In India, manufacturing as a share of GDP is much lower than in economies such as China, where it is more than 40%. Electronics are likely to account for a large share of total manufacturing, which means that India’s new policy could be very important for the global electronics supply chain. Low labor costs could shift some manufacturing to India, and with a growing domestic market, local manufacturing could also have logistical benefits. Korean brands, Nokia, and Indian companies, such as Videocon and Onida, have already made India their regional manufacturing hub for exports to South Asian and Middle Eastern countries. There will also be incentives for electronics, semiconductor and LED industries, as well as improved taxation policies such as a new goods and services tax (a form of a value-added tax) system.

India will need to reach out to prospective manufacturers and investors to gain knowledge about manufacturing and global supply chain management, particularly in electronics.

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.

Plastic Logic spent nearly a decade developing processes for fabricating active matrix backplanes on plastic substrates without finding a customer that could successfully launch a product. Other companies have attempted to develop products around flexible displays. For example, Polymer Vision demonstrated a rollable e-book/mobile phone device called Readius in 2007, but went bankrupt before it could bring the product to market. Wistron acquired the assets, and they continue work on flexible active matrix displays, demonstrating a device at SID in 2011. Since 2008, Plastic Logic has tried its own hand in developing e-readers, announcing its QUE reader in 2010, later cancelling the product in favor of a next generation product, which has not been released.

Earlier this year, the company took an investment from a Russian investment company RUSNANO; the deal included support for a manufacturing facility in Russia. It appears that the initial launch of the Plastic Logic 100 for Education is focused on Russian schools. The company announced that it has been selected by the Russian government for participation in its electronic textbook program. The product is priced at RUB 12,000 (less than $400).

The company stated that the Plastic Logic 100 uses a 10.7” PlasticPaper display, which is presumably electrophoretic material from E Ink on an organic TFT backplane made with a plastic substrate. While that indicates this will be the first plastic active matrix display in production, the product itself will not be flexible; it is in a rigid frame and will likely have a cover glass (more below). Instead of talking about flexibility, Plastic Logic is highlighting its light weight and ruggedness as key features for electronic textbooks.

Another interesting feature of the Plastic Logic 100 is that it uses a projected capacitive touch screen. Projected capacitive touch screens typically need a cover glass (or plastic) sheet. The cover glass contributes to the durability of the device, but also increases weight. However, thanks to the plastic display, the whole device weighs only 475 grams, making it lighter than the iPad 2 (601 grams).

Plastic Logic 100 device

Source: Plastic Logic, 2011

Broadcom’s TV IC business was always something of a puzzle. The company has a huge breadth of experience and technical skill, yet never seemed to be able to turn it into world-beating products for multiple customers. Broadcom thrives in defining new specifications (such as 802.11g) and bringing new solutions to market, and then innovating disruptive new functions to stay ahead of price erosion. This is a different skill set from aligning with key accounts and innovating mainly on cost. Broadcom also does not have the cost structure for a business based on frugality. Mediatek and MStar survive on 10 fewer percentage points of gross margin.

Broadcom has likely taken a pragmatic look at the market and concluded that its money is better spent elsewhere. Broadcom is a well-managed, highly successful company, and it must be comforting for shareholders to know that they are making tough choices even while sales are at record levels.

It’s not the end of the story, and we can expect to see further quiet exits in the coming years. This scenario matches the theme of a flat panel TV industry that is becoming mature. The end-game will include two major cost-based merchant players (clearly MStar and Mediatek) with the market rounded out by a couple of captive suppliers and some specialists.

The crucial question is what happens next. Our research shows record market share for MStar. Two paths are possible: profitless prosperity like the TV market, or leaders changing their behavior and acting to preserve margins. It will be interesting to see if these tigers can change their stripes.

