Viability of Hon Hai's plan in question

Hon Hai Precision Industries Co (鴻海精密), the nation's largest high-tech products manufacturer, said yesterday it would enter the US$24 billion TFT-LCD industry by the end of this year by building a fifth-generation manufacturing plant.

Analysts questioned the move, saying the new facility would begin mass production during a time when there will be an LCD glut.

Officials from Hon Hai and the Hsinchu Science-based Industrial Park (新竹科學園區) said the company will start construction on the plant in the fourth quarter. The plant will take about 18 months to complete.

Although the company declined to state the size of the investment, such plants cost up to NT$40 billion to complete, while only half that amount is needed for the initial building phase.

Hon Hai has refused to comment on how much it plans to invest, but company chairman Terry Kuo (郭台銘) said last month at an investors conference that Hon Hai would invest up to NT$30 billion this year on a new R&D center, in addition to funding other projects.

Analysts panned the idea of Hon Hai entering the TFT-LCD market, saying the new plant would add to an oversupply next year. They also said that raising funds would become increasingly difficult in light of an anticipated oversupply.

"About the time that they become operational, the market will be very competitive. Many of their competitors will already be running at full capacity by that time," said Debbie Wu, LCD industry analyst at Yuanta Core Pacific Securities Co (元大京華證券) in Taipei.

South Korea's top TFT-LCD makers, Samsung Electronics and LG.Philips, have already finished construction of their fifth-generation plants, which yield up to 15 standard-sized computer screens from a single sheet of glass.

Current plants yield only six per sheet.

Five local companies have already announced plans to build new TFT-LCD plants, with the total amount of investment forecast at NT$170 billion over the next 18 months, according to Sean Wu (吳翔) an analyst at the Market Intelligence Center.

AU Optronics Corp (友達光電), Chi Mei Optoelectronics (奇美光電) and HannStar Display Corp (瀚宇彩晶), have already put their financing plans in motion, which will make it difficult for Hon Hai to find generate capital for its project. The amount of funds investors are willing to risk on new projects has fallen as the prospects for a recovery in the high-tech sector have declined this year.

Hon Hai's stock fell to NT$4.5 per share on the TAIEX yesterday, ending at NT$133 per share.

Hon Hai may want to build the new plant to support its move into the notebook and desktop PC sector, Wu said.