Chi Mei Optoelectronics Corporation Business Information, Profile, and History

Company Perspectives:

Mission Statement: Business as a Way to Pursue Fulfillment. Human Man agement and Harmony are the most important and have been the operatin g principles of the whole Chi Mei Group.

History of Chi Mei Optoelectronics Corporation

Established only in 1998, Chi Mei Optoelectronics Corporation (CMO) i s one of the world's leading manufacturers of thin-film transistor li quid crystal displays, better known as TFT-LCD flat-panel displays. T he company produces more than 4.5 million flat-panel displays per yea r, and expects to top five million panels annually before 2006. CMO o perates four LCM (liquid crystal display module) plants in Taiwan's S outhern Taiwan Science Park (STSP). That complex was subsidized by th e Taiwanese government as part of its decision to make LCD displays o ne of the island's key manufacturing areas. The company's production operations include a 5.5G (generation) plant for production of 27-inc h displays and a 6.0G plant for production of 32-inch displays. In 20 05, CMO announced its intention to open an LCM plant in mainland Chin a, in part because of a labor shortage in Taiwan. The opening of that plant will help CMO reclaim the industry's top spot from chief rival AU Optronics. In addition to TFT-LCDs, CMO has been developing its o wn organic light-emitting diode (OLED) display capacity; the company also produces color filters. Chairman and founder Hsu Wen-lung, who s uffered criticism from Beijing because of his support for Taiwan's in dependence-minded government, stepped down from his position in 2005 as part of the company's decision to enter the mainland. CMO is liste d on the Taiwan Stock Exchange but remains controlled by Chi Mei Grou p, a petrochemicals conglomerate established by Hsu's father in 1950.

Made in Taiwan in the 1950s

Few companies so closely mirrored Taiwan's evolution in the second ha lf of the 20th century as Chi Mei Group and its publicly listed subsi diary Chi Mei Optoelectronics (CMO). Taiwan's economy was virtually n on-existent at the end of the 1940s, as the newly established governm ent set out to convert itself from a predominantly agrarian base. The country turned toward the industrial sector, investing heavily to be gin producing low-cost, and often low-quality, consumer items. With l ow wages and a vast workforce, Taiwan quickly became a source for dis count goods the world over.

Chi Mei played a major role in this transition. The company originall y focused on the retail sector, and was founded as a small children's clothing store by Shu-Ho Shi in 1950. Shu chose the name Chi Mei, fr om the Chinese words for "Unique Beauty," for his store. Yet Chi Mei' s focus quickly expanded beyond retail sales.

A number of factors converged in the early 1950s to present a major o pportunity for the company. Taiwan's interest in developing its indus trial sector, as well as the strong role the government played in dir ecting the country's economic and corporate policy, created a fertile environment for a new breed of entrepreneurs. At the same time, the development of new plastic technologies had opened up an extraordinar ily large range of production possibilities. The timing for the new m aterials was perfect; the Western world was undergoing a period of su stained economic growth. The booming economies of the West not only c reated unprecedented levels of disposable income, but also steady adv ances in leisure time. Yet another factor came into play in the 1950s and 1960s: with more and more women joining the workforce, families began to shrink in size. Fewer children meant that parents were willi ng to spend more on each individual child, stimulating a surge in dem and for children's toys. Meanwhile, the use of plastics opened up a w hole new range of potential shapes and colors, introducing one of the most creative eras of toy-making ever known.

Chi Mei entered the children's toy market in 1953, setting up Chi Mei with its own manufacturing plant. The initial facility was quite mod est, occupying just 26 square meters, manned by four employees. The c ompany began producing toys and other household items, and the words "Made in Taiwan" quickly became ubiquitous throughout the Western wor ld. Shu was joined by son Hsu Wen-lung, who became the driving force behind the company's conversion into an industrial powerhouse.

By the late 1950s, however, Chi Mei had recognized a greater opportun ity in producing the basic plastics materials themselves. In 1957, th e company launched a research and development effort in order to esta blish its own methods for the production of acrylic sheets. This led to the creation of a new subsidiary, Chi Mei Industrial Co., led by H su Wen-lung. The company built a new industrial complex at Yen Chen T ainan, and launched production in 1960.

