AU mulls China LCD plant on TV boom

HSINCHU, Taiwan Wed Sep 2, 2009 5:06am EDT

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HSINCHU, Taiwan (Reuters), Sept 2 - Taiwan's AU Optronics Corp (2409.TW) is in talks with city governments in China to set up a new panel plant there as it expects China to overtake North America to become the world's biggest TV consumer in 2-3 years.

For now, however, under Taiwan's rules, LCD makers can only do final assembly work in China using panels produced elsewhere. Panel production is high-tech work that typically requires about $3 billion or more to build a single factory. "Many Chinese city governments have invited us to invest in panel production, but so far Taiwan still prohibits such investments," AU Chief Financial Officer Andy Yang said on Wednesday as part of the Reuters China Investment Summit.

AU Optronics (AUO.N) is considering its options after invitations from city governments, such as Beijing, Tianjin and Shanghai, said Yang, who joined AU in 2002.

"Our stand has been very clear that we hope the (Taiwan) government to change gradually to lift the ban," Yang said in an interview at the company's headquarters at the Hsinchu science park in northern Taiwan.

Asked if AU could build the plant by itself, Yang said: "That is one option and we don't rule out other forms of strategic cooperation. We are still discussing and there is no clear direction yet."

Other LCD rivals, including LG Display (034220.KS), also have similar plans to build new plants on the mainland [nSEL000749], and relaxed investment laws may help usher high-generation production there. But Yang said it will take at least a few years to see them start operations if these plans materialize.

AU Optronics said in July it aimed to return to a profit in the current quarter after posting a narrower second-quarter loss, showing how China's massive stimulus spending is changing the fortunes of the island's top LCD maker.

Closer ties with Chinese TV vendors could yield more orders for AU and Chi Mei 3009.TW, the island's two biggest LCD makers, even though some analysts say they are facing shortages of some key components such as glasses used to make panels following robust demand.

Based on information given by its customers, Yang said LCD prices in the fourth quarter are likely to be stable or higher than the third quarter, easing market worries that a recent rise in panel prices could come to an end, due partly to China's move to moderate its economic growth.

Ahead of Yang's comments, AU's Taipei-listed shares closed down 2.4 percent on Wednesday, against the main TAIEX's .TWII 0.3 percent gain.

As a supplier to top brands such as Dell Inc DELL.O, Hewlett-Packard Co (HPQ.N) and Sony Corp (6758.T), AU also pins hopes on new display businesses to help ensure its future growth.

"E-paper is a new market and we've never seen that before. It will help digest output of our older plants," said Yang, referring to new-generation displays for digital books such as e-readers from Amazon.com (AMZN.O) and Sony (6758.T).

"Other than that, we also move very quickly to the touch panel sector," he said. "Touch (panels) will be one of the very important trends in the future."

(Editing by Ken Wills)

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