With the Innolux-Chi Mei Merger, the integration of its component supply system will be based on four principles

by WitsView on Nov.20 2009

In the wake of the merger of Innolux Display and Chi Mei Optoelectronics (CMO), there has been much speculation in the industry about the new panel giant’s market strategy, as well as the integration of both company’s upstream component supply chains. WitsView noted that as the merger is slated to take effect in May 2010, Innolux’s final decision will effectively benefit or impact various component makers. At this stage, the potential direction of the merger can be analyzed through four principles highlighted below:

Inertia – as Innolux plays a key role in this merger, major suppliers including Corning (glass substrates), Nitto Denko (polarizer), are expected to remain the key suppliers for Chimei Innolux due to their long-term, stable business relationships.

Cost-effectiveness – whether it is Innolux or Foxconn Electronics (Hon Hai Group), cost has always been the group’s core competency, and this may cause Chimei Innolux to eliminate Japanese module material suppliers due to their relatively higher prices.

Simplicity – Innolux’s panel capacity had been limited in the past, and collaborated with only a few suppliers. After the merger, its production capacity may see exponential growth, and will subsequently collaborate with more suppliers. However, in order to reduce management costs, and ensure higher bargaining power with bulk orders, its individual components will be sourced from 2~3 main suppliers only.

In-house production – both CMO and Innolux had already made investments in fields of LEDs and color filters, through equipment and technology transfers, both companies’ resources will be combined and re-allocated, with the production emphasis placed within the Innolux structure.

Innolux, which had focused on monitor panels in the past, has placed much emphasis on assembling backlight modules. However, after the merger with CMO, the proportion of TV panels will be increased significantly. According to WitsView’s analysis, although in-house assembly of TV backlight is still the company’s ultimate goal, however relevant technology still poses a barrier in the short-term. As CMO’s existing supply chain includes leading backlight module suppliers, with efficient cost control, production economies of scale and capability of cutting-edge design, Chimei Innolux will likely maintain close business relationships with these leading suppliers during the initial stage of the merger.

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With the Innolux-Chi Mei Merger, the integration of its component supply system will be based on four principles

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