Taiwanese merger could bring stability to volatile LCD market

Two Taiwanese LCD panel manufacturers have agreed to a $2.2bn merger, creating one of the world largest panel makers.

The transaction merges the world's third largest LCD maker, AU Optronics, with the smaller Quanta Display.

AU Optronics said that the acquisition will allow it to better compete with its Korean competitors in the market for computer and television LCD displays.

The LCD market is led by Korea-based LG Philips and Samsung, which are battling for the position of the world's largest LCD maker.

In the last quarter of 2005 they claimed respective market shares of 19.74 and 20.26 per cent. AU Optronics accounted for 14.88 per cent of worldwide sales and Quanta claimed 5.7 per cent in the same period.

"Now AU Optronics has the change to become number one or two," said Sweta Dash, director of LCD and projection research at analyst firm iSuppli.

The LCD sector is suffering from continuing price drops and chronic overcapacity, Dash said.

"It is very difficult to make money here if you are not a tier-one supplier, " she said. "There are too many panel suppliers in the industry and there is too much capacity."
The merger will provide AU Optronics with economies of scale that will allow it to compete in the large screen television display market. This market is showing strong growth, but requires huge investments for manufacturers to remain competitive.

The deal, however, could cause prices to either increase or drop, according to Dash.

Because AU Optronics is now as large as LG Philips and Samsung, the three will compete fiercely.

But Dash argued that the deal also signals a maturation of the market which could cause prices to stabilise at a more sustainable level.