DisplaySearch Blog

Charging Ahead With Consolidation

By David Barnes, VP Strategic Analysis

Panasonic has shocked Japan twice this year. First, the company founded by venerable Matsushita Konosuke-san in 1918 announced it would change its name to Panasonic, which had become its best-known brand name outside Japan. Second, Panasonic announced plans to acquire SANYO Electric. The exact nature of the acquisition is not determined yet, but the target is SANYO’s lithium-ion battery business. SANYO’s other lines of business have not done well and preferred shareholders (affiliates of Goldman Sachs and two Japanese banks) who provided life-saving funds hope to liquidate their positions. Many commentators think Panasonic might benefit by adding to its battery technology and product portfolio but wonder how other SANYO assets might be disposed.

This news reminds me of the gradual transformation of Samsung SDI from a display-intensive business to a battery-intensive business. The company began as Samsung-NEC, a joint venture for making CRT in 1970. In the 1990’s, Samsung SDI acquired LCD technology from Japan and developed PDP technology. At the start of this decade, the company expanded into rechargeable batteries for electronic products. This year, Samsung SDI has formed a lithium-ion joint venture with Robert Bosch of Germany for electric car applications and the batter business has become its main engine for profit and growth. Sister company Samsung Electronics now manages production planning and marketing of Samsung SDI PDP modules for its own benefit. In addition, Samsung SDI has put its TFT LCD assets into a joint venture with Samsung Electronics. This leaves the firm with a declining CRT business and a rising battery business.

In my mind, such developments are forms of consolidation within the display industry. Ten years ago, SANYO was the leader in low-temperature, poly-silicon (LTPS) LCD production. By 2006, SANYO was out of the business. Since then, leading brands like Panasonic and Sony have become major TFT LCD players as they seek control over their branded TV businesses. Rationale for continued investment in large-panel capacity by TV brands such as Panasonic, Samsung, Sharp and Sony seems clear. Continued investment by merchant panel makers such as AU Optronics, Chi Mei Optoelectronics and LG Display seems less clear. As merchant suppliers, they face risks if unaffiliated customers change product plans or sourcing strategies. We already see the strain on Chi Mei Optoelectronics in its third-quarter loss. The company expanded capacity 56% in 2007 and it is expanding another 50% in 2008, which is double the pace of its competitors. Expanding capacity in a down-turn used to be a way panel makers positioned themselves for share gains in the next up-turn. That strategy is working less well this cycle because consumer spending power is declining rather than rising.

The time seems right for more consolidation in the flat panel industry. Experience leads me to cautious expectations, however. As I report in The DisplaySearch Monitor, cross-border deals are difficult to negotiate and may be even more difficult to manage. In addition, combining several small producers having relatively small substrate fabs can create a collection of ill-fitting parts rather than a unified company with greater effective scale in any particular market segment. Even AU Optronics experienced several quarters of extraordinary cost while it melded lines acquired from Quanta Display into its business system. A smaller producer might lack the organizational or technical strength required for merging panel operations. It seems more plausible that consolidation will proceed through group business restructure. For example, Tatung could acquire Chunghwa Picture Tubes and spin the declining CRT business out. That could give Tatung coordination benefits and discounted assets. Some LCD assets could be sold, perhaps, such as with the Giant Plus or Wintek deals. I am not advocating such moves but I think rationalization within a corporate group more likely than cross-group or cross-border deals.

And, as indicated by this blog’s title, I think it possible that rationalization include reconfiguring assets to serve expanding demand for batteries and solar cells that charge them. There is a lot of capacity for producing flat panels and there is a lot of technology for it as well. The world lacks adequate photovoltaic capacity and the technology to make it cost effective. That is why some LCD plants are being converted to make solar cells and why DisplaySearch is covering developments in photovoltaic production.

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