AU Optronics to buy stake in Toppan

AU Optronics Corp (友達光電) announced yesterday that it would buy a 39.7 percent stake in Toppan CFI (Taiwan) from Japan's Toppan Printing Co, an investment enabling the world's third-largest liquid-crystal display (LCD) maker to secure its supply of color filters and key technology.

AU Optronics will pay NT$6.1 billion (US$185.9 million) to acquire more than 609.88 million shares in Toppan CFI (Taiwan) as the second-largest shareholder, Chen Hsuan-bin (陳炫彬), president of AU Optronics, said in a teleconference yesterday. The purchase will be completed by the end of the month, he added.

Founded in 1900 in Japan, Toppan Printing is the world's No.1 color filter supplier. It extended its business in Taiwan in 2001 by establishing Toppan CFI (Taiwan) in the Tainan Technology Industrial Park (台南科技工業區).

Through this new investment, Hsinchu-based AU Optronics can ensure its supply of color filters for the fifth-generation (5G) and 3.5G fabs of Quanta Display Inc (廣輝電子) that it acquired in April, Chen said. It would cost AU Optronics at least NT$10 billion to build one color-filter plant for the panel manufacturing subsidiary, he said.

AU Optronics' in-house filter plants, its venture Cando Corp (達虹科技) and Toppan will supply 90 percent of the company's demand for color filters in the next three to six months, Chen said.

Under the terms of the deal, AU Optronics will take two seats on the board of Toppan CFI (Taiwan) and has the power to appoint the company's chief financial officer, Chen said.

"It seems like a good deal [for AU Optronics]," said Helen Huang (黃玉惠), executive director of Goldman Sachs' Asia-Pacific Investment Research.

Color filter makers such as Sintek Photronic Corp (和鑫光電) and Allied Material Technology Corp (展茂光電) have rapidly raised their capacities due to a supply shortage three years ago.

To secure their supplies and save costs, panel makers such as AU Optronics and smaller rival Chi Mei Optoelectronics Corp (奇美電子) built their own in-house filter plants, which resulted in a supply glut -- an advantage AU Optronics has when negotiating with Toppan regarding the stake purchase, Huang said.

Color filters account for about 26 percent of panel-making costs.

The partnership will also benefit AU Optronics' 7.5G fab, which requires higher technology, Huang said.

Chen Chih-hao (陳志豪), an analyst at Capital Securities Corp (群益證券), said that the agreement could indicate AU Optronics may have encountered problems with the 7.5G fab and needs know-how or a patent from Toppan to solve it.

Hsiao Ya-wen (蕭雅文), an AU Optronics spokeswoman, downplayed the significance of the investment on its 7.5G fab.

According to a company statement, the panel maker called the investment a "strategic alliance" that ensures a wide range of collaboration in color filter supply and business operation as well as technology.

Chen also said in the teleconference that AU Optronics may increase its holding in Toppan CFI (Taiwan) to 49 percent.

Shares of AU Optronics advanced NT$0.45 to close at NT$48.75 on the Taiwan Stock Exchange yesterday. The company made the investment announcement after the market closed.