Chi Mei brought its acrylic sheets to the export market in 1963. Soon after the company launched production of one of its most successful products, Kibi Board, plywood sheets coated with decorative paper, se aled under a layer of polyester resin. By 1967, the company had devel oped a second, similar product, Mega Board, which differed from Kibi Board in that it was coated with an aminoalkyd resin. By then, too, t he company also had begun to produce buttons, starting in 1964, and q uickly became one of the world's leading suppliers of buttons.

The success of its finished products enabled Chi Mei to begin its tra nsformation into one of Taiwan's leading petrochemicals groups toward the end of the 1960s. This effort began in 1965, with the creation o f the company's first technology transfer joint venture with Mitsubis hi. The following year, Chi Mei launched a new research and developme nt effort to build expertise in the production of expandable polystyr ene (EPS). In 1968, Chi Mei turned to Mitsubishi again for technology , forming a new joint venture for the production of a larger range of polystyrene types, including general purpose polystyrene and high-im pact polystyrene resins.

By the early 1970s, Chi Mei had established its first overseas plant, in the Philippines. The company's polystyrene operations also became its largest component, topping its acrylic sheets sales by the middl e of the decade. Through the next decade, the company continued to de velop new plastics and petro-chemicals capacity, becoming a leading p roducer of acrylic granulates and acrylic extrusion sheets. Into the 1990s, Chi Mei expanded its technology to include production of TPE r ubber and other plastics. By then, the company had, in large part, ex ited its former finished goods production, dropping buttons in 1982 a nd both the Kibi and Mega Boards in 1985.

TFT-LCD Leader in the 2000s

By the mid-1990s, however, Taiwan faced increasing competitive pressu re from other emerging, low-cost markets. The country's relatively hi gh wages meant that it increasingly was unable to compete against the growing industrial strength of the developing markets. The gradual e mergence of mainland China as a low-cost consumer goods producer espe cially promised to transform the industrial landscape on a global sca le.

In recognition of the shifting situation, the Taiwanese government be gan encouraging the transformation of its economy toward higher-end t echnological sectors. Into the mid-1990s, the TFT-LCD market had beco ming one of the most promising of the high-tech growth markets. The d evelopment of new generations of portable telephones, the promise of digital cameras, and the increasing development of portable computers as a consumer and even household appliance, but especially the devel opment of the first generation of LCD-based televisions, encouraged t he Taiwanese government to target that sector for its new technology initiatives.

Another factor played a role in Taiwan's development as a center for world TFT-LCD production. Liquid crystals had been discovered as earl y as 1888 by Friedrich Reinitzer, a botanist in Austria. Yet the firs t practical application of liquid crystals did not take place until t he late 1960s, when the United States' RCA launched the first display utilizing LCD technology. During the 1970s, however, the center of L CD technology shifted to Japan, and the country emerged as the global center for LCD production. The Japanese jealously guarded their tech nology, maintaining control of the market into the late 1990s.

Yet the collapse of the Japanese economy during the decade left the c ountry's TFT-LCD manufacturers cash-strapped just at a time when the world saw a surge in demand for TFT-LCD displays. In order to ensure the continued growth in production, the Japanese manufacturers began seeking joint ventures elsewhere, in South Korea and especially Taiwa n. There, the Japanese companies found a ready list of cash-rich comp anies willing to enter TFT-LCD production.

Chi Mei decided to enter the market in 1997, setting up operations fo r the production of color filters, under Chi Mei Electronics (CME), a nd TFT-LCD displays, under Chi Mei Optoelectronics (CMO). By 1998, th e company had signed on its first technology partner, Fujitsu, which entered into an alliance with CME. This was soon followed by the grou p's first TFT-LCD partnership, again with Fujitsu. By 1999, CMO and F ujitsu had strengthened their partnership to include an agreement to co-develop new large-screen LCD technologies. Chi Mei also began prod uction of LCD monitors, under a new subsidiary set up that year, Arch Technology Inc. By the end of that year, as well, CMO had succeeded in producing 14-inch TFT-LCD panels. This led the company to sign a n ew long-term development supply alliance with Dell Computer.

