Amid intense competition from Chinese suppliers and a maturing consumer electronics market, Taiwan-based panel provider Innolux is pursuing transformation through its "More than Panel" strategy. The company is exploring advanced semiconductor packaging and maintains cautious optimism about Fan-Out Panel Level Packaging (FOPLP) while acknowledging the inherent challenges.
The road ahead presents significant hurdles for Innolux. Technical complexities and declining smartphone demand have delayed the mass production timeline for its FOPLP technology from late 2024 to early 2025.
In an interview with DIGITIMES, Jim Hung, Innolux's chairman and CEO, emphasized FOPLP's strategic importance to Innolux's future, noting plans to increase capital investment to maintain competitiveness. While acknowledging emerging competition, Hung remains cautiously optimistic about navigating these challenges.
Strategic transformation rooted in experience
Q: Innolux has been established for over 20 years and is actively transforming into the advanced semiconductor packaging field, generating much discussion and attention. Why did Innolux choose FOPLP technology, and what has the journey been like?
A: Innolux is experiencing heightened interest in its FOPLP technology, signaling positive initial outcomes in its efforts to pivot within the panel market. This development results from strategic decisions encompassing timing, location, and talent, underscoring Innolux's dedication to thrive in a competitive environment. Faced with high capex requirements and the cyclical nature of the consumer electronics panel industry, Innolux is diversifying to ensure consistent returns for shareholders.
Situated in Taiwan, Innolux leverages a robust tech supply chain, particularly in semiconductors, to support its broad ambitions. With assets valued at over NT$300 billion (US$9.23 billion) in talent and infrastructure, the company is committed to maximizing its potential and contributing significantly to the industry and national defense.
Innolux's entry into FOPLP builds on identified synergies with existing photolithography processes in panel manufacturing, allowing efficient reallocation of about 60% of its equipment towards advanced packaging technologies. This strategic shift, backed by a skilled workforce, marks Innolux's determined entry into this promising field.
The venture began in 2018, in collaboration with the Industrial Technology Research Institute (ITRI), to explore potential applications of FOPLP. Over the past two years, Innolux has significantly increased capex to develop this initiative from a nascent concept into a strategic business venture poised to make a significant impact in the tech industry.
Technical roadmap and development strategy
Q: FOPLP encompasses various processes, including Chip-First, RDL-First, and future TGV processes. Can you share Innolux's technical development roadmap and operational model?
A: Innolux is venturing into the semiconductor packaging sector, leveraging its expertise in existing packaging techniques applicable in the PMIC and RFIC markets.
The company's roadmap begins with the Chip-First approach over the next year or two before transitioning to the more technically advanced RDL-First process within two to three years. The final phase, involving the complex TGV process, could take three to five years due to its intricate requirement to drill holes in glass substrates, necessitating deeper industry collaboration.
Competitive advantages and core strengths
Q: What is Innolux's greatest core competency when investing in FOPLP?
A: Innolux has revitalized its 3.5G panel production line, optimizing it for mid-to-high-end semiconductor packaging using 620mm×750mm dimensions, among the largest in the industry. By focusing on glass substrate materials and ensuring high cleanliness and automation, the company reports superior yield rates and rapid capacity expansion once validation is achieved. At its Fab1 facility, the utilization rate for 12-inch wafers can reach an impressive 97%, which significantly reduces costs through material savings and enhances efficiency. The 3.5G line's full depreciation adds further cost advantages. The company seeks competitive collaboration with clients and partners, highlighting the potential of FOPLP to increase performance, minimize volume, and conserve energy, ultimately offering competitive pricing and enhanced profit value.
Industry collaboration and market positioning
Q: Many players in the semiconductor supply chain are investing in FOPLP, including packaging and foundry companies. What kind of competitive relationship does Innolux have with these firms?
A: Innolux views established packaging industry leaders as both mentors and potential partners. Recognizing these companies as valuable learning examples and future collaborators, Innolux acknowledges the substantial capex challenges these firms face, particularly in investing in Class 1000 cleanrooms and automation.
With its existing facilities, Innolux is well-positioned to support such advancements. The company aims to leverage synergies with experienced industry players, exploring diverse business opportunities. However, the specifics of these collaborations will be dictated by client needs, as Innolux remains open to various potential models of engagement.
Investment strategy and market outlook
Q: Will FOPLP be a key direction for Innolux's capital expenditures in 2025?
A: Innolux is planning changes to its capex strategy, which is still awaiting the approval of the board and shareholders. The company aims to maintain stable overall capital spending while shifting its panel segment focus from economies of scale to enhanced supply-demand control and higher-value-added products. As a result, Innolux will adjust capex for panels, allocating more funds to new business areas with growth prospects, all while maintaining stability in its total capex.
Competitive landscape and market dynamics
Q: When discussing panels, the competitive pressure from the red supply chain comes to mind, especially with Chinese panel manufacturers looking to enter the semiconductor packaging space. How does Innolux perceive this situation?
A: The entry of more market participants could signal positive developments, as it suggests rising demand for equipment and materials, leading suppliers to offer more competitively priced products. This influx may indicate that the industry is moving in the right direction. While some express concerns about the entry of the red supply chain, there is optimism about its impact as long as competitors remain ethical.
Innolux leverages its 3.5G line for FOPLP, benefiting from cost competitiveness due to completed depreciation. The company has nearly achieved sixfold capacity with 12-inch wafer specifications, marking a significant milestone.
In contrast, if Chinese panel manufacturers adopt 4G or 6G lines for FOPLP, they may face challenges due to the enormous size of glass substrates, with validation potentially taking 18 to 24 months, leading to isolation during that period. Innolux believes it retains competitive advantages in these areas.
Future vision and strategic goals
Q: What are Innolux's short-term, medium-term, and long-term goals for FOPLP?
A: Innolux is executing a comprehensive strategy to strengthen its market position across different time horizons. In the short term, the company is concentrating on boosting customer certifications and seizing development opportunities while simultaneously enhancing its intellectual property portfolio and talent acquisition.
In the medium term, Innolux aims to achieve efficient mass production and shipping, generating profitability through its FOPLP projects. The company sees FOPLP as a pivotal point for altering its business direction. By reassessing its core capabilities, Innolux recognizes its broader skill set beyond traditional panel manufacturing, thus opening doors to new opportunities, enhancing corporate value, and boosting employee morale. This strategic transition is poised to redefine Innolux's corporate identity and expand its horizons beyond its existing scope.
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