Thu, Sep 22, 2005 - Page 10 News List

Panel makers may merge


Taiwan's second-tier flat panel manufacturers are under intensifying pressure to speed up consolidation, as their deteriorating financial status will make it difficult to weather the next downturn in the sector, industry watchers said.

During the last downturn -- lasting almost a year -- Taiwanese liquid-crystal-display (LCD) panel makers reported massive multi-billion dollar losses, as prices collapsed a on supply glut.

Although the industry is on track for a gradual recovery, local players have apparently regained their interest in joining with their peers in an effort to survive in the volatile industry during the next downturn.

"Mounting financial pressure is forcing Taiwan's LCD panel makers to seriously think about mergers," said Wanli Wang (王萬里), an analyst with Credit Suisse First Boston (CSFB) in Taipei.

Due to weak cash flow to pay for important capital investment, S&P lowered its rating from stable to negative on industry laggard HannStar Display Corp (瀚宇彩晶) last month.

His remarks came after merger talks between Chunghwa Picture Tubes Ltd (中華映管) and Quanta Display Inc (廣輝電子) grabbed the attention of the industry and rekindled a discussion about consolidation in Taiwan's LCD industry.

Chunghwa Picture and Quanta Display posted losses totaling NT$15.79 billion in the first half of the year. Quanta Display was battered hardest among its peers during the previous downturn.

Industry leader AU Optronics Corp (友達光電) started to eke out profits in the second quarter, when the industry hit the bottom. But, second-tier local competitors did not have such luck.

Such firms may not be out of the woods until the final quarter of the year, during which the volatile industry may peak, according to most analysts' forecasts.

Market researcher DisplaySearch projected that panel supplies would exceed demand by as much as 9 percent in the first quarter of 2006, as new production ramps -- an early sign of a new downcycle.

In the past, Taiwan's LCD-screen makers only flirted with the idea of consolidation, as they banked on booming LCD-TV sales to make big money, despite poor profitability.

"But, now, it is a matter of survival," CSFB's Wang said. He expected mergers to occur in the next one to two quarters.

The dismal outlook and poor profitability are becoming a real worry for lenders, as Taiwan's small flat-screen makers are facing increasing difficulties in raising capital for capacity expansion, said Roger Yu (游智超), an analyst with Polaris Securities Co (寶來證券).

Instead of seeking financial support from banks last year, Taiwan's panel makers turned to issuing corporate bonds to raise funds this year.

But, Chunghwa Picture pulled back planned NT$6 billion domestic and US$200 million overseas bond sales yesterday, citing weak stock prices. HannStar also canceled a NT$6 billion bond issuance earlier this month.

"Now is the proper time to push for mergers. But it would be difficult to see any deals soon, due to limited synergy," Yu said.

But the government is calling aggressively for mergers among local players, and suggested jointly building next-generation plants in a bid to boost competitiveness and avoid excessive investment amid ever-changing industrial sentiment.

The government's suggestions were well received. Chi Mei Optoelectronics Corp (奇美電子), Taiwan's No.2 LCD panel supplier, yesterday also said it would offer its opinion about the industry's consolidation to the government.

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