Taiwan's Ministry of Economic Affairs (MOEA) has given a conditional approval to China-based LED epitaxial wafer and chip maker Sanan Optoelectronics' proposal to invest NT$2.352 billion (US$78.4 million) in Taiwan-based fellow maker Formosa Epitaxy for a 19.9% stake.
MOEA stipulates that Sanan must not ask Formosa Epitaxy to transfer patents, technologies and operating rights, or recruit talent from Formosa Epitaxy. Sanan has agreed to the conditions.
The conditions are illogical because, from a commercial viewpoint, such acquisitions are essentially motivated by the prospects of patent and technology transfer, as well as personnel exchange.
MOEA defended its approval of the deal, saying the investment can help Formosa Epitaxy obtain orders from China-based LED packaging houses and win government projects for LED street lamp procurement in China, as well as setting an exemple of cooperation between LED players from Taiwan and China.
However, LED chips have been in oversupply in China, and prices offered by China-based LED chip makers are about 20% lower than those by Taiwan makers. The China government also aims to hike locally produced LED chips as a percentage of demand in China to over 80% in 2015. Such development is making it difficult for Formosa Epitaxy to tap the China market.
Government incentives have sent China makers scrambling to expand their capacity, resulting in a global oversupply of LED chips and continual drops in chip prices. Amid such a background, Formosa Epitaxy has reported net loss of NT$814 million for 2012 and NT$571 million for first-half 2013.
Then what is the real motive behid the Sanan-Formosa deal? Judging from Formosa Epitaxy's current operating conditions, Sanan is very unlikely to see return on the investment. This has prompted speculation that Sanan has ulterior motives. It remains to be seen how Sanan will be able to keep its promises of not taking patents, technologies and personnel from Formosa Epitaxy.
