The company last month posted a record loss of NT$26.6 billion ($790 million) for the fourth quarter as sales tumbled 62 percent amid a global recession. A drop in the Korean won, Asias worst-performing currency, will help Samsung Electronics Co. and LG Display Co., the largest LCD makers, win market share at the expense of Taiwan rivals, Oppenheimer & Co. predicts.

The bank “may encourage the currency to go downwards against the U.S. dollar in order to keep the competitiveness of our exports compared to Korea,” Andy Yang, a finance director who will take over as AU Optronicss chief financial officer next month, said today in an interview from Hsinchu, Taiwan.

The Korean won has dropped 8.7 percent versus the U.S. currency this year, after sliding 26 percent in 2008. Thats given the nations exporters an edge over rivals in Taiwan, whose currency has declined only 3.6 percent in that time. The islands overseas sales are equal to about three-quarters of its gross domestic product.

“I heard from our sales side that our corporate clients, big exporters in the electronics industry, want the Taiwan dollar to weaken more, to get more competitive compared with Korea,” said Michael Lin, a currency trader at Bank Sinopac in Taipei. “The central bank is still trying to make sure our Taiwan dollar will depreciate.”

Rising Reserves

The Central Bank of the Republic of China (Taiwan) said Jan. 10 the value of the islands currency is basically determined by supply and demand, though it will “step in when seasonal and irregular factors” trigger volatility.

Taiwan newspaper reports suggest policy makers intervened by selling the local dollar for foreign exchange as recently as last month. The islands currency reserves rose for a third month in January, climbing to a record $293 billion.

Yair Reiner, a stock analyst at Oppenheimer in New York, estimates Taiwans LCD makers have one-third to half of their costs denominated in the local dollar, which gives South Korean rivals a pricing advantage.

“A panel maker can feel particularly acute pressure to sell below cost when a competitor, enjoying a better cost structure, is still seeing a profit at prevailing market prices,” Reiner wrote in a Feb. 2 report. “This has recently been the predicament of the Taiwanese panel makers, including AU Optronics.”

Exports Plunge

Shares of AU Optronics traded at NT$26.90 as of 12:30 p.m. in Taipei, having risen 8.9 percent so far this year. Samsung Electronics and LG Display have jumped 19 percent and 38 percent, respectively, in Seoul.

“The appreciation against the Korean won will be a problem,” said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. “Theres a lot of pricing pressure from Korean products, especially felt by the Taiwan electronics industry.” Makers of LCD panels and memory chips will be most affected, he said.

AU Optronicss share of the global LCD market will drop to 15 percent this year, from 16.8 percent in 2008, according to Oppenheimer estimates released this week. South Korean rivals Samsung Electronics and LG Display are forecast to boost their combined share to 44.9 percent from 41.9 percent.

Taiwans production of dynamic random access memory chips will slide 5 percent this year, while South Koreas will increase 17 percent, JPMorgan Chase & Co. said in a Feb. 3 research note. Taiwan Semiconductor Manufacturing Co., the worlds largest custom-chip maker, last month forecast it will incur a loss this quarter for the first time since 1990.

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