One downside of these technologies is that they can have higher power consumption. Since, traditionally, desktop monitors are driven off of AC power and have power “bricks” or built-in power supplies, the issue of power-draw has been less relevant for desktop displays than for battery operated mobile PC displays. Recent green initiatives have tried to shed light on the power consumption for desktop displays, and the use of LED backlights has helped reduce power draw, but lower power consumption is hardly a selling proposition. 

A tangible benefit of lower power monitors, however, is the ability to “cut one cord” of a desktop display or future cloud monitor. Current monitors and all-in-one PCs require at least a video cable, a power cable (and/or power brick), and an Ethernet connection. LCD monitor players have offered several solutions to cut at least one of these cables:

• Power from USB 3.0
• Power from DisplayPort
• Power from Ethernet (still requires a separate video connection)

Asus showed a USB-powered monitor at Taipei COMPUTEX, but its brightness was only 200 nits (stated power draw was 6.5W). Many LCD monitor panel roadmaps show low power monitor panels allowing for an 8W total solution, but these are mostly for low brightness (200-250 nits) TN panels from Taiwanese or Chinese panel makers that might not have as much access to advanced technologies like IPS/PLS. 

So the near-term desire to push IPS/PLS technologies to the mainstream of desktop computing could have a side effect of hindering other monitor advancements, such as power over Ethernet, that are needed for the development of consumer cloud monitors.

High resolution enables some 3D technologies, allowing viewing of larger displays at the same distance and improving the viewing experience of smart TV. But most importantly, high resolution appeals to all FPD users because it provides smoother, higher quality images.

Two definitions may be used to describe FPD resolution:

• Number of pixels per inch (PPI), often referenced for small/medium applications, or
• Total number of pixels per display (X × Y) often referenced for large-area applications.

As shown in the table below, smaller FPDs tend to have higher pixel densities and smaller pixels, while larger FPDs have a greater number of total pixels.

Table 1. Low and High Resolution Examples for Various FPD Panel Sizes

 We can define FPDs with greater than 230 PPI or 8 million pixels as SHR displays. Super high resolution FPDs will account for about 20% of all small/medium displays in 2011 and are well on the way to becoming standard for smart phone applications. For large-area applications, super high resolution is still very much a niche market. But by developing a wide variety of new manufacturing technologies now, FPD makers hope to move SHR TVs into the future mainstream.

However, manufacturing such high resolution displays creates a variety of production challenges and tends to require unique manufacturing capabilities such as LTPS or metal oxide high mobility backplanes, fine resolution TFT and pixel pattering, low resistance copper bus lines, integrated gate drivers, and tighter process control throughout the entire production process.

DisplaySearch is currently analyzing the manufacturing technologies required for super high resolution. For each technology, we are identifying the benefits, challenges, process flows, status of each by panel maker, and forecast adoption rates. We will report this data in the soon to be released TFT LCD Process Roadmap Report.

It’s hard to understand how a flat panel fab could be operated in such a remote location, without any supply chain or plentiful water supply. It may be that BOE’s intent is to secure financial support from the local government and to prevent its stock ticker being tagged with “ST,” which stands for Special Treatment (in China, companies can be delisted from the stock market after three consecutive years of losses, and the ST tag indicates a company that is operating below market expectations). BOE posted net profits in 2007 and 2009, but lost money in 2008, 2010, and Q1’11.

On the other hand, the Ordos local government has recently been seeking high-tech investments to balance its industrial structure. It may utilize tax breaks, subsidies or loans to attract high-tech industries. Ordos is very rich in natural resources and is known by the Chinese characters for wool, coal, rare earth metals, and natural gas (羊煤土气), which have the same pronunciation as the phrase “hold one’s head high” (扬眉吐气). Although its total population is only about 1.5 million, according to government data, Ordos has the highest per capita GDP in China, higher even than Hong Kong. However, it has no development related to the FPD industry and its supply chain.

