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AU Optronics Corporation

1 Li-Hsin Rd. 2, Science-Based I
Hsinchu
Taiwan
Telephone: +886 3 563 2899
Fax: 886 3 564 3370
Web site: http://www.auo.com

Public Company
Incorporated: 2001
Employees: 9,780
Sales: TWD 104.86 billion ($3.1 billion) (2003)
Stock Exchanges: Taiwan
Ticker Symbol: AUO
NAIC: 334419 Other Electronic Component Manufacturing

AU Optronics Corporation is Taiwan's largest producer of flat panel displays—that is, thin film transistor liquid crystal display panels, or TFT-LCDs—and is also the world's number three manufacturer, trailing only South Korea's Samsung and LG-Philips. As the first Taiwanese company to begin producing active matrix LCDs in the early 1990s, AU Optronics has played a leading role in Taiwan's transformation as one of the world's high-technology centers. The company has expanded its production from small-sized panels to the latest-generation large-scale panels, such as Taiwan's first high-definition 46-inch television panel, debuted in late 2003. AU Optronics also has developed a strong in-house research and development component, which has enabled it to become the first in the world to produce an amorphous silicon-based TFT OLED (organic light-emitting display). The company expects to put this technology into practice producing panels for new generation mobile telephones—including those produced by sister company BenQ, Taiwan's leading mobile phone producer. AU Optronics operates subsidiaries in Taiwan, Japan, China, the United States, and The Netherlands, with production based in Taiwan and in Suzhou, China. In 2003, AU Optronics posted revenues of more than TWD 104 billion ($3.1 billion), multiplying its sales by more than 18 times since 1999. The company is led by Chairman K.Y. Lee, who is also chairman of BenQ Corporation.

Technology Drive in the 1990s

Taiwan began an effort to shift its economy from a reliance on low-margin mass production items to the higher-margin and higher-prestige markets such as the technology sector in the early 1980s. As part of that effort, the government established the Industrial Technology Research Institute (ITRI), attached to the Ministry of Economic Affairs. By the late 1970s, the ITRI had targeted the integrated circuit market for growth, and established a new division, the Electronic Research Service Organization (ERSO), which began acquiring the technology—through technology transfers with Western partners such as RCA—for the creation of Taiwan's own integrated circuit (IC) production industry.

With RCA's assistance, ERSO successfully launched Taiwan's first IC production facility. In 1980, the government body spun off the IC line into a new company, United Microelectronics Corporation (UMC). UMC at first turned out small chips for the consumer market, such as for use in digital wristwatches. Through the decade, however, UMC continued to develop its technology—and the sophistication of its production capacity. Commodity production remained, however, a major part of the company's business.

In 1985, UMC became the first of Taiwan's IC producers to go public, listing on the Taiwan Stock Exchange. The listing enabled the company to begin pursuing a diversification into other emerging technologies. One of these was the small but potentially vast market for liquid crystal display (LCD) panels. UMC's interest turned toward the development of thin-film transistor (TFT) technology, and in 1990 the company backed the founding of a new company dedicated to the development of TFT-LCD technology, called Unipac Optoelectronics. UMC was to remain a major Unipac shareholder throughout the decade.

Turning once again to foreign partners in a series of technology transfer agreements, Unipac set out to build its own firstgeneration production plant, known as Fab L1 within the company, at the newly built HsinChu Science-based Industrial Park. That facility began testing in the early 1990s, and by 1994 had launched full-scale production.

Unipac's initial production was limited to a range of sizes between 1.8 inches and 4-inch screen formats, but by 1995 the company had ramped up to production on the 5.6-inch format as well. By then, the company was able to produce some 30,000 four-inch screens per month. The smaller formats were geared, in large part, to such end uses as navigation displays and television monitors, and also found a market later in the decade as passenger airline seatback displays.

Portable computers, however, represented the most buoyant market for TFT-LCD technology. At the middle of the decade, the 10.5-inch form factor became the industry standard. Yet, Unipac, like other emerging Taiwanese LCD manufacturers, continued to lag behind its larger competitors in Japan and Korea, while depending on technology brought in from these countries and elsewhere. At the same time, Unipac faced impending pressure from a number of new competitors, which were ramping up to production of their own large-size panels in the latter half of the 1990s.

One of the new companies was Acer Display Technologies (ADT), which was founded as a subsidiary of the fast-growing computer group in 1996. ADT's ambitions took a big step forward in 1998, when the company signed a technology transfer agreement with IBM. Not to be outdone, Unipac reached its own technology transfer agreement that year with Japan's Matsushita. Both agreements promised to boost Taiwan's capacity for producing large-sized TFT-LCD panels.

Challenging Global Leadership in the New Century

The agreement with Matsushita enabled Unipac to complete its second-generation fab, which began mass production in 1999. The company's entry into the large-sized panels market launched its transformation. From sales of just $20 million in 1998, Unipac entered a period of explosive growth. By the end of 1999, the company's revenues topped $70 million.

