Simon Lewis

LG Philips' and AU Optronics' Challenge in Large-Screen LCD TVs (LPL, AUO)

Hi,

I regret to inform you that I am no longer covering this space - and as a result don't have the information available to answer your question. Sorry.

Simon

Is LCD Market Overcapacity Being Reined In?

William, I've spent a couple of days thinking about your post, and respectfully, I think your take is entirely wrong here.

Overcapacity isn't an industry problem. It's the problem of suppliers who do not have enough customers to consumer their capacity. LPL, AUO and CMO, together with the second tier Taiwanese players, fall into this category. Neither Sharp nor Samsung are suffering from overcapacity. In fact, both are purchasing panels from Taiwan to make up their own shortfalls.

The story that Sharp is planning a Gen 10 plant, starting construction in a year or so, is remarkable because it suggests that not only is LCD going into a size range that seemed closer to impossible than improbable as little as 12 months ago, but that Sharp believes that they can achieve price points that can turn this into a mass market rather than an obscure niche.

Display Search are forecasting about 1.25M LCD TVs greater than 50" in 2009 and 2.6M in 2010. A Sharp Gen 10 fab with a single line with a capacity of just 15,000 substrates/month could supply 110-120% of the forecast 2009 demand and 50% of 2010. DisplaySearch assume an average price in the 55'-59" range of $4,600 in 2009, with $8,830 for the 60"+ class. But if the prices would be $3,000 and $5,000 the demand pciture could change dramatically.

Any industry-wide problem of overcapacity comes from having too much capacity at a particular format. There is no need for 4 players to have Gen 7, Gen 7.5 and Gen 8 plants... that would inevitably lead to overcapacity. But Sharp was the first player with a Gen 6 (and profited enormously from this), is today the first player with Gen 8 and might be planning on becoming the first player with Gen 10. Combined with innovative technology and a vertically integrated supply chain to absorb production, this positions Sharp very well. They may not be the largest player by any of the volume related measurements, but they are and look likely to remain the most profitable company in a highly capital intensive, cyclical and low margin industry.

Sharp Moves Up Launch of Kameyama 2 LCD Panel Factory

Sharp's earlier than expected launch of mass-production from their Gen 8 Kameyama No. 2 fab will not significantly impact their available of key 32" and 37" panels since these are not produced efficiently at the new plant; the volume of production at Kameyama No. 1 of 45" and larger panels was limited so freed up capacity is not enormous. Sharp will continue to depend on Taiwanese suppliers to make up their numbers.

However, Sharp will able able to make a serious play in the >40" market for the first time, and this is significant.

Probably most significant is the innovative processes that Sharp claim to have in their new plant. Sharp already have the highest margins in the industry. If they have truly succeeded in significantly reducing unit costs, then their challenge to plasma (especially Matsushita) and current large format LCD market leaders Sony and Samsung could restore Sharp to the leadership position they enjoyed until a little more than 1 year ago.

Matsushita's Plasma TV Sales Disappoint

Note that 20% of Matsushita's Q2 plasma shipment were in the 37" size - which is fairly and squarely LCD territory. This source of volume is bound to dry up and leave them high and dry. Matsushita have a much lower 50" percentage (10% of their total volume) than LGE (20%); in absolute numbers LGE have 1.7X Matsushita at that larger size. The 103" is a red herring.

LG Philips' and AU Optronics' Challenge in Large-Screen LCD TVs (LPL, AUO)

Thanks for the compliment.

The available data I have comes from Display Search's "Design Win" listings. This tells you who is a "qualified" supplier for a given brand model size but doesn't tell you the relative proportions supplied. I have invested a great deal of effort in the past in trying to figure out the answer to the question. The best I can give you is as follows:

AUO is a "strategic" supplier to Polaroid, Vizio and Westinghouse - all of them respectable second tier brands.

AUO is a "second/third source" supplier to almost all leading top-tier brands including Samsung, Sharp, Sony and Philips, all of whom have an in-house or affiliated panel supplier. These brands have both strategic and tactical reasons to work with AUO:

Strategic -
- to gain some leverage over their primary suppliers
- as an insurance policy for the day that their strategic suppliers are short of capacity and they an existing relationship with another supplier makes it easier to secure enough panels when there's a shortage in the market

Tactical -
- primarily to compensate for shortages in capacity in specific screen sizes

This basic dynamic is a challenge from which AUO and CMO suffer. The question is whether LPL will also find itself suffering from the same challenge as Philips reduces both its ownership stake and its loyalty to LPL as a supplier.