CMO took over the operations of CME in 2000 as the company geared up its vertical integration model, an important part of its strategy for its future display technologies growth. The company also was gaining expertise in large-sized panels, launching its first 18-inch display panel early the next year.

The year 2001 marked a new milestone for CMO's development into one o f the world's leading producers of TFT-LCD panels. In August of that year, the company agreed to take over IBM of Japan's Yasu Industrial Complex, acquiring not only its Japanese production capacity, but esp ecially its technology. This acquisition led the company to focus on its panel display development, selling off the consumer-oriented Arch Technology.

By 2002, CMO had unveiled its first 30-inch TFT-LCD television displa y. In that year, CMO went public, the first member of the Chi Mei Gro up to do so. By then, CMO had become the motor for Chi Mei's overall growth, serving as the group's largest revenue generator.

The maturation of Taiwan's LCD industry was clearly in place in the e arly 2000s. Not only had the island become the center of worldwide LC D production, boasting most of the world's top five producers, the co untry also had emerged as a leading technological center. This develo pment was highlighted by CMO's announcement in 2003 that it had decid ed to develop its own color-filter technology for new generation disp lay panels, becoming the first of the big six Taiwanese producers to set up its own color filter facilities.

CMO launched a new fifth-generation production facility in 2003, and began preparations to open a sixth generation and seventh generation plant at mid-decade. By 2005, the company had developed its expertise in the production of panels up to 32 inches in size. This led the co mpany to reach an agreement with Sony Corporation to sell its 3G plan t in Japan in 2004.

CMO remained the last of the major Taiwanese LCD producers to enter t he mainland Chinese market, in part because of founder and Chairman H su Wen-lung's open support for Taiwan President Chen Shui-ban. Yet di fficulties in recruiting new workers, especially the lower wages of t he Chinese mainland, left CMO in a vulnerable position vis-à-v is its competitors.

When CMO launched plans to develop production capacity in the mainlan d, however, it found itself in the middle of the political battle bei ng waged between Beijing and Taiwan. After the Chinese government's n ewspaper, the People's Daily, branded Hsu as "a shameless anti -Chinese bigot," and further indicated that the country would not wel come "these sort of Taiwanese business people," Hsu conceded defeat a nd resigned from his post as chairman of CMO. Then in 2005, Hsu gave a speech in which he publicly stated that Taiwan and the mainland wer e part of "one" China. Soon afterward, CMO received permission to bui ld its first LCD module plant in China. The move was expected to help the company reclaim its title as industry leader, which was captured by rival AU Optronics in August of that year. From toy maker to glob al technological leader, Chi Mei, with its publicly listed subsidiary CMO, had established itself as a quintessential member of Taiwan's i ndustrial community.

Principal Subsidiaries: International Display Technology Ltd.

Principal Competitors: Samsung Corporation; LG-Philips; Sharp Corporation; AU Optronics; Chungwha Picture Tubes, Ltd.

Chronology

• Key Dates:
• 1950: Shu-Ho Shi sets up the Chi Mei retail store selling chil dren's clothing in Taiwan.
• 1953: Chi Mei launches industrial production of plastic toys a nd household goods.
• 1957: Under son Hsu Wen-lung, Chi Mei begins production of acr ylic sheeting.
• 1968: The company launches production of polystyrene.
• 1997: The company announces its intention to begin production of TFT-LCD panels.
• 1998: Chi Mei Optoelectronics (CMO) is created.
• 1999: A technology transfer agreement is made with Fujitsu.
• 2001: The company acquires an LCD fab in Japan from IBM.
• 2004: Hsu Wen-lung steps down as chairman after the mainland C hinese government labels him "a shameless anti-Chinese bigot."
• 2005: CMO receives approval to set up production facilities in mainland China.