Taiwan LCD Giant Plans Big China Factory as Rules Ease

AU Optronics became the first major Taiwanese LCD screen maker to apply to the Taiwan government to build an advanced LCD factory in China under regulations that were eased last month.

The company plans to build a 7.5-generation (7.5G) LCD panel factory for US$3 billion in Kunshan, China, it said in a statement Monday. AU will spend $1.2 billion of its own money on the factory and seek local financing for the rest.

AU said it will be better able to serve Chinese customers due to the investment, as well as strengthen its competitiveness in China's LCD TV market.

The Taiwanese government announced an easing of rules governing technology investments to China last month, a move widely seen as a reaction to competition from South Korea. Taiwanese LCD makers are second only to South Korea's LCD giants, Samsung Electronics and LG Display, in the global LCD panel business. Late last year, Seoul finally gave the go-ahead for its two big LCD makers to build advanced LCD factories in China.

Taiwan has moved cautiously to allow companies to invest in or transfer advanced technologies to China. The island takes great pains to adhere to U.S. regulations regarding technology transfer to China and other nations flagged as a danger under the Wassenaar Arrangement. The Arrangement was written in the Cold War era as a way to guard against transferring technologies that could be used in weapons-making to countries that posed a potential threat. The U.S. and other countries still require companies to apply for permission to build high-tech factories in China and other nations, or to sell them advanced components.

Taiwanese companies and politicians are also aware that China has over one thousand missiles aimed at the island, and has said a number of times that it will invade Taiwan if the island formally declares independence. Politicians also fear companies may abandon Taiwan in favor of lower-cost labor and rich incentives by China aimed at attracting big investments.

AU said it will continue to invest in new LCD panel production in Taiwan, in addition to its display business. Equipment for the company's 8.5-generation (8.5G) factory will be installed by the end of this year, it said.

Taiwan's new regulations allow its LCD panel makers to build a total of three factories in China that are either 6th generation or more advanced, technologically. The factories must be at least one generation behind their most advanced factory in Taiwan. LCD technology generations refer to the size of the glass sheets used in the factories. Later generations use larger sheets of mother glass, from which several display panels are then cut. The most advanced LCD factories currently in operation are 10th-generation plants.

Taiwanese companies are also limited to spending a total of NT$50 billion (US$1.58 billion) each, per year on all China-bound investments and must match any China investments in Taiwan.

Samsung plans to build a 2.6 trillion won (US$2.23 billion) 7.5-generation factory in China, while LG Display said it will form a venture to build an 8th-generation LCD plant in China for as much as US$4 billion.

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