Hon Hai eyeing Chi Mei unit

Hon Hai Group (鴻海集團) yesterday confirmed that it is in active talks with Chi Mei Communication Systems Inc (奇美通訊) to acquire the Chi Mei Group's handset manufacturing unit, which could help push Hon Hai closer to its goal of being the world's largest contract handset maker.

"We do have a very high interest in [acquiring Chi Mei Communication] ? and we are in talks with them right now," said Edmund Ding (丁祈安), spokesman of Hon Hai Precision Industries Co (鴻海精密), the world's leading electronics manufacture service provider.

Hon Hai hopes to seal the deal by the end of the current quarter, as the handset maker's design ability and customer mix make it an ideal merger target, Ding said in a phone interview yesterday.

He, however, shied away from elaborating on the terms of the proposed deal.

Chi Mei yesterday also confirmed the talks with Hon Hai.

But Jack Lin (林榮俊), a vice president with Chi Mei Optoelectronics (奇美電子), Taiwan's second largest liquid-crystal-display panel maker, said the group is also in talks with other interested parties for the moment.

"We prefer a candidate that can promise to keep our handset-design group intact after the takeover," said Lin, who declined to give further details.

Foxconn International Holdings (富士康), a handset-making subsidiary of Hon Hai, plans to wholly acquire Chi Mei Communication for NT$4.5 billion, according to a Chinese-language business daily.

Chi Mei Communication, with paid-in capital of NT$1.5 billion, was established in 2001, mainly to produce high-end handsets and smart phones for Motorola Inc. Motorola accounts for up to 80 percent of the contract maker's annual shipment of over 2 million units.

"Hon Hai is expected to benefit from the merger deal in strengthening its design capability as well as technology to produce high-end smart phones," said an analyst at UBS Securities Ltd's Taiwan Branch, who spoke on condition of anonymity.

Although many competitors, including Lite-On Technology Corp (光寶科技), have sought to partner with Chi Mei Communication, the odds of Hon Hai striking the deal are very positive, the analyst said.

Foxconn is expected to ship over 25 million handsets to its two major clients Motorola and Nokia Oyj this year. The company, which debuted on Hong Kong's bourse earlier this month, aims to challenge the Singapore-based Flextronics International to be the world's No. 1 handset maker, the company's president Tai Feng-shu (戴豐樹) said earlier this month.

Shares of Foxconn were boosted by the news of M&A talks, while shares of Compal Communication Inc (華寶通訊), another firm seen as potentially threatened by the M&A activity according to analysts, came under pressure.

Foxconn's shares soared by 3.8 percent to HK$4.1 yesterday, while Compal Communication fell 0.81 percent to NT$62.5.