AUO Corp (AUOTY) (Q2 2026) Earnings Call Highlights: Return to Profitability and AI-Driven Growth

Negative Points

• AUO Corp ( AUOTY ) expects display revenue to decline moderately in Q3 due to slowing demand for consumer electronics products, particularly in the notebook segment.

• The notebook market is facing significant headwinds from memory price hikes and shortages, with research firms forecasting a double-digit decline in demand for the full year.

• The automotive market is experiencing slowing demand momentum due to geopolitical conflicts and component shortages, particularly in mainland China, leading to a slight expected decline in Q3 mobility solutions revenue.

• Channel inventory for monitors and notebooks is relatively high, as customers moved production plans forward in Q2 to anticipate price increases, which will lead to inventory adjustments in the second half.

• The company's display segment still has a negative operating margin of -3.2%, indicating ongoing challenges in the core panel business.

• AUO Corp ( AUOTY ) faces cost pressures in micro LED production due to rising prices for petrochemical materials and raw materials, although the company is managing to maintain its cost reduction trajectory.

• The company's overall profitability remains thin, with net income attributable to the parent company of only NT$1.34 billion in Q2 and EPS of NT$0.18, reflecting the challenging operating environment.

• The mainland China TV market saw an 8% year-over-year decline in unit volume, partially offset by larger screen sizes, indicating weak demand in a key market.

• The company expects micro LED shipments for automotive applications to begin only in 2028, indicating a longer-than-expected adoption timeline for this technology.

• AUO Corp ( AUOTY ) faces uncertainties in the macro environment, including supply chain disruptions and memory shortages, which create operational management difficulties.

Q & A Highlights

Q: Could you share the R&D progress on glass substrate technologies such as TGV and RDL, whether there are any clear partners, and when AUO may increase its investment to enter the glass substrate industry? A: Paul Pong, Chairman and Group CEO: AUO has made progress in advanced packaging processes for AI server chips and optical communications. We are indeed working on TGV and RDL, but cannot disclose partners at this stage. Our FenLPLP process technology is being applied to glass antennas for low-earth orbit satellites and micro LED CPO modules. With nearly three decades of glass process experience, we have strong capabilities in RDL, TGV, and heterogeneous integration. We are also developing glass core technology, which may take another two to three years to mature. Today's approved CapEx includes a pilot production line for TGV, RDL, and glass core.

Q: Could you comment on the yield ramp-up performance for micro LED mass transfer technology, and what strategies does AUO have to help suppliers reduce costs and accelerate adoption? Also, compared with traditional light-emitting solutions, where do the advantages of micro LED-based CPO modules lie, and could you share the joint development progress with major AI suppliers? A: Paul Pong, Chairman and Group CEO: Micro LED yield has reached a satisfactory level, allowing smooth commercialization. While backplane materials and driver ICs face cost pressure due to the war, we are improving chip utilization on LED wafers and yield rates. The target of a 50% cost reduction every two years remains on track. For CPO optical communication modules, we are focusing on scale-up and scale-out, directly replacing copper wires rather than packaging with GPUs. We are cooperating with internationally known optical interconnect companies, with projects in the design and sample delivery process. Our competitive advantages include cost competitiveness and solving copper wire issues like heat generation, power consumption, and signal integrity.

Q: What are the latest expectations for full-year TV and IT demand this year, and what is the impact of the memory shortage? A: James Chen, President of Display Business: For TVs, the FIFA World Cup drove 3% YoY growth in the first half, with Latin America growing 15% YoY. Mainland China declined 8% YoY due to high base and ended appliance subsidies, but size migration is supporting demand. In the second half, Black Friday and Double 11 inventory preparation provide support. For monitors, demand was flat in the first half, but memory inventory consumption and higher costs may depress second-half demand. Notebooks saw a 4% YoY decline in Q2 due to significant price increases, and the memory shortage impact is larger for notebooks, with research institutions forecasting a double-digit decline for the full year.

Q: Could you provide further details on the Q2 gross margins for the three main pillars, and what is the future improvement strategy for display given its relatively low operating margin? A: David Chang, CFO: The improvement in operating margins in Q2 mainly came from narrowing losses in panels through product mix optimization and improved operating efficiency. For display, we will continue to raise capacity utilization, vitalize assets by phasing out less competitive products, and retain more competitive technology platforms. Once loading rates rise, there is a strong opportunity for the display pillar to rapidly reduce losses and turn profitable. For mobility and vertical solutions, we will help these pillars grow revenue, increase gross margins, and effectively control operating expenses.

Q: Could you share the industry utilization rate in Q2 and Q3, and the current channel inventory situation for TVs, monitors, and notebooks? A: James Chen, President of Display Business: The industry is producing according to demand, with the overall loading rate in Q3 estimated at 88% to 90%. TV inventory is relatively healthy, supported by FIFA World Cup demand. Monitor and notebook inventory is relatively high, especially notebooks, because customers moved production plans forward in Q2 anticipating memory price hikes. This will lead to some inventory adjustment in customer demand in the second half of this year.

Q: What is the shipment condition for European and US automotive OEMs, and has AUO's share in mini LED automotive applications increased? Also, what is the current progress of the e-paper joint venture NXEPD with E Ink? A: Paul Pong, Chairman and Group CEO: Micro LED for automotive will not begin shipping until 2028 due to longer design-in timelines. Over the past two to three years, most awarded projects have been mini LED projects, and our mini LED performance is strong as OEMs move toward larger displays and higher-value products. The shipment mix of mini LED panels is already quite high. For e-paper, the joint venture with E Ink has officially begun module shipments, and we are working with customers to develop applications across vertical fields. We are optimistic about e-paper growth in specific applications like digital signage, price tags, and self-checkout, driven by labor shortages and ESG requirements.

Q: Are there any changes or updates to the expected depreciation and capital expenditure for 2026? A: David Chang, CFO: Depreciation for 2026 remains at $28 billion. The board approved an additional $8.6 billion CapEx budget for future value-added product technology platforms and new technology platforms under the four AI arrows. Together with the originally approved $14+ billion CapEx budget, after reviewing the impact on cash flow with some payments spread over multiple years, the impact on cash spending for 2026 should be controlled at a level not exceeding $20 billion.

Q: Regarding the planned plant sales, will the gain be recognized at once or in stages, and are taxes or expenses already included? A: David Chang, CFO: The transaction value and expected disposal gain or loss disclosed in the announcements already include related expenses and income tax. Both plant sites are still in production, so we will plan production suspension, prepare materials and inventory in advance, and then begin handover. Recognition will depend on the timing of handover and ownership transfer by the competent authority. The Kaohsiung plant is slightly smaller, so recognition may occur earlier.

Q: Could you share the progress of the micro LED-based CPO module development and the advantages in mass production over the next two years? A: Paul Pong, Chairman and Group CEO: The CPO micro LED optical communication module has high bandwidth and very low power consumption for short-distance transmission in data centers. We are integrating group resources to provide complete micro LED CPO optical modules, not just components or foundry services. We are working with data center interconnect solution providers in the AI supply chain. Commercialization is

For the complete transcript of the earnings call, please refer to the full earnings call transcript .