Barron's: Trident Micro, 3M, Sony To Profit From FPD Sales Leap (CC, BBY, AUO, LPL, OIIM, DELL, TRID, SNE)


An article in Barron's (sub. req.) over the weekend focused on the market share gains for flat panel displays vs. tube TVs and PCs, but noted that oversupply will squeeze margins for FPD producers in the near term. Winners in the mix will therefore be retailers and component suppliers to the FPD business - excerpts:

Circuit City Stores (NYSE:CC) noted "significant strength" in flat-panel TVs and notebook computers, and modestly upgraded its forecast for full-year sales. Comparable-store sales of TV sets posted double digit growth, led by triple-digit growth in flat-panel TVs. Meanwhile, Best Buy (NYSE:BBY) reported a "higher-than-expected" 5.8% gain in comp-store sales thanks to consumer electronics. Sales of liquid crystal display and plasma TV sets posted triple-digit sales growth at Best Buy, even as sales of tube TVs suffered double digit declines....

Yet panel manufacturing stocks were roughed up late last week, and may take a breather in coming weeks. No wonder, since panel manufacturers' shares have already jumped sharply. Share of Taiwan's AU Optronics (NYSE:AUO), traded at NT$50 as the year closed, up from their October low of NT$36, as investors anticipated blowout Christmas sales...

The reason TV sales have boomed is that prices are down 50% over the past 12 months... One source of LCD demand is already getting weaker: PC sales gains are slowing as consumers divert purchases to flat-screen TVs from mid-priced PCs. Consider that last month, component maker O2Micro (NASDAQ:OIIM) reduced its fourth-quarter sales forecast, citing order cancellations by Dell Computer (NASDAQ:DELL) and an inventory buildup...

David Mentley of Display Technology Investor is steering clear of the panel manufacturers because of the coming price pressures, preferring higher-margin component manufacturers such as Nitto Denko (6988 JP) and 3M (NYSE:MMM). His favorite stock: Trident Microsystems (TRID), which makes image processors.

One possible sleeper is much-maligned Sony (NYSE:SNE), whose ADRs closed 2005 at 40.80, up 4.7%, even as Japan's benchmark Nikkei 225 index jumped 22.5% in dollar terms. In the third quarter, Sony grabbed third place in the LCD TV market, doubling its share, thanks to its Bravia line of TVs.

TRID 1-yr chart: