, customers remain cautious on 2011. Keep in mind, during our visit to TPV last December, demand had picked up meaningfully, and this foreshadowed strength for the industry in 1Q10. However, this is clearly not the case this December. We were told LCD panel prices will decline for both PC monitors and LCD TVs during the March quarter. With these trends in mind, we continue to remain unexcited by our LCD coverage universe, which includes AU Optronics (NYSE:AUO)(Neutral), LG Display (NYSE:LPL)(Sell) and Corning (NYSE:GLW)(Sell).

"China Showing Retail Strength Except for LCD TVs...China TechFaith Benefits From the Smartphone Ramp."

Cisco closed Friday at $19.70, level from the prior session. China TechFaith closed at $3.86, down $0.02, or 0.52 percent. AU Optronics ended the week at $10.01, down $0.09, or 0.89 percent. LG Display closed at $18.03, up $0.04, or 0.22 percent. Corning was down to $18.83, dropping $0.17, or 0.89 percent.