Color filters are expensive and take up more than half the cost of making a LCD. Display manufacturers have reduced the cost of color filters by making them themselves. Color filter suppliers act as an oligopoly since there are few. They command high profit margins and the barriers to entry are high due to patents, etc. Toppan is a Japan-based company that makes color filters and is probably the largest supplier. Toppan has enjoyed high profit margins and now will secure a customer base in AU Optronics. AUO has in-house color filter manufacturing capability but that capacity is not enough for both it and soon to be swallowed Quanta Display Inc. (QDI). By investing around NT$6 billion (~US$186 million) in share of Toppan, AUO will be the largest shareholder of Toppan CFI, the Taiwanese branch of Toppan.
This is good news for AUO because it wil allow the company to reduce the cost of color filter procurement and have a steady supply of G5 color filters. 90% of AUO/QDI’s CF needs will be supplied by AUO in-house, Toppan CFI, Allied Material Technology Corporation (AMTC, third largest shareholder of Toppan CFI) and Cando (an affiliate of AUO). G5-sized fabs are generally used to manufacture 17″ and 19″ LCD monitor panels and larger notebook panels such as 15.4″ and 17″ wide. Smaller LCD TV panels are also produced at G5 fabs such as 23″ and 26″ wide.