Recent reports suggest both Samsung and LG Display are evaluating the option of moving currently installed Gen 8 equipment from their Korean fabs to the new fabs they have been planning on building in China in 2012 and 2013. As analyzed in our recent Quarterly FPD Supply/Demand and Capital Spending Report, there are a variety of potential benefits as well as negatives with this “Move to China” strategy.
Both companies continue to stress the importance of building LCD front-end fabs in China to be close to customers in the world’s largest TV market and to mitigate risks of future cell import tariff increases. If tariffs do increase, cells made in China for sale in China will have lower costs than those made in Korea for sale in China. If manufacturing locally in China is a must, the rationale for transferring recently-installed equipment is to enable more competitive utilization of tools that are now idling as a result of the current over-supply. At the same time, moving equipment—rather than buying new machines—will help alleviate the over-supply sooner and potentially help firm up module prices in 2012 and 2013.
Unfortunately, moving currently installed machines has a negative influence on the equipment market; it would be a lost opportunity for FPD equipment vendors who are already expected to suffer a severe downturn in 2012. But the main reason the “Move to China” strategy could be difficult to pursue is that it is possible that at the Korean panel makers have contracts in place with their Chinese partners that require them to buy new machines for their planned fabs in China.
The possibility that Samsung and LG Display might take a “Move to China” approach has been widely discussed in the supply chain, but we are not aware that any decisions have yet been made. Samsung has already denied plans for the move in the Korean press. Even so, in the current over-supply environment, why not move underutilized equipment? The benefits from the panel maker’s perspective seem to outweigh the negatives. If the “Move to China” strategies do come to fruition, it would be the first case in the industry of transferring almost new machines from a fab in one country to another because of rapidly shifting market conditions and future expectations.