With LCD makers still trying to work off a global glut of supply and capacity, the world's second-largest manufacturer got a little boost on Tuesday. LG.Philips (NYSE:LPL), a joint venture between LG Electronics and Philips Electronics (NYSE:PHG), announced a significant three-year supply agreement with Hewlett-Packard (NYSE:HPQ).
Under the terms of the agreement, LG.Philips will become HP's primary supplier of flat screens for notebook PCs and LCD monitors. The $5 billion deal doesn't completely exclude other providers, and there are no guarantees with respect to future HP sales. Though LG.Philips was already doing business with HP, this should provide a double-digit boost to sales.
To meet the demands of this new agreement, LG.Philips announced that it will be increasing production on its sixth-generation lines and ramping up production on seventh-generation lines as well.
The dust is nowhere near settled, but on first blush, this doesn't look too good for AU Optronics (NYSE:AUO). AU Optronics counts HP amongst its customers, but I would think that some portion of LG.Philips' gain has to become AU's pain. That said, Motley Fool Stock Advisor pick Dell (NASDAQ:DELL) is still an AU Optronics customer and a leading player in the field.
By coincidence, AU Optronics reported its May sales today. Looking at the report, investors will find 3% sequential growth in large-panel shipments (large panels are used in monitors, notebooks, TVs, and the like) and a 5% sequential decline in small-panel shipments -- continuing the trends we've seen for some time. While AU Optronics didn't include year-over-year shipment comparisons, it did report that year-over-year sales in May were down by nearly 8%.
Whatever the state of the LCD market, LG.Philips investors haven't waited for an "all clear" to push these shares up -- the stock hit a new high today. While the stock seems pretty fairly valued for the market it's in, I won't argue with a hot stock that just struck a major deal.
These Foolish takes won't leave you flat:
- Sharp's Enormous LCD TV
- Can Flat Panels Level Off?
- Universal Displays Its Potential
- LG.Philips' Mixed Signals
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
