UPDATE 2-Chi Mei, Innolux in $1 bln share-swap merger

* New entity seen broadening product portfolios

* Mulls new LCD plants in China in the future

* Analysts see no imminent impact on whole LCD market

(Adds analyst comments and details)

By Baker Li

TAIPEI, Nov 14 (Reuters) - Taiwan's Chi Mei (3009.TW) agreed to be merged with Innolux (3481.TW) through a share swap worth about $1 billion to create a new company that aims to have a stronger foothold in the highly competitive LCD industry dominated by bigger Korean rivals.

In a hastily-called news conference on Saturday, the two LCD companies said Innolux Display will be left as the surviving company and the new company, named Chimei Innolux Corp, aims to be among the world's top three LCD makers.

The merger was the latest alliance in Taiwan's LCD industry, where smaller companies are trying to boost their economic scale to compete with the world's two biggest LCD makers Samsung (005930.KS) and LG Display (034220.KS) in South Korea.

"I would expect to see synergy effects between the two companies," said Robyn Hsu, a fund manger at Taiwan's Capital Investment Trust.

"Innolux has been focusing on the LCD monitor sector and they can broden the product portfolio to include TVs and notebook PCs from Chi Mei after the merger."

"But it won't have an imminent impact on the supply side in the whole LCD market because Innolux has been doing a lot of assembly works."

Aanlysts say the new entity is also well poisitioned to gain a bigger share in the fast growing LCD market in China, which research firm DisplaySearch said could overtake North America as the world's biggest LCD TV consumer in 2011. [ID:nTP92187]

Chi Mei, which trails only AU Optronics (2409.TW) (AUO.N) in Taiwan and is the world's No.4 LCD maker now, has said it expects to supply 40 percent of panels needed by LCD TVs with Chinese brand names, tapping the potentially huge China market.

VAST CHINA MARKET

Major companies in the sector have been flocking to China with blueprints of new LCD plants to take advantage of its market. [ID:nTP209929]

Terry Gou, chairman of the Hon Hai group in which Innolux is one of its units, told the news conference that the new company would build LCD plants on the mainland, but did not say how many factories will be built.