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November 21, 2005 4:25 pm

Taiwan well placed for flat screen demand jump

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Over the past week, five of Taiwan’s seven flat panel manufacturers have announced acquisitions, restructuring or strategy changes.

The flurry of action is driven by both hope and fear. With the long-hoped for high levels of demand for flat screen televisions finally emerging, Taiwan’s large LCD industry is in a good position to benefit.

But the comparatively small scale of many of its manufacturers and their lack of branding is placing them at a disadvantage compared with their bigger Japanese and South Korean rivals. At the same time they are facing surging competition at the low end of the market from China.

According to the Market Intelligence Centre (MIC), a government-funded IT industry think tank, Taiwanese manufacturers are expected to ship 98m large-size panels this year and more than 170m in 2006, pushing the island’s collective share of the world market up to almost 50 per cent next year, 8 percentage points ahead of South Korea.

Analysts say Taiwan’s two leading players, AU Optronics and Chi Mei Optoelectronics, are well placed to profit from the growing demand for flat-screen TVs as manufacturers source more LCD panels from them.

“LG Philips, Samsung and Sharp are the only companies that have both a brand and major panel production,” says Timothy Chen, an analyst at CLSA in Taipei. “Japanese TV sellers such as Hitachi, Toshiba and Matsushita [with its Panasonic brand], as well as non-conventional brands such as Westinghouse and those IT companies who are pushing into the TV market, such as Dell, all need to buy panels.”

Taiwan’s position as a pure component supplier is particularly promising because of expected rapid growth in the US, where demand for flat-screen TVs is set to grow faster than other regions next year.

Japan, the largest LCD TV market so far, is dominated by the five largest brands. But in the US, less well-known sellers such as Syntax, a brand of Taiwan’s Kolin group, Westinghouse and Dell are quickly working their way up the ranks. 

However, Taiwan is more vulnerable to downward price pressure, and part of the highest-margin business remains out of its reach.

This was illustrated by Sharp’s announcement last week that it planned to procure smaller-size TV panels from several Taiwanese manufacturers from next spring. Sharp said it would concentrate on large panels and source only the remainder from Taiwan. Such orders will shrink in times of oversupply, warns Annabelle Hsu, research manager at MIC’s display team. Supplier relationships with Hitachi, Toshiba and Matsushita, which have some capacity of their own, are also subject to the same risks.

“Although Taiwan’s flat panel production has reached an impressive size, the individual players lack bargaining power in securing upstream supplies and setting prices,” says Ms Hsu. “So they need to create new channels and seek new niche markets. They have started doing both.” The other challenge for the Taiwanese producers is the increasing inroads by China’s LCD makers into the flat-screen computer monitor business.

AU Optronics has responded by announcing a restructuring under which the group will strengthen its TV panel business at the expense of the monitor panel segment.

Chi Mei Optoelectronics is planning to buy a controlling stake in China-based Westinghouse Digital Electronics by the end of the year.

Chi Mei Optoelectronics said the investment in labour-intensive module production on the mainland would help it lower costs by 5 per cent, allowing it better to compete with its Chinese peers.

Chunghwa Picture Tubes, a second-tier flat panel maker, said it was aiming to buy about 30 per cent of Xiamen Overseas Electronic Company, a Chinese TV maker, to target the Chinese domestic market.

“China is a good channel for the Taiwanese because the Chinese market is seen as having less rigid quality requirements than Japan, and it will see rapid growth with the expansion of digital TV ahead of the Beijing Olympics in 2008 and the Shanghai Expo in 2010,” says Mr Chen.

Meanwhile, Hannstar, Taiwan’s financially weakest LCD maker, is trying to build a new channel for its panels by creating its own TV brand.

And Toppoly, a specialist maker of low temperature polysilicon displays used in mobile phones, has said it would merge with Philips’ mobile display operations and give up large-size panel production altogether.

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