AUO mulling chemical venture

AU Optronics Corp (友達光電), the world's No.3 liquid-crystal-display (LCD) panel maker, yesterday said it was assessing the possibility of forming an electronics chemical manufacturing joint venture with Eternal Chemical Co (長興化工).

The move represented the latest step by AU Optronics to improve cost structures by extending as far as it could into raw materials used in making an LCD panel in a bid to compete with its South Korean rivals, an analyst said.

"We are still in the stage of evaluating the strategic alliance with Eternal Chemical. We haven't yet put the plan to the board for a final decision," AU Optronics said in a statement filed with the Taiwan Stock Exchange yesterday.

AU Optronics, which has outpaced most of its competitors in generating profits from every dollar it borrowed over the past two quarters, receives key components including chips, polarizers and lamps from its affiliates.

Shares in AU Optronics have dropped 0.8 percent to NT$49 since the beginning of the year on falling panel prices, while Eternal Chemical shares have more than doubled to yesterday's closing price of NT$56.5 on the Taiwan Stock Exchange.

"As panel prices are on the downswing long-term, panel makers can only increase profits by cutting costs," said David Chen (陳賜賢), a senior analyst with the semi-official Market Intelligence Center (市場情報中心) in Taipei.

The strategic alliance with Eternal Chemical would help AU Optronics lower costs further and thereby help it gain a better foothold in the slim-screen television market as the bigger LCD panel size becomes, the bigger component costs matter, Chen said.

The alliance would help AU Optronics catch up with local rival Chi Mei Optoelectronics Corp (奇美電子), which has the support of parent company Chi Mei Corp (奇美實業), in expanding into chemicals, he said.

On Thursday, Kaohsiung-based Eternal said that the board gave the go-ahead to the setting up of a joint venture with AU Optronics to make liquid chemicals used in LCD panels.

"The two sides are bullish about the prospects of liquid chemicals for LCD panels and believe the investment proposal will benefit both companies in the long term," Eternal Chemical said in a filing to the Taiwan Stock Exchange.

Eternal Chemical spokesman Lu Yaw-nan (盧耀男) declined to comment in a phone interview yesterday on reports that the new company would have NT$400 million (US$12.44 million) in capital.

Lu also kept quiet about which specific chemicals the two companies were interested in working together on.

He only said the company was in initial talks with AU Optronics about the possible tie-up.