Chimei Innolux Corp (奇美電子), the nation’s biggest LCD panel maker, yesterday said it was evaluating the possibility of operating an LCD plant in Brazil, responding to speculation that the company would follow major shareholder Hon Hai Precision Industry Co’s (鴻海精密) decision to build a plant there.
In June, Hon Hai said it planned to invest US$12 billion on a production line in Brazil to make tablet devices over the next five years and it also planned to build a component supply chain in the Latin American nation to tap into fast-emerging markets.
“BRIC nations [Brazil, Russia, India and China] are our target markets,” Hon Hai chairman Terry Gou (郭台銘) said at the time. “I believe Malaysia and Indonesia will soon join BRIC as the world’s -fastest-growing markets and will be our targets, too.”
Brazil imposes high tariffs on a wide range of goods, he said.
Hon Hai makes iPhones and iPads for Apple Inc, televisions for Sony Corp and printers for Hewlett-Packard Co.
To avoid paying high import tariffs on semi-finished electronic goods, Hon Hai will invest US$8 billion of a planned US$12 billion via Chimei in building fifth--generation or seventh-generation LCD and touch panel production lines in Brazil, the Chinese-language newspaper Commercial Times reported yesterday without giving a source.
LCD exporters could have to pay up to 40 percent of the value of their imports in import tariffs by Brazilian customs, the report said.
“We are looking at all kinds of possibilities. We have not come up with any substantial conclusions yet,” Loreta Chen (陳靜燕), an official at Chimei’s public relations department, said by telephone yesterday.
LCD TV sales in emerging markets, including India, China and Latin America, will grow at an annual compound rate of 11 percent over the next four years, while sales in developed countries will decrease 1 percent annually, market researcher DisplaySearch said last month.
As growth in developed markets such as the US and Europe stagnates, “it is good for the company to explore new markets like Brazil for growth. The Brazilian TV market is big enough to digest Chimei’s capacity,” an analyst with a Japanese brokerage said.
“Manufacturing LCDs in Brazil will help Chimei avoid import tariffs and thereby reduce its cost, and then the retail prices of end products,” the analyst said, adding that relocating existing plants would be a better option than building a new plant because most panel makers posted massive losses and generated less cash during this downturn.
Chimei lost NT$44.45 billion (US$1.47 billion) in the first three quarters of this year, reversing net profits of NT$583 million a year ago.
Roger Yu (游智超), who tracks the LCD sector for Polaris Securities (寶來證券), said it was true that reducing costs has become a priority, but added that shipping costs would likely erode the savings from import tariffs.
“It will be okay to set a production line to assemble panels there, but it make no sense to me to build a whole production line there,” Yu said.
Earlier this year, Chimei halved its capital spending to NT$50 billion for the year as prices collapsed on weak demand.
Shares in Chimei plummeted 2.66 percent yesterday, while rival AU Optronics Corp (友達光電) lost 1.41 percent. The benchmark TAIEX fell 1.82 percent.