Supply chain
Will AUO and Innolux merge?
Alex Wolfgram, DIGITIMES, Taipei
Monday 17 March 2014

Recently, rumors have been spreading in the market that Taiwan panel makers AU Optronics (AUO) and Innolux may merge into one company to combat competition in the market. Market observers said that such a move is likely considering the rise of China's panel industry coupled with increasing competition from Japan- and Korea-based panel makers.

Sources at both companies over the last year have admitted there are increasing challenges due to China's flat panel industry growth, but have yet to specify that such growth is expected to hinder the development of Taiwan's panel industry in the future. While both companies have suffered losses in recent years, the sources said they are making advancements in niche markets with value-added products and are working more closely with supply chains to produce low-cost solutions as a means to further compete with China.

Market observers, however, still believe the road ahead will be a problem for Taiwan's panel industry. The observers believe Taiwan is caught in the middle between not having enough low-cost solutions like China panel makers and not enough technology advancements in the high-end segment like Korea- and Japan-based panel makers. More so, governments in Korea and China are increasing support either through funding, which is helping panel makers in the two places expand production capacity and improve technology. China's government may even increase panel tariffs, which could pose even more challenges for Taiwan makers.

If a merger were to occur between AUO and Innolux, it would have to be extremely tactic, with the aim of allowing the two companies to regain a competitive edge in the market rather than simply cutting down costs as a means to increase profits. If the two companies merge that means the same personnel and facilities would be part of their business, so then what makes that special in the market? This question needs to be thought of more in depth and as of now there are no reports stating the details of the merger since it is mostly speculation.

Another aspect that needs to be considered is the incentives Taiwanese get for working with local panel makers. The sources have stated over and over again they are losing their best talent to China panel makers due to higher salaries, which they believe has given China an upper hand in developing new technology. If what the sources are saying is true, then the companies need to consider the incentives given to employees in order to keep them in Taiwan or improve efforts to bring in more.

Taiwan's government is concerned about the impact of Taiwan's panel industry declining, as there are more than 200,000 workers associated with panel supply chains in Taiwan. What is surprising though is that the government has been quiet both in terms of how much it supports a merger and whether it would provide support for the industry financially. The local government should be more vocal on its position towards the panel industry as well as highly consider extending funding for possible technology improvements.

Taiwan's panel industry is at a major crossroads and decisions made over the next year may highly affect the overall development of the industry in the years to come.

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