JV by Major Japanese Makers to Take on Samsung Mobile Display

The Industrial Economic & Knowledge Center (IEK) under Taiwan's Industrial Technology Research Institute recently commented on the formation of a joint venture by four Japanese companies engaged in small- and medium-sized liquid crystal display (LCD) panel business, saying the venture implies the importance of benefit-sharing—not only in market and customers, but also synergistic integration of R&D resources for next-generation display technologies. The venture, the IEK adds, is also a good lesson for global counterparts in turning unfavorable business climate into one's advantage, by re-adjusting R&D and operating strategies for further development.

Rumors circulated in the market around 2011 June that several major companies will try to partner in the small- and medium-sized display (SMD) business. Then on August 31st, Innovation Network Corporation of Japan (INCJ), Hitachi Ltd., Sony Corp. and Toshiba Corp. announced having signed a non-binding Memorandum of Understanding (MOU) to integrate their SMD operations, run by subsidiaries of Hitachi, Sony and Toshiba, in a new company (unofficially Japan Display K.K.) to be established and operated by INCJ.

INCJ, Hitachi, Sony and Toshiba aim to sign the definitive, legally-binding agreements this autumn and complete the integration by the spring of 2012, subject to being officially approved, making the venture the world's largest SMD maker.

All the shares and assets of the SMD subsidiaries of Hitachi, Sony and Toshiba will be transferred to the joint venture, with INCJ, a public-private partnership providing financial, technological and management support for next-generation business, planning to invest 200 billion yen in the new firm for a 70% stake and voting rights, and Hitachi, Sony and Toshiba each holding 10%.

Analysis
Despite Japan being the pioneer of liquid crystal display (LCD) technologies, the nation's industrial development has been deleteriously undermined by rivals from Taiwan and South Korea, albeit with Japan leading in global SMD revenues, IEK says.

To cope with fierce competition, Japanese LCD panel manufacturers have been trying to diversify from large-sized (larger than 10-inch) panel production to SMD R&D and manufacturing as well as form technological alliances with overseas players (especially Taiwanese companies) for better survival. Sharp of Japan, for example, has retooled one of its 8th-generation (8G) panel factories in Kameyama to turn out SMDs; while Hitachi Displays is considering to tie up with Taiwan-based Hon Hai Group for capital and technological exchanges.

The future, at least the near future, of SMDs is very bright, with great new opportunities being created for Japanese players, IEK says, driven by hot selling portable devices as smartphones and tablet PCs; while the Japanese government recognizes the rapidly expanding SMD market, knowing it is hard to retain the nation's lead without steady, massive capital investment and allowing companies to play the game individually. Having referred to governmental policy support given in Taiwan and South Korea, Japan decided to emulate by setting up a public-private joint venture to further develop the industry.

According to IEK, Hitachi Displays, Sony Mobile Display, and Toshiba Mobile Display (TMD) are currently the globally No. 6, 7, and 3 SMD suppliers, respectively, with Sharp in the lead.

In the SMD business, Sony operates a 3.5G thin film transistor-liquid crystal display (TFT-LCD) production line with low temperature poly-silicon (LTPS) technology from Toyota and amorphous silicon (a-si) technology from Epson. TMD produces double-emission active matrix organic light-emit diode (AMOLED) panels at its Ishikawa factory. With the new venture set up, INCJ will invest over 100 billion Japanese yen in AMOLED production lines.

IEK says the new firm will base all its investments on trying to compete with Samsung Mobile Display of South Korea, whose 5.5G AMOLED line has kicked off mass production to seriously threaten Japanese companies' high-end LCD cellphone panels, and that Japanese players have to start up AMOLED lines as soon as possible to avoid being left behind while SMD further expands market share.

Impact
The short-term impact from the Japanese SMD venture, according to IEK, is less room to maneuver for Taiwanese suppliers of medium- to high-end LCD panels.

About four months are left before the new venture is finalized, IEK says, which will integrate production technologies and customers. Sony specializes in AMOLED and offers own-brand products including cellphones, palm-top game console PSP, digital cameras etc. TMD is a seasoned maker and developer of high-end LTPS TFT-LCD panels, as well as a major supplier of SMD panels for Apple iPhones. Hitachi Displays has patents for its IPS (In-Plane Switching) wide-viewing-angle technology. Simply, the three companies can achieve both technological synergy and production-capacity sharing.

All the three Japanese players focus on higher-end SMDs for mobile devices, especially the LTPS TFT-LCD panels, IEK says, while Taiwanese companies are more specialized in medium- to low-end a-Si TFT-LCD products, supplying only a small portion of LTPS products. Most TFT-LCD panel makers have begun trying to refocus on SMDs by utilizing sub-4G capacities while simultaneously strengthening shipments of LTPS panels.

Taiwanese makers' move to upgrade products for higher profit margins have been less than effective, also lagging Japanese rivals' picture quality, which means, IEK says, the new venture will further deter Taiwanese SMD makers from deploying in the higher-end LCD panel market.

The long-term impact of the new venture on the global SMD industry is, according to IEK, to position Samsung Mobile Display as the ultimate enemy.

In the long-term, the Center says, the nemesis for Sony, Toshiba and Hitachi is not only Taiwanese counterparts but, more importantly, Samsung Mobile Display. In the past two years, Samsung Group divided its cellphone and SMD divisions to integrate all resources to set up Samsung Mobile Display, which since 2009 has helped to win increasingly higher global market shares for its cell phones, as well as achieving explosive advancement in AMOLED technology R&D and production—realizing Sony's dream.

Repeating History
IEK says Samsung Mobile Display's aggressive moves have hit Japanese AMD makers' sore spot, suggesting a repeat of the large-sized TFT-LCD sector shakeup that may again dethrone Japan's lead in the global SMD business, in which the new joint venture aims not only to consolidate Japan's lead, but also capture the rising AMOLED business.

While some companies in Taiwan try to mass-produce AMOLED panels, including Chimei Innolux Corp., AU Optronics Corp. (AUO) and Wintek Corp., only Chi Mei EL Corporation (CMEL) under Chimei Innolux has successfully shipped products to Kodak of the U.S., with AUO having once tried supplying such panels for BenQ cellphones. Boasting very limited production and shipment experiences, Taiwan lags far behind Japan and South Korea in AMOLED equipment and material supply-chain capacities.

The proposed venture, IEK says, enables Japan to integrate SMD R&D resources to develop business, technologies in the next-generation display market, which is a wake-up call for Taiwan and may have put the writing on the wall for the next industrial transformation and upgrading.