In addition to the lack of a supply chain in Ordos, the ability to handle advanced FPD manufacturing and AMOLED technology is an additional challenge for BOE. Moreover, there have been no indications of detailed discussions of this fab with equipment makers. So this project is highly uncertain, but definitely bears watching.

However, despite this, the use of capacity expansion as a competitive tool continues:

• In May, Samsung broke ground for its Gen 7 fab in Suzhou, China, targeting ramp up in Q4’12.
• BOE declared that they plan to ramp up the newly built Gen 8 in Beijing in September, as originally planned.
• On August 8, ChinaStar held a kick-off ceremony for its new Gen 8 fab in Shenzhen, and it announced that the fab will ramp up from Q4’11.
• Press reports indicate that LG Display—after a long internal process—decided to build a Gen 8 fab in Guangzhou, China. The groundbreaking ceremony is planned for the end of August, with panel production expected in 2013.
• On August 10, the Chinese government approved a Gen 8 fab in Kunshan, a joint venture between AUO and the government. Mass production is expected in 2013.

In other words, there will be five new fabs in China that will start production in 2012 and 2013. New fab investments seem very questionable for panel makers who are cutting back on existing capacity utilization. Why is this happening?

It is important to understand the background for these investments. As we have previously discussed, China—especially local governments—has offered many stimuli to encourage foreign panel makers to build fabs and transfer technology. And the potential for increased import duties for LCD panels is always a big concern for panel makers, as China has used this tool to accelerate industry shifts before. The current LCD panel import duty is 5%; however, some in the industry feel that China government will raise it to 8-10% to support BOE, ChinaStar and other domestic players.

On the demand side, with slow growth in European and North American TV markets and little hope for a return to high growth, China—the largest TV market in the world—is the greatest opportunity for panel makers’ future. Although China’s TV market growth rate is not as strong as before, it remains the most important opportunity.

Furthermore, in addition to the attraction of market growth for panel makers, China is also an important place for new product development. Recently we reported that panel makers are developing new sizes such as 39”, 43”, 48”, and 50”, and low-cost direct-type LED backlight models with the China market in mind. With Chinese panel makers like BOE and ChinaStar emerging, foreign panel makers are sensing the need to build a presence in China for competitive purposes.

Meanwhile, with the cyclical characteristic of the TFT LCD industry, demand elasticity always triggers another wave of the tightness following over-supply. When the next big demand wave comes, it’s possible that it will be from China, as there are still hundreds of millions of old CRT TV waiting to be replaced. So why not invest in China?

Of course, continuous capacity expansions, even in China, will possibly make the cycle worse and the over-supply more serious. This may be a headache tomorrow, but not now at least.

• Sharp and Chimei Innolux will jointly procure glass substrates, color filters and other components for greater economies of scale.
• Sharp will provide technical support to Chimei Innolux, especially for high transmittance liquid crystal technology like optical alignment.
• LCD TV panel trading: Chimei Innolux will provide 20-40” class panels to Sharp, who will utilize its Gen 10 fab to produce large sizes like 60”+.
• Sharp will give LCD TV OEM orders to Foxconn, who will act as an outsourced OEM for Sharp with panels consigned from Sharp.

This relationship is broad and complicated, involving many technologies, businesses, panels and sets. However, there is fierce competition among LCD TV panel and set OEM manufacturers, especially in the current slow-moving circumstance, and this alliance could be beneficial to both Sharp and the Foxconn group.

From the panel side, Sharp has been transitioning its Gen 8 fab to high-end panels for mobile devices, but the company needs a better way to utilize its Gen 10, as well as to take care of its panel needs for smaller sizes. Chimei Innolux has a huge amount of Gen 6/7 capacity, which can support Sharp. Chimei Innolux also needs to find a faster way to upgrade its TV panel technology.

According to our research, Sharp and Chimei Innolux had a combined Q1’11 LCD TV panel unit market share of 29.3%, which is greater than Samsung and LG Display. This means that the joint venture will be a major player in LCD TV panels.

