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Chunghwa Picture Tubes forms an alliance with Haier

Chunghwa Picture Tubes Ltd (中華映管), Taiwan's third-largest flat-panel display maker, hopes to start building a new factory together with China's No. 1 home-appliance maker, Haier Group (海爾), at the end of the year, a Chunghwa Picture executive said yesterday.

The venture, an assembling factory located in Qingdao, of eastern China, will be focusing on plasma-display panel (PDP) manufacturing and is expected to begin commercial operation in mid-2004, said James Wu (吳俊毅), chief financial officer of Chunghwa Picture.

Taiwan last year replaced Japan to become the main supplier of Haier, accounting for 30 percent to 40 percent of Haier's orders, a Chinese-language newspaper reported yesterday.

Haier chief executive officer Zhang Ruimin (張瑞敏) arrived in Taiwan yesterday and is scheduled to meet with officials from a number of Taiwanese information technology and communications companies, including Chunghwa Picture, according to Wu.

Chunghwa Picture is expected to own a stake of around 40 percent in the 10 million yuan (NT$41.2 million) joint venture, while Haier would take the helm with a controlling 60 percent share.

"Haier will have the rights to manage the factory, while we will specialize in supplying plasma screens," Wu said.

The move is one of Chunghwa Picture's strategies to enter the emerging digital-TV market in China.

"Flat-screen TV can be a very profitable sector in China," Wu said.

As the Chinese government intends to start broadcasting digital TV signals in time for the 2008 Beijing Olympics, the Chinese demand for flat-panel TVs is expected to rise beginning 2005, he explained.

One industry analyst said the proposed alliance is favorable for Chunghwa Picture.

"The partnership strengthens Chunghwa Picture's relationship with its clients and therefore ensures that its panels have somewhere to go," said Eric Twu (涂紀華), an IT industry analyst at SinoPac Securities Corp (建華證券) in Taipei.

Apart from Haier, most of Chunghwa's current clients are second-tier players and can place only limited orders, he added.

In addition, Haier is less likely to cooperate with other major Taiwanese panel producers such as AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子), because these two market leaders have close ties with their flat-panel TV subsidiaries, Twu explained.

As consumers have gradually switched to flat panels instead of cathode-ray tubes, Chunghwa Picture decided to write off NT$600 million invested in older factories that make glass tube-based monitors in both Taiwan and the UK.

"Considering the write-offs, we may post a third-quarter loss," Wu said.

But the company plans to establish another plasma screen production line using the old factories.

"We plan to invest up to NT$10 billion to set up our second [plasma panel] production line at the end of the year," Wu said.

The expansion would boost Chunghwa Picture's 42-inch plasma panel production volume from current 7,000 sheets per month to 60,000, he said.

Shares of Chunghwa Picture dropped NT$0.4, or 2.2 percent, to close at NT$16.8 on the TAIEX yesterday.
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