Shortages could kill flat-panel boom

The biggest challenge facing the nation's flat-panel manufacturers is the availability of key components, and not merely the delayed output of fifth generation (5G) factories, analysts and industry leaders said.

"The shortage of color filters and substrate glass will be severe next year. But the fist-tier panel makers such as AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) will be affected slightly, as they are the top priorities of the suppliers," Sean Wu (吳翔), an industry analyst with ABN-AMRO Securities, told the Taipei Times yesterday.

Color filters and substrate glasses account for roughly 40 percent of panel-making costs, Wu said.

Second-tier companies including Chunghwa Picture Tubes Ltd (中華映管), HanStar Display Corp (瀚宇彩晶) and Quanta Display Inc (廣輝電子) may have to form alliances with key suppliers to ensure future supplies, he added.

At an investor conference held late last month, AU chairman Lee Kun-yao (李焜耀) said it will be a challenge for local liquid-crystal display (LCD) panel makers to maintain supplies of key components, particularly color filters, despite the optimism about the forecast boom in demand for flat panels next year.

The shortage of color filters has been endemic for two to three years, mainly because the capacity for expansion of color-filter manu-facturers has lagged behind LCD panel makers' pace in building factories, AU vice president Lu Po-yen (盧博彥) told investors.

Echoing Lee's concerns, Chi Mei president Ho chao-yang (何昭陽) said last week that "Chi Mei's panel shipments will be capped by smaller supplies of certain key components."

Chi Mei is more concerned about the supply of substrate glass as the company has an advantage in that area by owning two in-house color-filter plants, compared with most panel manufacturers' worry about shortage of color filters.

The component shortage is expected to be tempered after the second quarter next year due to slow panel demand and increasing supply, Wu said.

AU's fifth-generation color filter plant started operation in October, but will begin massive production next year, while Chi Mei's 5.5G filter plant is scheduled to start massive production in mid-2004, Wu added.

To ensure the stable supply of color filters, several flat-panel makers have aggressively built their own component plants or engaged in partnership with upstream suppliers. One of the latest team-ups occurred with BenQ Corp's (明基電通) decision on Friday to buy a 28-percent stake in a Hsinchu-based color filter company, Cando Corp (劍度). BenQ holds a 14.8-percent stake in AU, and Lee also serves as AU chairman.

In a statement filed with the Taiwan Stock Exchange Corp on Friday, Cando said it signed a memorandum of understanding with two venture capital firms associated with BenQ.

Under the proposed deal, Cando will sell 100 million new shares at NT$5 each, which is about a 50 percent discount of its closing price of NT$10.49 Friday. The company said the proceeds will be spent on improving its financial situation and on building a next-generation plant.

Rival Chi Mei did not expect the partnership would greatly boost AU's supplies of color filters.

"Cando, one of AU's important color filter suppliers, has been suffering financial problems since last year. AU will not risk the loss of a main supplier by letting the company collapse," Chi Mei finance manager Eddie Chen (陳彥松) said yesterday.