By David Hsieh – Vice President, Greater China Market, DisplaySearch

News reports from China indicate that Samsung Electronics will invest $300-440 million in ChinaStar, the TFT LCD company started by TCL, one of the top LCD TV makers in China. Samsung will take at least 5% of ChinaStar, and as part of the deal, TCL will invest and take a similar share of Samsung’s planned Gen 7 Fab in China. Samsung and TCL have a history of cooperation, as TCL has made LCD modules for Samsung. While there has not been an official announcement from Samsung about this investment, there are incentives for both sides to take this action:

Samsung is facing uncertainty regarding its Gen 7 investment in Suzhou, which was announced in late 2009 but has not received approval yet. Involvement with ChinaStar will give Samsung access to capacity in China, and investment in China may help them to win approval for the Gen 7 investment.

ChinaStar is a joint venture of TCL and the Shenzhen government. Raising the required investment of $3.6 billion is a challenge for the partners, especially as drops in the Shenzhen stock market has caused investors to hesitate. The phase 1 funding plan to raise $1.5 billion has not gone smoothly. An investment from Samsung would be helpful, increasing confidence of investors and banks.

ChinaStar has recruited experienced engineers from Korea and Taiwan to help facilitate product design, process technology, and capacity ramp-up, but entering TFT LCD manufacturing at Gen 8 is still a big challenge. Samsung’s involvement may include technical support.

This investment might symbolize a new form of competition between Taiwanese and Korean panel makers. Taiwan regulations do not allow domestic panel makers to invest in Chinese fabs, but there are no such limitations for Korea. AUO is now planning to build a Gen 7 fab in Kunshan, and Foxconn is planning to invest in a Gen 8 fab in Chengdu, as reported in the DisplaySearch Quarterly FPD Supply Demand and Capital Spending Report. However, Taiwanese government approval is needed for these investments, and it takes time to navigate the complicated political atmosphere across straits, especially since the recent free trade agreement between Taiwan and China does not include LCD. Direct investment in Chinese companies may be a faster way to increase capacity.

It is normal for TV companies to invest in TFT manufacturing to secure allocation; examples include Sony’s investments in Samsung LCD and Sharp, and Skyworth’s plan to invest in LG Display’s coming Gen 8 fab in China. Samsung’s investment in ChinaStar symbolizes a new model of cooperation for panel makers, especially as the investment involves political and diplomatic considerations rather than purely economic reasons.