by David Hsieh, Vice President, Greater China Market
At the end of February, Sony and Sharp announced that they will form a joint venture to build a Gen 10 TFT LCD fab, targeting large size LCD TV panels of 40” and above. Sony and Sharp will invest ¥100 billion and ¥380 billion, respectively; Sony will have 34% share of the new company, and Sharp will have 66%. Obviously the future output of this Gen 10 factory, which is to be launched for production in 2010, will have similar allocations to Sony and Sharp with the stock share. The joint venture is not only influencing Samsung TFT LCD, which is Sony’s current TFT LCD panel investment partner, but also Taiwanese panel makers who also supply large numbers of LCD TV panels to Sony.
Why did these two panel makers decide to join forces? Sony did not have mature enough LCD TV panel development or production technologies. Therefore, three years ago, Sony invested 50% for the first Gen 7 with Samsung, forming a company called S-LCD to reallocate the output, and increasing purchases from AU Optronics in Taiwan. Sony then invested another 50% in Samsung’s first Gen 8 fab. With this new joint venture with Sharp, Sony owns significant stakes in three fab generations: Gen 7, Gen 8 and Gen 10—not to mention Sony’s continuous leveraging the power of Samsung by buying more panels from AU Optronics in Taiwan, which has become its strategic panel supplier for 32”, 40” and 46” panels. Sony has been successfully securing its panel sources, and now the company is aggressively targeting sales of over 18 million units in 2008, representing 90% growth from the 9.5 million it shipped in 2007. Several indications are that Sony will target over 30 million for 2009, another growth of more than 60%.
For Sharp, having a partner share the risk is a good thing, since the company cannot rely on its own brand to consume the huge panel capacity forever. The company has been adjusting its policy to allocate more then 30% of its LCD TV panel output in 2008, during which the ratio was only 10% to 15% of other LCD TV makers. Sharp shipped 8 million of LCD TVs in 2007, less than Sony’s 9.5 million and Samsung’s 13.4 million units, and the company is also facing competitive pressure from other, smaller brands. With everybody buying panels from everybody, the Sony and Sharp joint venture seems to be just the latest in a string of recent LCD TV panel industry alliances and mutual procurement happening in Asia.
Now other LCD TV brands may be threatened, with a powerful Sony with many bullets will start to shoot at the market, including Samsung. How about the pure LCD TV panel makers (with no brands or set manufacturing) in Taiwan? Sony buys 35% of its LCD TV panels from AUO in Taiwan, who has no Gen 10 plan yet. AUO’s new fab is Gen 8, and will start production in Q2’09. AUO, the largest panel maker in Taiwan, has been continuously playing a role of independent panel supplier. Of course, Sony has also allocated considerable panel output from AUO’s Gen 8, as AUO is still an important strategic supplier for Sony, who can successfully leverage the power of Samsung (or S-LCD). But Sony’s joint venture with Sharp on Gen 10 and their plan to acquire many 40″+ panels from Sharp in two years means that they may want to think twice about investing in AUO beyond Gen 8.
Interestingly, Samsung also sources 30% of its LCD TV panels from AUO. It will be interesting to see if AUO can continue investing for more capacity when customer bases are limited. The market has been foreseen to be more concentrated in 2010, and in today’s fiercely competitive climate in the LCD TV market, keeping neutral means you have to face risks alone.
