Why Sharp Wants to Invest In China
September 8th, 2008By David Hsieh, Vice President of the Greater China Market
Since the beginning of the year, there have been rumors about Sharp intending to invest in a TFT LCD fab in China. The rumors circulating are about Chinese companies like TCL or SVA Group talking with Sharp about a joint venture to usher in Sharp’s TFT LCD technologies to build a Gen 7 (or say, Gen 7.5) fab in China, sponsored by the Chinese government. More than that, many rumors also indicate that Samsung and LG Display are also considering investing in China. All of sudden, China seems become another hot spot for new fab investment. What is the reason behind that? Are they really eyeing the 41 million unit Chinese domestic TV market (among that 14 millions of LCD TV in 2008) only, or are they looking at the low cost advantages of China’s labor?
Of course, not all of the rumors will become reality, but it’s true that Sharp did bring up the possibility with Chinese companies which are mainly supported by the government, and we have good reasons to believe the discussions are still ongoing.
Firstly and certainly, there is great potential for the TV market in China: In 2008, LCD TV penetration is 34%, compared to over 70% or 80% in North America or West Europe markets. There are still many CRT TVs in China waiting to be replaced, and there are more end users with improving incomes (on account of the rapid economic growth) who have been educated that LCD TV is better and worthy. The potential might last more than a decade with China’s economic growth and population.
Secondly, to be honest, Chinese TFT LCD makers (such as SVA-NEC, BOE and IVO) are comparatively weak in world-wide panel market due to limited capacity. The attempt to merge these three panel makers in China into one for greater economic scale failed. Nevertheless, none of them has the enough technology and capacity power to invest in a line beyond Gen 5.
Although the Chinese government is a willing sponsor—as they always do for high tech industries to encourage the investment—they do not have sufficient confidence in the technology. Without external help, it seems like an impossible mission to invest in a line larger than Gen 6. For the past three years, there have been so many discussions (and rumors) in China about someone wanting to invest in a new Gen 6 or larger line. A project that gathered all major domestic TV makers and BOE, a Gen 5 owner, to build a Gen 6 line jointly has failed. Plus over-supply and fast price erosion recently hammered the three domestic panel makers, as their costs are comparatively higher. China is one of the biggest TV markets, and maybe the largest LCD TV market in the future, but ironically, Chinese companies have to purchase all panels from overseas. It seems like the Chinese government is facing a dilemma about whether to see the TFT LCD industry continue in China, or to see the industry decay in China.
Third, Sharp’s strategy has been turning from in-house LCD TV panel supply to selling to external customers. Sharp is also changing the investment policy to be more flexible and profit-oriented. With the capital and loan support from China’s government, invest with the minimum cash cost might be a good choice. Sharp has the first, mature Gen 8 technologies and their next fab is Gen 10; therefore a Gen 7 or Gen 7.5 line is not a big technology hurdle. In addition, there are practical financial benefits Sharp can get from the technology transfer fee and royalties after the Chinese joint venture fab gets up and running. To Sharp and China, this is a win-win investment.
Maybe we will really see Sharp and the China government making an announcement in the near future.
