Top Chinese LCD panel maker BOE Technology has signed a US$2.3 billion sales memorandum of understanding with TPV Technology and OTPV, which make computer monitors.
The move, announced yesterday, is expected to boost the financially-troubled BOE.
In a statement filed to the Shenzhen Stock Exchange, BOE said Hong Kong-listed TPV Technology and OTPV will procure LCD panels worth US$2.3 billion from BOE over the three years from 2006.
TPV and OPTV were together the top computer monitor maker in the world in the first nine months of 2005 with almost 20 per cent of the market share. They were ahead of Samsung and LG Electronics, both of which have their own LCD panel factories.
BOE holds 23.6 per cent of TPV and the Dutch giant Royal Philips is another major stakeholder.
According to the framework agreement, TPV and OPTV will buy LCD panels worth US$600 million, US$700 million, and US$1 billion in 2006, 2007 and 2008 respectively.
The total procurement volume of LCD panels from the two monitor makers were US$155 million in 2005.
"TPV is an important strategic partner for us, considering our upstream and downstream relation, so the signature of the agreement will boost the development of both of our businesses," said the company in yesterday's statement.
On Tuesday, BOE stocks closed at 3.27 yuan (41 US cents), rising by 10 per cent, but fell very slightly yesterday to 3.25 yuan.
TPV stock on the Hong Kong market fell by 4 per cent to HK$9.35 (US$1.20).
Chen Gang, an analyst with Shanghai-based Orient Securities, believed the agreement would be a big help to BOE, which saw its fifth-generation LCD panel line go into full capacity at the end of 2005, but was facing a slowdown in the LCD industry.
"For anyone to survive the winter of the LCD industry, they must either control the value chain or have a huge production operation," said Chen.
"For BOE, the best choice is the first: to tie up with TPV."
By the end of last year, BOE's production had reached 50,000 panels per month and Chen estimated the monthly capacity for this year is 85,000 units.
However, demand for LCD panels is quite weak as the demand for LCD TV sets is not that much. International giants like LG-Philips and Samsung Electronics have therefore turned their attention to the LCD monitor market, where BOE is focused.
The agreement with TPV has come at the right time, as order volume from it could exceed 20 per cent of BOE's production, Chen estimated.
"It can be a stable customer for BOE, which is especially important at this time."