Taiwan gains mainland market entry
New York Times, February 11, 2010
TAIPEI — Taiwan’s decision to relax some restrictions on investment in mainland China will help its flat panel manufacturers compete in the mainland’s booming consumer electronics market, analysts and company officials said Thursday.
The top producer of liquid crystal display panels in Taiwan, AU Optronics, said it would apply to the Taiwanese government to build an advanced LCD panel facility in China as soon as possible. Until now, Taiwanese companies have been allowed to assemble only panel modules — consisting of panels and frames — in China.
The company expects China to become the world’s No.1 market for flat screen televisions sometime next year.
AU Optronics, which has 20 percent of the market in China for the screens used in such televisions, said the new rules would help it compete against South Korean and Chinese rivals.
“China will be the biggest market next year, so it will be very helpful for us” to have a factory there to provide faster service to customers and shorten shipping times, said Freda Lee, a company spokeswoman. A factory to build LCD panels can cost $3 billion.
The government in Taiwan, under pressure from its top technology companies and other businesses, has been relaxing limits on China-bound investment over the past decade.
Taiwan said Wednesday that it would let flat panel makers build screen-making factories in China, as long as their most advanced plants stayed in Taiwan and they keep equivalent investments on the island.
The government also lifted some limits on investment in China by semiconductor companies, and will let them use more advanced manufacturing technology at their mainland plants. Also relaxed were China investment rules for Taiwan chip testers, packagers and companies involved in real estate, telecommunications, wind power and solar energy.
The biggest implications are for flat panel makers in Taiwan, who build the screens used in devices like cellphones, computer monitors and televisions.
Companies in Taiwan have long battled with the South Korean giants of Samsung Electronics and LG Display to dominate that market. The move by Taiwan on Wednesday followed the South Korean government’s approval late last year of ambitious plans by those two companies for joint-venture factories in China.
AU Optronics said it wanted to build a “7.5 generation” factory in China when the new rules take effect. Such factories produce 42-inch to 46-inch screens. The company’s most advanced, “8.5 generation” factory produces 65-inch screens, Ms. Lee said.
On Wednesday, the chairman of Hon Hai Group, Terry Gou, told Reuters that the group’s flat panel unit, Innolux, would also consider building a factory in China.
Dale Gai, a flat panel industry analyst at Yuanta Securities in Taipei, said that the Chinese flat screen television market was growing 80 percent yearly and that Chinese makers were “aggressively” building factories.
DisplaySearch, a market researcher, said last year it expected flat panel television sales in China to increase from 13 million in 2008 to 37 million in 2012, as subsidies from the Chinese government fueled demand and Chinese users replace old cathode-ray tube televisions with newer models.
Flat panel companies in Taiwan sell screens to Chinese televisions makers. Chi Mei Optoelectronics has about a 35 percent share of the market in China for flat screens while AU Optronics has 20 percent, Mr. Gai said.
Samsung and LG Display, each have 10 percent to 20 percent, according to Mr. Gai.
AU Optronics’ main customer is Changhong, Mr. Gai said, and Chi Mei’s main customers are Skyworth and Hisense.
“The weakness of both companies is they don't have own brands, like LG and Samsung, so they need to be close to their Chinese TV brands,” Mr. Gai said. “Now Taiwan panel makers can set up fabs in China to compete with South Korea,” he said referring to factories.
Chi Mei is in the process of merging with Innolux. The combined company would be the largest flat panel maker in Taiwan and No. 3 globally by revenue.
AU Optronics reported revenue in 2009 of 359 billion Taiwan dollars, or $11.2 billion while Chi Mei Optoelectronics posted 209 billion dollars in revenue from its LCD business last year.
According to DisplaySearch, LG Display was the No.1 LCD panel maker in 2009, followed by Samsung, AU Optronics and Chi Mei.
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