Let's give credit where credit is due. Management at Taiwanese LCD panel maker AUOptronics (NYSE:AUO) had maintained for quite some time that the market would bottom out early in 2005 and then begin to recover around mid-year. So far, it looks like that's what's happening.

How good the results for the second quarter were depends on your point of view. On a year-over-year basis, revenue, margins, and net income were all down again. Sequentially, though, there were considerable improvements across the board. Also, for whatever it's worth, this quarter's results were better than the average analyst expectation.

Large-panel shipments continue to grow, with the company shipping nearly 17% more, sequentially, and 49% more than the year-ago period. The growth numbers for small- and medium-sized panels are even better -- sequential growth of 37% and annual growth of more than 61%. While monitors are still the majority of AU Optronics' business, strong notebook demand at companies like Motley Fool Stock Advisor recommendation Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) certainly hasn't hurt.

Large-panel pricing seems to have hit bottom and begun its rebound. What's more, the company has continued to grow its TV panel business; it accounted for 12% of shipments for the quarter, the first time it's been in double digits.

AU Optronics is certainly positioning itself to go after the TV business in a meaningful way. The company continues to up its estimate of capital expenditures so that it can roll out further capacity for larger panels. Presuming that things go according to plan, the company will have about 2.5 times more capacity at year-end for the largest panels it offers.

Time will tell whether the TV opportunity can save this industry from itself. Demand has never really been a problem. For the past three years, AU Optronics has shipped sequentially more large panels in every quarter but one. The issue has always been pricing and overcapacity. I suspect that will continue, meaning that the market and its participants, including competitors like LG.Philips (NYSE:LPL), will continue to experience peak-trough cycles.

No doubt, the stock had already begun its recovery ahead of supporting financial data. From a single-digit nadir in November, the stock is up more than 70%. Fortunately (if you're a shareholder), the analyst estimates have been on a steady upward march, and the current stock price doesn't look unreasonable if you believe future results will meet or beat the projections.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).