Sintek merges with affiliate in bid to reduce costs

Sintek Photronic Corp (和鑫光電), a leading maker of color filters for flat-screen monitors, is set to merge with an affiliate through a share swap as part of a larger restructuring to cut costs, a company official said yesterday.

Sintek's move comes as the liquid-crystal-display (LCD) industry continues on a downward cycle on a decline in prices driven by oversupply. This has led some analysts to forecast consolidation in the thin-film-transistor (TFT) LCD sector.

After several months evaluation, Sintek's board yesterday passed a proposal to absorb South Sintek Photronic Corp (南鑫) to create Taiwan's No. 2 color-filter supplier after Toppan Color Filter International.

"The integration will be a boost for our cost efficiency, which is an immediate benefit for us," Sintek chairman Chang Si-chung (張錫強) told a press conference.

Sintek will trade one share for 1.4 South Sintek shares, as agreed to by members of both boards, Chang said.

The merger will cut costs by 10 percent, or around NT$1 billion next year, primarily because of improved bargaining power for materials such as LCD glass, a key component for most color-filter makers, Chang said.

South Sintek, 66-percent owned by Sintek before the merger, is a three-way color-filter venture with LCD screen maker HannStar Display Corp (瀚宇彩晶) and Japanese Dai Nippon Printing Co.

Apart from improved cost efficiency, Chang also expects Sintek's sales to double next year to NT$16 billion from this year on increased demand after major customers HannStar and Chunghwa Picture Tubes Ltd (中華映管) load advanced 5G facilities.

And in addition to local LCD players, Chinese TFT LCD panel latecomers SVA Co (上海廣電) and BOE Technology (京東方) will be added to Sintek's list of customers next year, Chang added.

"I'm not pessimistic about 2005. Though some TFT LCD makers are making color filters in-house, we believe the impact [on Sintek's operation] will be minor next year," he said.

Even so, Eric Lin (林宜正), an analyst with Yuanta Core Pacific Securities (元大京華證券), expressed doubts.

"The consolidation of Sintek and its affiliate is unavoidable as color-filter makers have been bearing the brunt in the recent downturn of the LCD industry. But the anticipated cost savings will be minor," he said.

More importantly, most TFT LCD makers tend to require more than 80 percent of color filters to be made in-house to manage costs over the long run, which means they are reducing outsourcing to color-filter makers, Lin said.

"Overall, I'm holding a cautious position on Sintek," Lin concluded.

Sintek shares have tumbled nearly 40 percent to NT$13.85 on the Taiwan Stock Exchange since the beginning of the year.