Taiwan's Display Panel Manufacturers Must Work Together: TRI

The recent announcement by Sony, Toshiba, and Hitachi that they will combine forces in a joint venture indicates that more and more companies are espousing the principle of strength in numbers. The Topology Research Institute (TRI), a Taiwanese market research organization, also thinks that this is the way to a better future for the island's manufacturers.

The prospective Japanese joint venture, which is supported by the government there, will specialize in the production and marketing of small and medium-sized display panels by integrating the distribution channels and organizational resources of the three partners, enabling them to provide customers with overall display solutions.

TRI said that this three-way venture reflects Japan's desire to win back lost share in the global market for display panels. Once the world leader with cutting-edge technology, Japan has fallen behind Taiwan and Korea in manufacturing capacity, especially in the large-sized panel segment of the industry.

Today's trend-setting display technologies include LCD low-temperature poly silicon (LTPS), in-panel switching (IPS), and active matrix organic light emitting diode (AMOLED), all of which are included among the strengths of Japanese companies. TRI believes, therefore, that the joint venture will likely become the world's largest supplier of small and medium-sized display panels with the ability to provide brand customers with all-around solutions. This is an increasingly important factor in view of the fact that the provision of integrated services will be increasingly important in the coming Post-PC era.

Most observers agree that the new Japanese company, utilizing the resources of its partners as well as the Japanese government and the advantage provided by the domestic supply of key manufacturing equipment and materials, will quickly threaten Taiwanese and Korean manufacturers.

Time to Change
Taiwanese display panel suppliers, led by the AU Optronics Corp. (AUO) and Chimei Innolux Corp. and backed by mature manufacturing technologies along with large-volume production, have garnered rich profits from the popularity of portable communication devices (PCDs) in recent years. With the approach of the Post-PC era, however, the manufacturing-driven industry has hardly grown at all, and more synergy among the companies involved is needed to restore growth momentum.

In the face of excess global supply and weak demand for large panels, AUO and Chimei have both suffered steep revenue declines and huge operating losses in recent quarters. This points up the fact that Taiwanese manufacturers in the line, with the exception of a few firms such as TPK Holding Ltd., a touch panel maker that has enjoyed continued strong growth on the hot sales of Apple's iPhone and iPad, need to adapt themselves better to the increasingly challenging future.

When Japanese display panel manufacturers were struck with stalled growth several years ago, TRI noted, they gradually phased out the production of large models as Taiwan and Korea gained market share (leaving Sharp the only Japanese company that continues to turn out large panels today) and shifted to small and medium-sized panels that demand more sophisticated production technology. This transition allowed the technology-driven Japanese manufacturers to continue performing well for a time.

With the advent of the Post-PC era bringing a new round of reorganization in the PCD industry, however, Sony, Toshiba, and Hitachi have decided that they need to tap their synergies and strengthen their positions by working together to develop small and medium-sized display panels with all-around solutions.

Teamwork
In response to the announcement of the Japanese joint venture, TRI analysts caution that Taiwanese manufacturers will no longer be able to achieve sustainable growth by competing independently in hardware production. They will need teamwork.

The formation of Taiwan's first AMOLED R&D alliance is, at the instigation of the government, already under way. The demand for AMOLED panels, which are increasingly used in higher-end smartphones, has been growing rapidly, and global shipments already top 10 million units per quarter. TRI forecasts total global demand at 130 million units this year and 290 million in 2013. Only a few Taiwanese companies will be able to benefit from this growth, however, since the AMOLED panel segment is dominated almost completely by Korea's Samsung Electronics.

To meet the growing demand for AMOLED panels, which are used in tablet PCs and TVs as well as smartphones, Samsung is preparing to build an 8.5-generation plant to boost production capacity and consolidate its lead over Taiwanese manufacturers, most of which are still churning out panels in 3.5-generation plants.

Urged by officials from the Industrial Development Bureau (IDB), AUO, the first Taiwanese manufacturer with the ability to mass-produce AMOLED panels, has volunteered to head up the formation of the AMOLED alliance. It has convinced such smartphone makers and PC integrators as the HTC Corp., Acer Inc., and Asustek Computer to join.

Another way to ensure a bright future for manufacturers in the industry, TRI analysts believe, is for Taiwan to cooperate with Japan in the development of LTPS and IPS technologies. This would allow Taiwanese manufacturers to upgrade their production by using LTPS and IPS, while enabling Japanese companies to take advantage of Taiwan's thin film transistor (TFT) substrate production and experience in contract manufacturing. In this way Taiwanese and Japanese companies could jointly tap into the supply chains of global brands, helping them to compete against their Korean rivals in the future.