Aug. 27 (Bloomberg) -- Innolux Corp., the screen maker that analysts estimate will return to profit after four years of losses, said it expects rising capacity from Chinese manufacturers will lead to consolidation.
“When there’s tough competition it means some won’t survive and through that, production capacity could become available,” President Jyh Chau Wang said in an interview yesterday at the company’s headquarters in northern Taiwan’s Miaoli county. “What you see as danger is actually an opportunity.”
Chinese panel makers such as BOE Technology Group Co. and TCL Corp.’s Shenzhen China Star Optoelectronics Technology Co. are challenging market share leaders in Taiwan and South Korea with plans to ramp up production. Beijing-based BOE last month said it would sell as much as 46 billion yuan ($7.5 billion) in shares to finance expansion of plants making displays with low energy consumption and high definition capabilities.
Between six and eight new plants in China will start producing panels in the next two years for screen sizes between 40 and 55 inches (102 to 140 centimeters), market research firm TrendForce wrote in an Aug. 22 report.
Innolux rose 0.3 percent to close at NT$14.75 at 1:30 p.m. in Taipei trading. The stock has dropped 5.5 percent this year, trailing the 1.6 percent gain in the benchmark Taiex index.
“In large panels, the Chinese producers are coming in, making prices weaker,” said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein & Co. with an underperform rating on Innolux. “Prices weakened in the past six months and I expect them to weaken further.”
Global display panel shipments are projected to fall 7.4 percent from a year ago to 698 million units this year, Santa Clara, California-based DisplaySearch said Aug. 21. Innolux customers stocked up on excessive inventory in the first six months of this year, Wang said.
“There is a need for consolidation or strategic alliance in some ways in the panel industry, probably on a global or cross-border level,” Jack Huang, a Taipei-based partner at law firm Jones Day, said. “And the pressure for movement in that direction is mounting.”
Partnership talks with Chinese companies have stalled because of curbs by Taiwan’s government, Wang said. Taiwan restricts Chinese investment in certain industries, such as display panels and semiconductors on concern China’s companies may obtain strategic technologies. President Ma Ying-jeou’s administration has signaled intentions to ease some restrictions, the Taipei-based Economic Daily News reported in September.
“China has money and Taiwan has technology, so there are plenty of cooperation opportunities,” said Wang, without identifying companies Innolux may seek partnerships with.
Shenzhen China Star Optoelectronics Technology bought a Shenzhen facility for $17.7 million and 334.5 million yuan from Chunghwa Picture Tubes Ltd., the seller said in a statement to Taiwan’s stock exchange in March.
Innolux is projected to report net income of NT$14.8 billion this year, according to the average of 22 estimates in a Bloomberg survey, compared with a NT$29.2 billion loss last year. The company is looking to screens for smartphones and tablets to help it return to profitability.
The company’s capital expenditure will be between NT$20 billion ($667 million) and NT$30 billion in 2014, compared with a projected NT$20 billion this year. Most of the spending will be on expanding existing plants, according to Wang.
Peter Liao, a Taipei-based analyst at Nomura International, who has a buy rating on the shares, said the company’s focus on premium TV panel products, including higher-resolution technology, has improved its product mix. “If this strategy works, this is going to differentiate them from the China panel makers,” he said.
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