By Michael Gold

Hon Hai Precision Industry Co Ltd, the world's largest contract electronics manufacturer, will partner with flat-panel maker Innolux Corp in investing T$86.8 billion ($2.8 billion) in a panel-producing plant in Taiwan, the firms said.

The move comes as Hon Hai is trying to diversify aggressively by finding new revenue sources beyond contract assembly for the likes of Apple Inc. Earlier this year, it bought stakes in a Taiwanese mobile network provider and a South Korean IT services provider.

Hon Hai and Innolux, the world's No.3 flat-panel maker, are currently buying equipment for the facility located in the southern port city of Kaohsiung and which is expected to start production in the second half of 2016, an Innolux representative said on Thursday.

The plant, which will make LTPS (low-temperature polysilicon) panels, predominantly for use in smartphones, was originally built in 2008, but was idled due to financial constraints after the 2008 global financial crisis.

The displays made at the plant will be shipped to China for assembly in final products, despite China imposing a 5 percent tariff on imported displays, said an industry source.

According to a statement from Innolux, the Hon Hai group is investing in the LTPS panel-making plant to meet the demand of an "exclusive" customer. Company officials declined to elaborate.

It was not immediately clear how the firms would split the investment and the plans are still awaiting final approval from the boards of both companies, though Hon Hai will likely take a proportionately larger stake. The Innolux representative said the investment may take the form of a new joint-venture company.

A Hon Hai representative confirmed the plan. Hon Hai already holds a 9 percent stake in Innolux via investment by its subsidiary companies and founder Terry Gou.