Innolux LT Deal for Large TV Panels
Innolux (3481.TT) announced that it had signed a long-term supply deal with Sakai Display Products (pvt), the company that owns the formerly Sharp (6753.JP) Gen 10.5 LCD fab in Japan. Innolux will pre-pay in installments, the $618m price of the 12 year deal through its subsidiary Foshan Optoelectronics (pvt). Behind the concept of the deal is eliminating the cost of building a greenfield Gen 10.5 fab, which would likely cost between $1.9b and $3.3b for each 30,000 sheet/month line, of which there would likely be two. Innolux currently runs one Gen 7.5 and two Gen 8 LCD fabs, with the Gen 7.5 fab most efficient at producing panels in the 42” to 46” range, and the Gen 8 fabs most efficient producing 55” panels, with TV panels representing 38% of Innolux’s 2Q sales. However, as consumers look toward larger size TVs, the Innolux fabs become far less efficient at sizes of 65” and larger. This has pushed Innolux to decide whether it would be more cost effective to build its own Gen 10.5 fab or sign a deal with Sakai Display, who runs a Gen 10.5 fab that has been in operation since 2009.
The decision is made a bit more obvious due to the fact that Sakai Display Products is owned by Terry Gou, the Chairman of Hon Hai (2317.TT aka Foxconn (2354.TT)), with the company owning a controlling stake in both Sharp and Innolux, so the deal is sort of an ‘all-in-the-family’ one that benefits all parties to some degree and Terry Gou in quite a few of them. Sakai is expected to increase its capacity from 90,000 sheets/month to 120,000 and eventually to 150,000, but no timetable has been given and Foxconn has a long history of making promises and not fulfilling them, so we maintain our model at current capacity until we get confirmation that new lines have been added and are operating. If such an expansion does become a reality will Mr. Gou provide the financing or will the capital be drawn from some other related entity?
The decision is made a bit more obvious due to the fact that Sakai Display Products is owned by Terry Gou, the Chairman of Hon Hai (2317.TT aka Foxconn (2354.TT)), with the company owning a controlling stake in both Sharp and Innolux, so the deal is sort of an ‘all-in-the-family’ one that benefits all parties to some degree and Terry Gou in quite a few of them. Sakai is expected to increase its capacity from 90,000 sheets/month to 120,000 and eventually to 150,000, but no timetable has been given and Foxconn has a long history of making promises and not fulfilling them, so we maintain our model at current capacity until we get confirmation that new lines have been added and are operating. If such an expansion does become a reality will Mr. Gou provide the financing or will the capital be drawn from some other related entity?
Flags - Source: Bloomberg
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