TRi Urges Taiwan to Lift Ban on 8.5G TFT-LCD Investments in China

China will swap needed panel tech

Taiwan is losing its lead in the global thin film transistor-liquid crystal display (TFT-LCD) panel sector to formidable rivals in South Korea, and the decisive battlefield is in China where gaining dominant market share is critical, according to a research report released recently by the Topology Research Institute (TRi), the largest private market researcher in Taiwan.

C.W. Lee, TRi's display market research analyst, warns that S. Korean panel maker Samsung announced its release of the 7.5th-generation (7.5G) technology to China at the end of 2009, and another major South Korean player LG Display (formerly LG.Philips LCD Co., Ltd.) is expected to soon announce plans to set up a 8.5G plant in the mainland.

"Now is critical for the Taiwanese TFT-LCD sector as it faces unprecedented challenges from both Chinese and S. Korean rivals. If the Taiwan government continues to ban local panel makers from investing in China, the panel line in Taiwan may not survive," says Lee.

So the TRi urges the Taiwan government to permit local makers to move 8.5G panel production lines to China to stay ahead of Samsung, invest in China's digital-TV sector and application to create downstream demand to further push industrial development.

No. 2 Now

Taiwan is the world's second-largest producer of TFT-LCD panels, TRi says, but the gap left by the leader South Korea has widened, especially in 2009, when South Korea's global share soared to 49.1% and Taiwan's declined to 40.8%. The same is true of capacity difference: in 2007 Taiwan lagged South Korean overall panel-area capacity by only 1%, but such gap widened to 9% by 2009.

South Korean panel makers will expectedly command at least three advantages after being officially permitted to set up production in China, according to Lee, including earlier business deployment in a huge panel market, better position to undermine further cooperation between Taiwan and China, and resources to be gained by accessing China's market to develop next-generation panel technology. Furthermore, South Korea has to be watched closely as it continues, while already the world's major producer of both TFT-LCD panels and LCD TVs, to sharpen competitiveness in China.

TFT-LCD Market Share (2007-2009)
	2007	2008	2009
South Korea	44%	45%	48%
Taiwan	43%	41%	39%
China	9%	10%	9%
Japan	4%	3%	4%
Source: TRi, December 2009.

Chinese central government's subsidies to drive sales of home appliances in rural areas helped fuel Taiwanese panel suppliers' sales, accounting for over half of TV panels sold in China, which grew clearly from late 2008 to 2009. Lee warns, however, that such rosy trend may be interrupted as South Korean panel makers' new-generation investment projects in China will prevent further expansion in China by Taiwan's panel suppliers, because South Koreans will be producing locally to cut cost and establish closer partnerships with Chinese TV makers.

Another Alarm

Another alarm to ring, Lee says, is that S. Korean panel makers are expected to greatly gain from their go-west strategy, simultaneously achieving rapid market access and lucrative revenues after setting up mass production in China. The result, he explains, is the S. Korean rivals will accumulate more resources to develop new-generation display technologies that might marginalize Taiwanese counterparts.

Only if Taiwanese panel makers are allowed to invest in 8.5G panel production in China can they compete on the same field against South Korean rivals, Lee says, especially considering Taiwan is already falling farther behind the South Koreans. The future is not all gloomy, however, the analyst says, as AU Optronics Corp. (AUO), the largest TFT-LCD panel manufacturer in Taiwan, has good relationship with Kunshan Longfei Optical Electronics, while Chi Mei Optoelectronics Corp. (CMO) has invested in another Chinese panel supplier. But having the Taiwan government lift the investment ban can make or break the future of local panel makers.

The largest, cost-effective size to cut a 7.5G substrate is 47-inch, with an 8.5G substrate being 55-inch, while both meet future demand in the Chinese LCD TV market. So the Taiwan government should permit local makers to set up 8.5G or beyond projects in China, TRi says.

Last Chance

While the Chinese panel market is so big and will likely lead the world by 2012, TRi says, the nation lacks self-developed display technologies, which it needs and will swap by offering makers access to its massive market.

Tapping such opportunity is the last chance for Taiwanese panel suppliers to consolidate footholds in China by gradually sharing display technologies to exchange for bigger market shares, TRi says, but such authorization should be incremental and prudent to avoid potentially disastrous consequences, with the research institute implying that precedents in China show Taiwanese investments there have sometimes been taken over by local partners illegally. There is a Catch-22 as well: even if Taiwanese panel makers don't share technologies with Chinese counterparts, rivals from elsewhere will to expand markets.

Caption 1: TRi urges Taiwan to permit 8.5G TFT-LCD investments in China. (8.5G substrate produced at AUO fab)

Caption 2: China's potentially huge large-sized LCD TV market is targeted by global TFT-LCD panel suppliers.