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Currently in Taiwan, CPT, Quanta Display and Hannstar are considered the three second-tier panel makers. Although rumors involving mergers among the any two of the three makers have persisted, it is hardly beneficial for the three makers to merge with each other. Take Quanta and CPT for example, although a merger between the two makers would make their PC-related products more competitive and threaten the leading position of AUO, they are less competitive in TV and small-to-medium-size applications.

Among all panel manufacturers in Taiwan, Innolux would be the one that would have the most to benefit from merging with another maker, as Innolux is rather behind in capacity and production line totals.

Currently, the company is trying to position itself as a monitor provider instead of a panel maker. The company plans to ship nine million LCD monitors this year and it is aggressively aiming to become the world's top monitor maker. However, it makes sense that the company would be interested in producing LCD TVs in the future as well.

If Innolux purchased HannStar's 5G line, the benefits would be extraordinary, as the line has already entered volume production. Currently, the 5G line is designed to produce 19-inch monitor panels and 23- and 26-inch TV panels. Also, HannStar's 5G substrate are larger than Innolux's and with the added capacity, and Innolux can focus on LCD TV panels at its own plants in the future.

However, it is less likely that Innolux will merge completely with HannStar, as Innolux already has one 4.5G line for small-to-medium-size panels and the monthly capacity there has been increased from 23,000 substrates to 32,000 substrates. The company is probably not very interested in buying HannStar's two 3G lines.

In terms of product mix, the three smaller Taiwan-based panel makers rely more heavily on PC-related products, with a weaker product lineup for TV panels and small-to-medium-size displays.

AUO has a rather complete product line, from small to large sizes while CMO has a more complete TV panel product line-up. If CMO purchases either CPT or Quanta, it will be able to improve its competitive edge in the PC-related segment. Shipment wise, CMO will overtake AUO and become the largest Taiwan-based panel makers should it purchase either of the second-tier panel makers.

For AUO, if it purchases Quanta or CPT, it will be able to compete against Samsung Electronics and LG.Philips LCD in the PC-related segment. For notebook panels, if AUO merged with Quanta, the combined monthly notebook panel shipments would nearly reach 1.4 million units, which is about the same level as that of Samsung. If AUO purchase CPT, its monitor panel shipments would significantly exceed either of the South Korea-based panel makers, at more than 2.6 million panels per month.

Most Taiwan-based panel makers have already evaluated the feasibility of merging with another maker and several investment banks have provided related reports and information for their reference, as the makers will have to acquaint themselves with the actual conditions of the production lines at the potential partners.

In addition, the makers will have to consider issues such as management style, culture, technology, patent rights, exchange ratio of shares, investment plan and management changes after the merger.

There are no definite answer to which company is fit to merge with any of its Taiwanese competitors. According to the current situation, it is more possible for the three smaller companies to merge with each other than for the two larger ones to consider a merger, as the gap between the first-tier makers and the second-tier ones continues to widen in capacity scale, profitability and investment speed. For example, both CPT and HannStar have withdrawn their plans to issue ECBs (euro convertible bonds).

First-tier makers, AUO and CMO, are not likely to see significant benefits by merging with any of the second-tier makers, as demand for LCD TVs and small-to-medium-size displays are expected to grow faster than that of PC-related products, the segment which the three second-tier makers depend on more heavily.

However, the benefits of AUO merging with CMO will be enormous, since both companies can complement each other: CMO has strengths in its LCD TV technologies while AUO has a full line-up of panels to be used in PC-related products and small-to-medium-size displays. Despite the seemingly prosperous outlook for the two companies, the makers will have to overcome difficulties arising from the fact that their cultures are different from each other and their production bases are far away from each other.

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