UPDATE 1-Innolux to buy display firm, eyes robust shipments

* Company aims for strong shipment growth after merger

* Innolux shares outpace big board before announcement (Adds quotes and details)

TAIPEI Oct 5 (Reuters) - Taiwan's Innolux Display Corp (3481.TW), the world's No.2 LCD monitor maker, will acquire small-display maker TPO Displays 3195.TWO that could help it broaden its product portfolio and gain more orders from clients.

In a share swap valued at about T$20 billion ($619 million), Innolux said on Monday that one Innolux share would be exchanged for eight shares of TPO, which is 29 percent owned by contract laptop PC maker Compal Electronics (2324.TW).

After the acquisition, Innolux aims to ship up to 300 million small and medium-sized displays next year, sharply higher than 22 million units projected for this year, Innolux Chairman and President H.C. Tuan told a news conference.

That would help the company take a 15-20 percent share of the small display market next year, Tuan said.

"The companies complement each other very well in technology, products and clients and we hope to bring in TPO's clients," Tuan said, without identifying them.

Before the announcement, shares of Innolux, which also makes displays, closed up 0.86 percent on Monday, outpacing the main TAIEX's .TWII 0.35 percent gain. TPO shares lost 1.67 percent.

A local newspaper said last week that the two display makers were encouraged by their customer Nokia (NOK1V.HE) to merge.

UBS said in report last week that the deal could be positive for Innolux, which currently supplies thin-film transistor (TFT) panels to Nokia but has little exposure to high-end low-temperature polysilicon (LTPS) panels.

TPO was created by a merger between Toppoly and Philips Mobile Display Systems in 2006. The company makes smaller LCDs using advanced LTPS technology, which is mainly used for high-performance panels for mobile phones and digital cameras.

Innolux did not say when the merger would be effective. (US$1=T$32.3) (Reporting by Faith Hung and Baker Li; Editing by Chris Lewis)