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Chi Mei allowed to take over plant in China

"Labor costs are relatively low there. Besides, we will be able to source cheaper components such as backlights there."

Eddie Chen, spokesman for Chi Mei Optoelectronics Corp

Chi Mei Optoelectronics Corp (奇美電子), the nation's second-biggest maker of liquid-crystal-display (LCD) panels for televisions and computer monitors, yesterday gained the government's approval to fully own an LCD assembly plant in southern China.

The Tainan-based company is the latest local enterprise to pursue cost-saving factories in China.

"We are anticipating a further upside [in terms of costs] ... Labor costs are relatively low there. Besides, we will be able to source cheaper components such as back lights there," company spokesman Eddie Chen (陳彥松) said in a phone interview yesterday.

His comments came after the Ministry of Economic Affairs' watchdog for Chinese investment the Investment Commission yesterday approved Chi Mei Optoelectronics' proposal to invest an additional US$30 million in Ningbo Chi Mei Optoelectronics Ltd (寧波奇美電子) via a third venue.

Chen said the improvement in the cost structure is expected to be reflected on the company's bottom line in the second half of the year at the earliest after the monthly output of the factory is ramped up to 1.35 million units.

Stringent cost control is seen as one of the most useful tools to improve profitability for makers of LCD panels.

Chi Mei Optoelectronics earns almost half of its revenues from making LCD TV panels, which have contributed to the company's strong profitability in the previous quarter. Chi Mei Optoelectronics outpaced all competitors, including the world's biggest player, LG Philips LCD Co of South Korea, in terms of gross margin in the previous quarter.

The US$30 million investment will give Chi Mei Optoelectronics full control of the LCD module factory in Ningbo, Zhejiang Province, Chen said.

The company has already spent US$60 million on acquiring a major stake in the Ningbo factory as well as equipment, Chen said.

Chi Mei Optoelectronics told investors early last month that it would trim costs by a further 3 percent in the current quarter from the final quarter of last year.

The company said it planned to spend US$270 million on new equipment for the Ningbo factory in the initial phase. That would be a small part of the company's estimated capital spending of NT$100 billion (US$3.86 billion) this year.

The firm gained NT$60 billion in syndicated loans from 18 banks early this month, mostly for building a next-generation plant for making 40-inch LCD TV panels.
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