By March 2000, Unipac launched its first 17-inch TFT-LCD, becoming the first in Taiwan to produce in the larger than 15-inch category. The company followed that triumph with a listing on the Taiwan Stock Exchange, ultimately reducing UMC's stake in Unipac to just 40 percent. Soon after Unipac's public offering, it was joined on the stock exchange by ADT, also making its stock market debut. By the end of 2000, Unipac had launched mass production in its newest Generation 3.5 facility, FAB L3m, capable of producing 60,000 sheets per month. In the meantime, Unipac continued producing its original small-sized screens, capturing the world's number two position in that market, behind leader Sharp of Japan.

UMC had in the meantime been structuring its operations, shedding its commodity ICs business to refocus itself as a pure-play semiconductor foundry. As part of that effort, UMC sought a means to spin off its LCD business. In 2001, Unipac found a new partner when Acer agreed to spin off its own display panels subsidiary ADT into a new, merged company together with Unipac, called AU Optronics. The chairman's seat at the new company was taken by K.Y. Lee, who also served as chairman at another Acer offshoot, BenQ Corporation.

AU Optronics' combined production capacity—which included two LCD facilities from ADT—placed it among the global industry's leaders, and also gave it the top position in the domestic market. The company's combined clout encouraged it to launch an effort to gain greater control of its technology requirement. In 2000, AU Optronics opened its research and development facility in Hsinchu. As the company's executive vice-president, Lu Po-Yen told EBN: "The research and development of various types of new products has become the key for us to surpass our current high position and quicken the pace of our ascension to the world's no. 1 flat-panel-display company."

As part of that effort, the company pledged to spend some $300 million leading up to 2005, doubling its previous research spending. The effort began to pay off toward the end of 2002, when the company displayed its first fifth-generation LCD panel. By then, the company also had finished development on the world's first amorphous silicon-based organic light-emitted display (OLED). The company formally debuted the completed product, a four-inch screen, in 2003.

Company Perspectives:

Mission: Be A Global Leader in Flat Panel Displays. Vision: Enrich Digital Lifestyle with Optronic Innovations.

Key Dates:

1990:: Unipac Optoelectronics is launched as a TFT-LCD affiliate of Taiwanese semiconductor manufacturer United Microelectronics Corporation.
1994:: Production begins at Unipac's first TFT-LCD fab.
1996:: Acer forms the TFT-LCD subsidiary, Acer Display Technologies (ADT).
1998:: Unipac forms a technology transfer partnership with Matsushita; ADT forms a technology transfer agreement with IBM.
2000:: Both ADT and Unipac go public on the Taiwan Stock Exchange.
2001:: ADT and Unipac merge as AU Optronics.
2002:: The company's first production facility opens in mainland China.
2003:: AU Optronics claims the number three spot in the worldwide TFT-LCD market.
2004:: The company launches construction of a sixth-generation production plant, slated to open in 2005; the company considers suspending construction of a seventh-generation plant due to poor market conditions.

By the end of 2002, AU Optronics' research and development push began paying off for the company—in that year, AU Optronics led the market in filing for new patents, with 265 patent rights applications. AU Optronics also had been stepping up its production, including the June 2002 launch of a new fab in Suzhou, on the Chinese mainland, with a production capacity of 50,000 LCD modules per month.

By 2003, AU Optronics was able to claim the number three position worldwide in shipments of large-sized TFT-LCD panels, as the market for computer peripherals and especially for new LCD-based televisions began to take off worldwide. In August of that year, the company launched production of the world's first 30-inch wide LCD television panel. This was followed soon after by the debut of the first Taiwan-built 46-inch HDTV LCD panel. At the other end of the scale, AU Optronics began targeting the mobile phone market, launching production of its own low-power screens. The company also sought to gain a foothold in the palm-sized market, debuting Taiwan's first two-inch transreflective LCD screen in October 2003. By the end of that year, the company's annual sales had soared past TWD 104 billion ($3.1 billion).

As it entered 2004, AU Optronics had launched construction of a new sixth-generation LCD fab, slated for completion in 2005. The company also began plans for a new seventh-generation fab, originally scheduled to enter mass production in 2007. However, poor market conditions—a drop-off in demand in late 2004 combined with the rapidly falling prices of LCD-based televisions and computer monitors—forced AU Optronics to consider placing the opening of the new facility on hold. Nonetheless, AU Optronics seemed on course to achieve its goal of becoming the world's leading maker of TFT-LCD screens by the middle of the decade.

Principal Subsidiaries

AU Optronics (Suzhou) Corporation (China); AU Optronics Corporation America; AU Optronics Corporation Japan; AU Optronics Europe B.V. (Netherlands); AU Optronics Korea.

Principal Competitors

Samsung Corporation; LG-Philips; Sharp Corporation.

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