Ministry finally gives AU Optronics’ 7.5-generation China fab green light

By Jason Tan and Lisa Wang  /  Staff reporters

Sat, Dec 18, 2010 - Page 1

The Ministry of Economic Affairs’ (MOEA) Investment Commission yesterday finally gave AU Optronics Corp’s (AUO, 友達光電) planned US$3 billion investment to set up a 7.5-generation fab in Kunshan, China, the green light.

The plant would be able to start mass production as soon as 2012, the ministry said.

AUO, the nation’s second-largest LCD panel maker, filed its investment application to the commission in March, one month after the government relaxed the regulations to allow panel and semiconductor firms to expand investment activities in China on certain conditions.

The Investment Commission had asked AUO to supply extra information before finally approving the case yesterday.

“The major concern earlier was that AUO wasn’t consistent in its commitment to Taiwanese investment,” Vice Minister of Economic Affairs Hwang Jung-chiou (黃重球) said yesterday.

Because of the delay to the development of the fourth phase of Central Taiwan Science Park, which sparked environmental controversy in January, AUO had adjusted its domestic investments in such a way that they failed to satisfy the government.

The ministry requested that the company resubmit its investment details to ensure it would invest more in Taiwan and not lay off any staff, as well as retain more advanced technologies at home — prerequisites for Taiwanese LCD makers to set up advanced fabs across the Taiwan Strait.

Hwang said AUO had renewed its commitments, saying it would invest NT$400 billion (US$13.4 billion) to build two 11-generation fabs and two solar-battery production plants in Taiwan by 2022.

It also pledged to invest another NT$150 billion in other projects, including expansion of its current 8.5-generation fab located in Taichung. These projects would help create 5,000 new jobs over the next 10 years, the ministry said.

The government’s approval came amid mounting pressure that Taiwanese LCD makers may lose out to their South Korean rivals — especially Samsung Electronics Co and LG Display Co — in the rush to set up advanced plants in China to produce panels for the Chinese market, which is expected to overtake North America and become the world’s biggest LCD TV market next year.

Samsung and LG received permission from their government a year ago to set up factories in China. Samsung’s plant will use 7.5-generation technology, while LG plans to build an 8-generation facility.

Samsung and LG, the world’s two largest LCD makers, said on Dec. 2 they had received approval from Beijing to build factories in Suzhou and Guangzhou, allowing them to be closer to TV and computer assemblers and enabling them to cut costs.

AUO yesterday said it was glad to receive the government’s go-ahead to build its first production lines in China, but further relaxation on technology and capital investment would be pivotal to build a strong foothold in the world’s fast-growing TV market.

In order to get more leeway to catch up with its rivals, in particular South Korean firms, AUO said it hoped the government would allow local firms to make LCD panels in China using technology as advanced as that used in Taiwanese factories, a company statement released yesterday said.

The company also called on the government to allow local firms to manage Chinese operations via merger and acquisitions (M&A). The government currently restricts local LCD panel makers from forming joint ventures in China with Chinese companies for fear of losing Taiwan’s key technologies to China.

Because of the government’s restrictions on technology use and M&A investments in China, Chimei Innolux Corp (奇美電子), the nation’s top LCD panel maker, has yet to apply to the government with an investment plan in China. Instead, the company has been striving to ramp up a 8.5-generation plant in Kao-hsiung to meet the government’s “mass production” requirement, a company official said.

“Chimei Innolux has no timetable to file an application,” company spokesman Eddie Chen (陳彥松) said by telephone.

The company’s priority is to boost monthly production from the Kaohsiung plant to as many as 60,000 units next year, from 20,000 units this year, he said.

Meanwhile, the ministry is mulling allowing Chinese home electronics makers to invest in Taiwanese panel makers.

“The move is still in its conceptualization stage,” Hwang said yesterday, adding that Chinese panel makers are definitely ruled out on concerns of technology competition, but the allowing Chinese home electronics makers to invest in Taiwanese firms could help the latter secure steady orders and engage more in the TV branding business so that they are able to compete with their South Korean and Japanese peers.

“Taiwanese companies face a dilemma when expanding in China,” said Locke Chang (張小彪), an analyst with WitsView research team at Taipei-based research firm TrendForce Corp (集邦科技).

“Growth potential in China is too big for local firms to ignore and there is the issue of possible new import tariffs on semi--finished LCD TV panels, but capacity doesn’t guarantee profits,” Chang said.

Overcapacity, which has been a major cause of industry downturns in the past, will be inevitable judging by the number of new plants in the pipeline, he added.

The Chinese government plans to release five licences for panel makers to build TV panel factories.

In the long term “it is an underlying concern that Chinese panel makers, who use patents and technologies from Taiwanese firms to produce panels, could grow big enough to become a threat to Taiwanese players,” Chang said.

In related news, the Investment Commission yesterday also approved the planned sale of a stake in Kbro Co (凱擘), the nation’s largest cable TV operator, to Da-fu Media (大富媒體) for more than NT$36 billion.

Carlyle Group, the owner of Kbro, has applied to sell 80 percent of Kbro to Da-fu, which was set up by brothers Daniel Tsai (蔡明忠) and Richard Tsai (蔡明興) from one of Taiwan’s richest families.