As the merger between Chi Mei Optoelectronics (CMO) and Innolux Display formally takes effect, industry watchers are paying close attention to this new entity that has integrated panel and whole set sales. Although actual end-market sales performance has yet to be time-tested, it is certain at this stage that after the merger, Chimei Innolux Corp. (CIC) will have substantially more control over the supply of upstream materials and other related components.

 

According to WitsView’s observation, as the TFT industry has reached the mature stage, panel makers have gradually scaled back on their capacity expansions. As a result, upstream material makers have become more conservative toward making new investments in capacity. Eric Chiou, WitsView’s research manager, pointed out that, for a long time, there have been issues of oversupply among several components; in the future however, the gap between supply and demand will gradually narrow as facility expansion of component makers slows down, and the supply of materials will subsequently be restored to equilibrium levels. This implies that, either a surge in demand for materials, or a strategic increase in restocking volume by specific customers, could result in a strain on material supply, leading to a non-universal delay in component delivery, or worse, a possible component shortage.

 

Korean panel makers have rarely faced issues of material shortages in the past, thanks to their stable utilization rates and a comprehensive strategic planning of key components. In contrast, the acquisition of materials, such as glass substrates, has been a great bottleneck among Taiwan makers when they strive to expand their capacity during the hot season over the past year; this shortage even affected leading makers AUO and CMO.

 

WitsView noted that, in the past, CMO had already established integration of components including primary materials such as backlight module and driver IC, as well as secondary materials such as optical film, and light guide plate. However, as the integration is broad rather than deep, most of the suppliers within the group still play a supplementary role, and are unable to single-handedly meet the massive demand in order quantity and technology of the entire group.

 

Based on WitsView’s analysis, the merger with Innolux will definitely give the group’s control over material supply a strong shot in the arm in two aspects. First, leading suppliers of glass substrate and polarizer will essentially become suppliers within CIC; furthermore, as Innolux has already fostered a stable collaboration with these suppliers, they will fully support the group in terms of delivery date and volume. Second, these leading suppliers hold unparalleled competitive advantages in production capacity, technology, and quality, and therefore will not come into conflicts with CMO’s pre-existing suppliers within the group. Such procurement strategy, with outsource capacity as the primary source, and in-house capacity as the supplementary source, facilitates CIC in the establishment of a component supply chain that is comprehensive and complementary.

 

WitsView underscores that having a stable material supply chain will be the major divide in panel makers’ competitiveness. In the future, it is imperative that Taiwan panel makers strengthen the control in the quality and quantity of key materials in order to compete against its rivals from Japan, Korea, and even the up-and-coming Chinese panel makers. Only by averting material shortages can Taiwan panel makers compete at the same starting line with other global makers.