Chi Mei to purchase China plant in bid to further cut costs

The board of Taiwan's No.2 flat panel maker Chi Mei Optoelec-tronics Corp (奇美電子) yesterday gave the go-ahead to purchase a Chinese liquid-crystal-display (LCD) screen module plant as part of the firm's efforts to further cut costs.

Chi Mei Optoelectronics said it will invest US$30 million in the Ningbo-based Chi Mei Optoelectronics (Ningbo) (寧波奇美電子), previously known as Westinghouse Digital Electronics (寧波華屋), the company said in a statement filed to the Taiwan Stock Exchange yesterday.

Chi Mei Optoelectronics has subcontracted the assembly of LCD screen modules to the Chinese company.

"The investment will boost our cost efficiency in the long run. We expect the effect to surface in the second quarter of next year," said Eddie Chen (陳彥松), chief financial executive of Chi Mei Optoelectronics, in a phone interview with the Taipei Times.

Chi Mei Optoelectronics, which has a 20-percent share of the world's LCD-TV panel market, supplies screens mostly to Japanese TV vendors.

LCD panel makers are trying every effort including building labor-intensive module assembly plants in China to cut costs and maintain profitability in the face of price erosion and stiff competition.

Chi Mei Optoelectronics is the only firm among the nation's five major slim-screen makers -- which also include AU Optronics Corp (友達光電) and Chunghwa Picture Tubes Ltd (中華映管) -- without a plant in China.

With the latest Chinese investment, Chi Mei Optoelectronics will get a 50-percent controlling stake in Chi Mei Optoelectronics (Ningbo) after recapitalization is complete.

Chi Mei Optoelectronics said it planned to acquire a bigger stake in the company next year.

The Chinese LCD module assembly plant will expand its capital to US$54 million from the current US$24 million, after selling new shares worth US$30 million to Chi Mei Optoelectronics, according to the company's statement.

"We will speed up our `go West' policy as we have deeply felt the adverse impact of having no assembly lines in China on our competitiveness. That will help us save more costs," Chi Mei Optoelectronics president Ho Jau-yang (何昭陽) told investors last week.

Chi Mei Optoelectronics aims to lower costs by 5 percent this quarter from the third quarter, Ho said.

"The Chinese investment will give Chi Mei Optoelectronics greater flexibility in cost reduction," said Ben Lee (李柏彥), an analyst with Nomura Securities Co Ltd in Taipei.

China-based assembly factories save local flat-panel makers US$1 to US$2 per panel, according to Ken Yu (余文耀), an analyst with SinoPac Securities Corp (建華證券).