Taiwan’s producers of liquid-crystal-displays (LCD) know that venturing into the Chinese market is risky, but they are also fully aware they have no choice, analysts said.
Even though they are major revenue earners, the island’s LCD makers got off to a late start, struggling for years to match stronger Japanese and Korean rivals, and they hope China will give them the leverage they need to catch up.
“We’re eager, if the government can give the go-ahead,” said Hsiao Ya-wen (蕭雅文) of AU Optronics (友達光電), the world’s third-biggest flat panel maker after Samsung Electronics Co and LG Philips Co.
AU Optronics currently operates two Chinese module plants — low-end facilities that do not give away much know-how — and announced in June plans for a third one in a joint venture with Sichuan Changhong Electric Co (四川長虹電器).
It could soon see its activities move to a whole new level. Economics Minister Shih Yen-hsiang (施顏祥) told parliament last week that Taiwan may relax curbs on high-tech investments in the mainland by local LCD companies.
A bigger role in China could be a huge boon for makers of LCDs — used in everything from cell phones to computers and e-books — because of the strong appetite among the mainland’s newly rich for cutting-edge electronic products.
The interest runs both ways, with AU Optronics vice president Paul Peng (彭雙浪) confirming recently that his company had received invitations from several Chinese city governments to set up plants once the high-tech curbs are eased. However, analysts also see risks that may face Taiwanese panel makers once they are permitted by the government to open up “eighth-generation” production plants in the mainland, introducing sensitive technologies.
“Chinese companies may ditch Taiwanese partners once they acquire their badly needed cutting-edge LCD know-how,” said Nancy Liu (劉美君), an analyst with Taiwan’s quasi-official Industrial Technology Research Institute (ITRI, 工研院).
Liu said the same concerns were factors for Seoul and Tokyo while considering whether to share their state-of-the-art technologies.
However, ties between Taipei and Beijing have been warming fast since President Ma Ying-jeou (馬英九) of the China-friendly Chinese Nationalist Party (KMT) was elected president last year on a promise to boost trade and allow in more Chinese tourists.
“It would be a very good opportunity for local flat panel makers,” Alex Huang (黃國偉) of Mega International Investment Services (兆豐證券) said. “It would allow them to get close to their Chinese clients in addition to reducing costs.”
AU Optronics is a prime example of how the entire industry is still burdened by having joined late.
The company started from scratch in 1996 and merged with a Taiwanese company in 2001 and another one in 2006, fast becoming the leading flat panel maker here. But it faces intense competition from abroad.
“The huge number of patent rights owned by the Japanese and Korean makers have formed high barriers for the latecomers,” said Liu of the ITRI.
They may have to pay high royalties for the patent rights owned by the industry leaders or face infringement charges, she said.
The huge demand from the Chinese market may not just help Taiwan’s LCD makers with their long-term problem of narrowing the gap with rivals, but also the more immediate issue of coping with the global crisis.
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