AU Optronics Corporation (AU Optronics) reported 2Q 08 results below our and market expectations, although margins performed strongly. As highlighted in our company news alert dated 08 July 2008, the company has announced the postponement of capital spending and termination of some of its production lines, citing inventory build up and lower-than-expected demand for Liquid Crystal Display (LCD) panels. We believe the uncertain demand situation prevailing in the market will prevent positive stock price movement. Although the current target price supports a BUY rating, given the company’s lower-than-expected revenues and unit shipments for 2Q 08, and uncertain demand scenario combined with expected pricing pressure, we maintain our current HOLD rating. Given that our fundamental outlook for the common stock is weak, we do not anticipate a change in our current ADR rating, even though we expect a positive currency impact on the ADR over the long term.

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