One thing that might cause difficulty is Sharp’s panel procurement contract with CEC-Panda in China, to whom Sharp sold its Gen 6 fab. CEC-Panda is now trying to ramp up its Gen 6 fab, but now it seems Sharp will also buy Gen 6 panels from Chimei Innolux.

From the LCD TV set perspective, Foxconn is the biggest LCD TV OEM for Sony. The company bought Sony’s assembly lines last year and is also looking to expand its customer base. Within the leading TV brands, Korean makers like Samsung and LG Electronics have a clear strategy for in-house production, so Sharp is the most promising customer for Foxconn. In the meantime, the exchange rate and business environment are putting pressure on Sharp to maintain in-house production, and Samsung and LG Electronics are aggressively expanding their global market shares. TPV, the largest LCD monitor and LCD TV subcontract manufacturer is also competing aggressively with Foxconn.

In the late 1990s, Taiwanese TFT LCD manufacturers acquired key LCD technologies from Japan. Over the next decade, Taiwanese panel makers passed Japan in capacity, and entered direct competition with Korean panel makers. During periods of oversupply, Taiwanese makers became more vulnerable than Samsung and LG—each with strong brands—because Taiwanese panel makers do not have captive demand. At the same time, Japanese TV brands saw Samsung and LG take the top position in LCD TV.

The Sharp-Foxconn alliance can be viewed as another new relationship between Taiwan and Japan. This time, it involves not only panels, but also TV sets, not just technology, but also business, and it may not be just a handshake, but more of a strategic move against their Korean rivals.

The prospect of power shortages is influencing manufacturing plans and supply chains for many consumer electronics products. System integrators, and EMS and OEM/ODM companies of all sizes are concerned, and they are working to secure an adequate power supply for assembly operations, including asking the government to give to priority to high-tech industries. At the same time, manufacturers are worried about their suppliers maintaining production of components.

In addition to the power shortage, the growth in power consumption exceeds the expansion of power supplies, and there are structural problems in generating power. According to government statistics, power consumption in Q1’11 grew 15% Y/Y, higher than the average during 2006-2010. Coal accounts for 77% of power generation in China; hydroelectric accounts for 20%, and nuclear and renewables make up the rest. China is trying to adjust the balance, but power shortages will be a factor for some time.

This power shortage will impact the consumer electronics and energy industries in many ways:

• Consumer electronics relies on a supply chain of component makers, system integrators, EMS/OEM/ODMs, and brands. When there are electricity shortages, large companies will have priority access, for their own needs as well as for their suppliers. Smaller companies without strong connections to major companies might not be able to sustain their business. The allocation of electricity is a political and economic issue in China, and shortages may result in a “survival of the biggest and strongest” game.
• Despite controversy, China is planning to increase the share of nuclear power. Currently there are more than 12 nuclear power plants under construction and 25 in planning. As a country injured by the pollution from coal generation, and short of hydro resources, China does not have many choices in generating power. Many in China have been advocating solar power. China is the world’s biggest solar cell manufacturer but generates only a little solar power domestically, and instead exports a large fraction to Europe.
• Green concepts will become more and more prominent and even mandatory. China has applied a series of power consumption regulations for consumer electronics products including PCs and TVs. The power shortage will push the administration to tighten rules further. Consumers will be more willing to buy green products if they face more limited power consumption. In the electronics field, this means opportunities for advanced technologies in power efficiency.
• Flat panel display and semiconductor makers will have to pay more attention to the capacity utilizations of downstream manufacturers, rather than focusing on the demand from brands. For example, we have been observing the big gap between tablet PC panel shipments and tablet PC set production; when there is ample supply of components and demand is strong, it might be the capacity of assemblers that limits the overall supply chain capacity.

For brands, China is no longer a place with unlimited manufacturing resources. Supply chain management will have to involve more than the lowest assembly cost, including who can secure the most stable electricity supply for running production lines!