Executives of both Innolux Display Corp. and Chi Mei Optoelectronics Corp. held a joint news conference Nov. 11, 2009 to announce a share-swap merger valued at NT$165 billion (US$5.2 billion). One month earlier, Innolux had agreed to take over TPO Displays Corp., a local manufacturer specializing in small to medium-sized display panels.
Carrying combined capital of NT$73.1 billion, the new entity is called Chimei Innolux Corp. While the Chi Mei Group, parent of CMO, is still the largest shareholder, with a 20-percent stake, Innolux President and CEO H.C. Tuan is responsible for leading the new venture.
With the tri-party amalgamation, Chimei Innolux has dethroned AU Optronics Corp. to become Taiwan’s largest panel maker in terms of both market capitalization and global market share, trailing only South Korea’s Samsung Electronics Co. Ltd. and LG Display Co. Ltd. on the global front.
Terry Guo, founder of Foxconn Technology Group, Innolux’s parent company and a global heavyweight in dedicated electronics manufacturing services (EMS), expected to make “one plus one equal five” from the alliance.
Hsu Wen-long, founder of the Chi Mei Group, pointed out that the tie-up will enable the two firms to make further inroads in this “industry of the century,” and help put Taiwan under the spotlight in the global arena.
Most industry analysts see the deal as a winning decision for all parties involved. The aggressive Innolux gained an instant boost in production capacities and technological capabilities from CMO, while the debt-ridden CMO received strong financial support from Foxconn and more outlets from group members for its vast output.
“The synergies to be created are definitely greater than the combination of each firm’s advantages,” commented Simon Yang, vice president of Taipei-based research firm Topology Technology Inc.
Although it is a panel maker, Innolux’s core competence lies in its capabilities in original equipment manufacturing (OEM) services, just like many of its Foxconn siblings. The alliance will shift the focus to a new model that complements panel manufacture with EMS, or even original design manufacturing (ODM) services, with help from other group members, Yang explained to “Taiwan Today” in a telephone interview March 15.
“The deal also represents a strategic move in Foxconn’s efforts to extend its reach in the display industry,” he said. The group took over an LCD TV assembly plant in Mexico from Japan’s Sony Corp. in September 2009 and the Polish manufacturing facilities of U.S. computer giant Dell Inc. later that year.
The two latest additions in Taiwan will bring forth a heavyweight panel maker with the most complete product lines on the island and support the group’s expanding business.
The huge LCD TV market on the other side of the strait is an important consideration behind the deal, Yang pointed out. Mainland China currently relies on imports to meet 90 percent of its panel needs, with CMO accounting for over 50 percent of the share there.
“The team-up would enable Foxconn to gain access to the fastest growing market in the world and obtain tremendous business opportunities for its member firms,” Yang said.
While Chimei Innolux may still lag behind AUO in terms of research and development capabilities, the mega entity will have more bargaining power when it deals with both clients and suppliers in the future, he added.
But not all is bright and sunny for the new venture, Yang cautioned. “The panel industry is a very complicated ecosystem where partnership among rivals is a way of business,” he explained.
In the face of this new powerhouse, other players will not stay put. Instead, they will likely form new coalitions to remain competitive in the game. The development may also prompt some former CMO customers to reconsider their relationship with the new firm.
For example, mainland China’s TPV Technology Ltd., which has been in heated competition with Innolux to become the world’s leading monitor OEM firm, announced March 15 it would join hands with AUO to set up LCD modules and TV assembly facilities in Poland. “Some of CMO’s former partners may become its competitors,” Yang predicted.
While AUO failed to win over CMO and missed the opportunity to become the dominant leader in Taiwan, the firm does not necessarily stand to lose as a result, according to Eric Yang, an analyst from Taipei-based Concord Securities Co. Ltd. The firm achieved its current scale of operations partly through its mergers with Unipac Optoelectronics Corp. in 2001 and Quanta Display Inc. in 2006.
“AUO and CMO have very similar product mix and business strategies, and the synergies resulting from their consolidation might not be as powerful,” he said. As a dedicated panel producer, AUO may even find it easier to secure business from OEM firms that feel threatened by Chimei Innolux’s aggressive expansion.
“In a sector where the big guys tend to get bigger, the possibility of more mergers cannot be ruled out,” Topology’s Simon Yang pointed out. But smaller players can still compete in the game. In fact, some firms have successfully built cost advantages in certain products and found a niche in the market, he pointed out.
The consolidation will reconfigure the landscape of Taiwan’s panel industry and supply chain. “With each firm sticking to their core competence and the twin heavyweights taking charge in the global competition, Taiwan’s panel industry is heading toward more favorable development,” Yang concluded. (THN)
Write to Meg Chang at meg.chang@mail.gio.gov.tw