AUO Corp Navigates US Tariff Challenges, Adjusting Manufacturing Sites and Collaborating Closely with Customers
- A lively and informal take by Sara Jones
AUO Exercises Caution Following Release of Q1 Earnings
Taiwan-based flat-panel display supplier AUO Corp ( friendly ) recently spoke out about the potential consequences of US tariff uncertainties, reporting profits for the second consecutive quarter. The company revealed that customers are rebuilding inventory whilst others are pulling in orders ahead of new tariffs, all while keeping a watchful eye on how the US government's tariff policy could affect display demand and market consumption.
"The company takes a cautious approach this quarter, and the visibility for the second half of the year is somewhat blurry," AUO chairman Paul Peng ( Ocean Waves ) shared during an online earnings conference. He explained that the US tariff uncertainty might disrupt seasonal demand this year, as some customers have already demonstrated pull-in demand due to potential fallouts from the US tariff policy.
In response to this uncertainty, AUO is exploring plans for manufacturing in regions with lower tariffs. Chairman Peng revealed that they are considering working with supply chain partners to establish production facilities in countries such as India, Europe, and Mexico. This strategic move follows AUO's acquisition of Germany-based BHTC GmbH, which has expanded its manufacturing capabilities beyond Asia. Moreover, the company is prioritizing its Taiwan-based manufacturing infrastructure, where tariffs stand at 32% compared to a staggering 54% in China. CEO Scott Hix of Avocor ( an AUO subsidiary ) emphasized Taiwan's crucial role in facilitating rapid production adjustments to minimize tariff impacts.
AUO has ruled out constructing front-end display plants in the US, citing high labor costs and the absence of a supporting supply chain ecosystem as reasons. The company expects a comparatively mild impact from US tariffs, with around 10 to 15 percent of its total revenue coming from direct and indirect exposure to the US.
As a panel display and components supplier, AUO ships its goods on free-on-board ( FOB ) terms, meaning that customers absorb the responsibility for any duty levies. The company will keenly observe US tariff developments in the second half of this year and work closely with customers to make adjustments to manufacturing sites to minimize the impact.
AUO's display business experienced a boost in the last quarter due to inventory restocking demand following strong TV sales in the fourth quarter of last year and Chinese subsidies encouraging people to replace old consumer electronics. According to AUO president Frank Ko ( Rich Man ), the company's display business fared better than expected in the first quarter. However, revenue this quarter is projected to decline slightly due to a higher comparison base.
In the long run, AUO expects a revenue drop in its mobility solution business, including displays for auto cockpits, but anticipates a mid to high single-digit percentage growth in its vertical solution business, including display-related solutions for retail, medical, and industrial segments. The company estimates a potential direct revenue risk of $200 million (12% of total revenue) from tariffs, but aims to reduce this exposure through operational flexibility and strategic adjustments to manufacturing sites and supply chains.
- AUO Corp, in response to US tariff uncertainty, is exploring options for manufacturing in countries like India, Europe, and Mexico to lower tariffs and minimize impact.
- CEO Scott Hix of Avocor, an AUO subsidiary, highlights Taiwan's crucial role in enabling rapid production adjustments to mitigate tariff effects.
- AUO expects a potential direct revenue risk of $200 million from tariffs, but aims to reduce this exposure through operational flexibility and strategic adjustments to manufacturing sites and supply chains.
