The Ministry of Economic Affairs yesterday approved AU Optronics Corp’s (AUO, 友達光電) application to purchase a stake in a Chinese peer for US$796 million, establishing a precedent for cross-strait LCD panel joint ventures.
The move, which allows the nation’s second-largest LCD panel maker to purchase a 49 percent stake in Longfei Optoelectronics Co’s (龍飛光電) 8.5th generation (8.5G) fab, is expected to give AUO an advantage in tapping into the growing Chinese appetite for LCD TVs.
Fan Liang-tung (范良棟), executive secretary of the Investment Commission, told reporters that the AUO application was approved because it was a “mature” case and adhered to the government’s regulations.
In March, the ministry relaxed bans on local LCD makers’ investments in China by allowing them to buy stakes in or merge with their Chinese peers, as well as scrapping a restriction that -their Chinese fabs must be one generation behind those of Taiwan as long as Taiwanese facilities have started mass production.
The lifting of these rules in March came in the wake of the ministry’s approval in December last year of AUO’s planned US$3 billion investment in building a 7.5G fab in Kunshan, Jiangsu Province.
However, go-ahead from the ministry was continually delayed and caused AUO to miss out on three licenses issued by China to set up advanced fabs.
The easiest way out for AUO was then to obtain a stake in Longfei’s 8.5G fab in Kunshan.
Taiwan has been under mounting pressure to maintain the global competitiveness of its LCD industry.
A looming threat is South Korean competitors, with Samsung Electronics Co and LG Display Co two of the firms that won licenses from the Chinese government China for advanced fabs.
As many as 45 million LCD TVs were sold in China last year and sales are projected to top 60 million this year — a promising figure compared to sales in the US and Europe, which are still recovering from the financial crisis, Vice Minister of Economic Affairs Hwang Jung-chiou (黃重球) said in March when the ban was lifted.
However, recent market concerns over weak end demand from consumers and continued inventory adjustments by TV vendors have put pressure on AUO and other LCD makers, causing the company’s shares to fall 33.33 percent this year, compared with a decline of 3.92 percent on the Taiwan Stock Exchange.
Shares in AUO rose 1.51 percent to NT$20.20 before the Investment Commission’s announcement, but BNP Paribas yesterday slashed the target price for AUO from NT$19 to NT$16, citing weaker-than-expected LCD TV demand, especially from Europe in the second half of the year, the brokerage said in a note.