Quanta Display (the fifth largest of Taiwan’s "Five Tigers" based on 2005 dollar sales) will merge with AUO (the island’s largest). The boards of directors of both LCD-manufacturing companies approved the merger this afternoon. The companies are to be consolidated on October 1.

Ken Werner
Senior Analyst and Editor
of MDTV Retailer

Although consolidation has been in the wind that blows over the Taiwanese LCD industry, this announcement came as a surprise because the most persistent rumors focused on a Quanta-CPT relationship. That would have coupled the island’s third- and fifth-largest players into an entity that would probably have been large enough and strong enough to weather hard times — and to obtain the capital needed to benefit fully from the good times.

But the merger of AUO (with 2005 sales of NT$217B) and Quanta Display (NT$62B) creates a really big tiger, one with sales almost 75% larger than Chi Mei Optoelectronics, its nearest rival. Perhaps of more interest to AUO’s management, though, is that the combined company’s manufacturing capacity (in terms of display area) will reach 19% of the world market. That compares to a little more than 14% in 2005, and is within shooting distance of LG.Philips LCD’s 22% and Samsung’s 21.3%. That means these three will control nearly two-thirds of the LCD market.

Although sheer size is an important consideration, the fit between the two companies is a good one. AUO is very strong in monitor panels and is increasing the TV-panel percentage of its output. Quanta is very strong in laptop panels, and has become an important supplier of 32-inch TV panels. Having this mix of LCD products may be the biggest reason for the merger as this allows the combined company to profit even if one of these segments is lagging — and it provides more flexibility for reallocating production to optimize profits.

Together, the companies have four Gen 5 fabs, two Gen 6 fabs, and one Gen 7 fab, as well as four Gen 4 and Gen 3.5 fabs. According to AUO, that would give the combined company the largest Gen 5 and Gen 6 capacity in the world. The combined company plans to make 10.5M TV panels this year, which would make it the largest maker of TV panels in Taiwan.

AUO’s and Quanta’s merger dramatically changes the LCD landscape in Taiwan, which now has one really big tiger and five cats (Chi Mei, CPT, Hannstar, Innolux, and Toppoly) of varying size and ferocity. And the combined company is formidable enough to keep Samsung and LG.Philips LCD looking over their corporate shoulders. This tiger is gaining on them.