Capex Cut, Production Reduced Across All Product Lines! Two Major Panel Makers Warn of a Tough Second Half in 2025

Panel industry giants warn that the second half of 2025 looks bleak; Innolux bluntly stated that shipments across all product lines will decline in the third quarter. On July 31, panel giants AUO and Innolux both warned that the traditional peak season in the second half of the year will not be as strong as usual. AUO has revised down its capital expenditure target for this year from the originally planned NT$30 billion to no more than NT$28 billion, a decrease of about 7%.

Innolux frankly stated that demand has turned conservative, and shipments for all product lines will decline this quarter. Panels are essential components for consumer products such as mobile phones, laptops, and PCs. With both major companies warning that the peak season in the second half of the year will not be strong, it suggests that consumer product demand for the year-end Thanksgiving and Christmas seasons in Europe and the United States will be conservative, effectively cancelling the peak season.

AUO held an earnings call on July 31. Chairman Peng Shuanglang admitted that due to factors such as the appreciation of the New Taiwan Dollar and uncertainty over tariffs, client-side inventory buildup this quarter is conservative, and brand manufacturers are strictly controlling inventory in response. The peak season effect in the second half of the year is expected to be weaker than in previous years. AUO estimates that shipments of all types of panel products this quarter will decline compared to the previous quarter.

AUO also estimates that the average exchange rate of the New Taiwan Dollar against the US Dollar for the second half of the year will be 29. Since more than 90% of its revenue is denominated in US Dollars, it is expected that the New Taiwan Dollar revenue from the display business this quarter will decrease compared to the second quarter. However, US Dollar revenue is expected to remain flat with the second quarter.

Considering the conservative end-market demand, AUO announced a downward revision of its 2025 capital expenditure target, lowering it from the originally planned within NT$30 billion to no more than NT$28 billion.

In July last year, AUO announced its transformation plan towards three major operational pillars, aiming for the two main businesses, Mobility Solution and Vertical Solution, to account for more than half of its revenue by 2027.

Regarding the details of the two major business outlooks for this season, AU Optronics General Manager Ko Fu-Jen pointed out that Mobility Solution's revenue in US dollars will maintain growth, while revenue in New Taiwan dollars is expected to decline by 5%. The annual related revenue is projected to increase by a single-digit percentage, slightly below the original forecast, mainly due to exchange rate effects.

In the Vertical Solution segment, as AUO holds a 32.8% stake in ADLINK and increased its board seats in the June board reelection to gain control, the revenue will be consolidated in the third quarter, showing a quarter-on-quarter growth of 25%.

Peng Shuanglang added that the combined revenue contribution of the two major businesses in the second quarter reached 43%, increasing by 2 percentage points year-on-year, steadily progressing towards the goal of exceeding 50% next year.

Regarding the tariff issue, Peng Shuanglang reiterated that panels are components, with a low proportion directly exported to the United States, and most shipments are conducted under FOB terms, so the direct impact of tariffs is limited. Observing that customers' products are mostly on the exemption list, after AUO's acquisition of BHTC, it has completed operational layouts in Southeast Asia, India, Europe, Mexico, and North America. In the future, it can flexibly adjust according to tariff changes and does not rule out collaborating with the supply chain to evaluate the most suitable production model.

On the same day, AUO also announced that the company will establish the positions of Group CEO and COO, which will be concurrently held by Chairman Paul Peng and President Frank Ko, respectively.

AUO announced that, in response to the company's organizational structure for display technology, smart mobility, and vertical sectors, the Board of Directors has approved the establishment of the Group Chief Executive Officer position. Chairman Mr. Paul Peng will concurrently serve as Group CEO, overseeing the group's global strategy and development direction, as well as leading the group’s operational support units.

In addition, to accelerate the integration among the three major operational pillars, business development, and global expansion, as well as to enhance organizational efficiency and collaborative operations, the Board of Directors has approved the establishment of the position of Group Chief Operating Officer, which will be concurrently held by the company's General Manager, Dr. Ko Fu-Jen. This move aims to respond to external changes, strengthen competitiveness, and expedite strategic transformation. The new personnel arrangement will take effect from August 1, 2025.

Innolux stated that due to tariff issues and some customers having already pulled orders forward, panel demand in the second half of the year will become more conservative. Panel manufacturers in the industry generally adopt a production strategy based on demand, which helps maintain supply-demand balance and price order.

Due to the sluggish market conditions, Innolux expects shipments across all product lines to decline this quarter. Shipments in the non-display sector and commercial displays are both expected to decrease by approximately 3% quarter-on-quarter, while consumer displays are estimated to decline by about 5% quarter-on-quarter.