Posted : 2009-02-22 14:32
Updated : 2009-02-22 14:32

LCD Makers to Benefit From Taiwan Consolidation

By Kim Yoo-chul
Staff Reporter

Along with the memory chip sector, the global flat-screen panel industry is facing a major consolidation, with Taiwan's leading LCD panel makers engaging in detailed M&A talks to increase profitability.

Analysts and industry watchers say such moves, if realized, will help Korean LCD panel duo Samsung Electronics and LG Display raise their global market share.

"Chi Mei Optoelectronics (CMO) and AU Optronics (AUO) have restarted the merger talks to get through the economic downturn," an industry official told The Korea Times Sunday.

"Still, executives at CMO and AUO are talking to government officials to discuss government assistance and industry consolidation to ride out the current downturn amid mounting losses," according to the official, who didn't elaborate further.

Spokesmen for Samsung Electronics and LG Display declined to comment.

CMO is the world's fourth-largest flat-panel maker by revenue and Taiwan's second-largest after AUO.

In December, the Taiwanese government said it would welcome a consolidation of the island's flat-panel makers as a way to help unprofitable companies in the beleaguered sector suffering from massive losses.

According to market research firm DisplaySearch, the global shares of AUO and CMO in the fourth quarter of last year were 12.8 percent and 11.4 percent, respectively.

Industry leader Samsung Electronics captured 29.1 percent in LCD panels, followed by LG Display, with 24.7 percent.

"Prices of LCD panels have been showing a slight turnaround since January. But that doesn't necessarily mean struggling Taiwanese LCD makers will go to the black due to weaker client channels," another industry source said.

"Massive operating losses are expected for them in the first quarter. A large scale is pretty important for LCDs. Different corporate culture and management strategies are minor issues. Survival is more important," the source said, adding that the South Korean players raised their market share during the fourth quarter, while Taiwanese makers lost some 4 percentage points.

During the fourth quarter, AUO posted a record drop in quarterly sales, falling 42.6 percent to $1.8 billion.

Meanwhile, the two Taiwan companies put workers on unpaid leave from the end of last year, as they idled production facilities due to deteriorating global demand.

The possible industry consolidation is forecast to lift Samsung and LG Display.

Unlike cash-burning Taiwanese players, LG Display is holding 3.42 trillion won in internal reserves, meaning the company is ready to produce more advanced panels.

A Samsung spokesman declined to comment on the internal cash reserves of Samsung's LCD business.

LG Display CEO Kwon Young-soo earlier said it would boost utilization rates in its LCD facilities to 100 percent in March. Samsung also plans to sell 22 million LCD TVs this year ― an increase of 10 percent from 2008.

Samsung plans to slash its investment in LCDs by some 40 percent to below 2.5 trillion won over 2009.

Although Samsung's LCD division posted its first-ever operating loss during the fourth quarter, it still has room to offset falling profits due to strong client channels, such as Sony and Dell.

LCD panels are widely used in TVs, mobile phones and other high-end portable devices.

"If the situation gets worse for Taiwan LCD makers, the government may consider moving LCD lines in Taiwan to the mainland," Ahn Hyun-seung, an official at DisplaySearch Korea, said.
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