Taiwanese flat-panel makers say they are comfortable with their business model of making liquid-crystal-display (LCD) components at home, assembling them into panels by adding backlights, chips and frames in labor-efficient Chinese plants, before exporting them to customers in the US, Europe and Asia.
This long-standing approach helped local companies avoid technology leakage and cut expenses during the industry’s boom period.
However, annual sales growth in the LCD industry will slow to less than the composite annual average of 3 percent over the next few years to 2015, from 9 percent during the period from 2002 to last year, market researcher DisplaySearch projected.
Therefore, the world’s major LCD panel makers are turning to fast-growing emerging markets, China in particular, to seek a new growth engine.
To compete with their rivals, mainly from Sough Korea and Japan, Taiwanese panel makers need to rethink their China strategy and build a greater presence there, especially since they suffered the brunt of the recent industry downturn, which curtailed demand because of a supply glut and the economic maelstrom stemming from the US credit crisis, analysts said.
“Taiwanese companies tried hard to win orders from the world’s major TV brands, especially from Japanese companies, but the results were unsatisfactory because they also source panels from their panel ventures. Now local companies are forced to take a more serious look at the Chinese market,” said Roger Yu (游智超), a flat-panel industry analyst with Polaris Securities Co (寶來證券).
Shipments of flat-panel TVs, mostly LCD TVs, in China may grow 30 percent annually to more than 20 million units this year, compared with a 1 percent to 2 percent increase in developed countries such as North America, Western Europe and Japan, the latest report by DisplaySearch showed.
“Taiwanese companies need to find a better exit for their products,” Yu said.
Chen Hsuen-bin (陳炫彬), vice chairman of AU Optronics Corp (友達光電), Taiwan’s largest LCD-panel maker, told investors that the company received rush orders because of China’s policy of subsidizing the purchase in rural areas of a wide range of electronics.
“Demand from China may be the main factor that stabilized [falling] panel shipments,” Chen said in January.
His comments proved true, as AU Optronics TV said its PC panel shipments had fallen by a slower-than-expected 13 percent quarter-on-quarter rather than the 15 percent to 20 percent it had expected. Smaller local rival Chi Mei Optoelectronic Corp (奇美電子) also said sales from the China market may make up a bigger share of its revenues this year, between 25 percent and 35 percent, compared with 15 percent to 20 percent last year.
“China is a virgin market for panel makers ... Current purchase agreements between Taiwanese companies and Chinese TV makers are not good enough to drive the next wave of growth for local firms,” said Jim Chung (鍾俊元), a flat-panel industry analyst with the government-funded Industrial Technology Research Institute (ITRI, 工研院).
AU Optronics and Chi Mei are supplying flat panelss to a number of Chinese TV brands including TCL Group and Hisense (海信), Chung’s survey showed.
Chung suggested building next-generation — seventh-generation or 8.5-generation — panel factories in collaboration with Chinese panel makers because China’s local governments were in intense talks with overseas panel makers to jointly invest in new plants as part of their efforts to rescue local flat-panel makers such as Shanghai SVA-NEC LCD Co.
The ITRI plays a consulting role in the government’s formation of industrial policies.
The institute advised the Taiwanese government to remove the long-term ban on local panel makers from building factories in China, receiving positive initial responses from officials because of the improved trade ties between Taiwan and China, Chung said.
“You need to come up with unconventional strategies to cope with the ever-changing market situation,” Chung said. “The Chinese market is essential for local companies to sell their PC and TV panels, which will help reduce operational risk during the supply glut.”
Chung said: “It is an essential issue that Taiwanese panel makers lack strong brand support, while LG Display LCD Co can give a stable supply to parent company LG Electronics.”
LG Display and Samsung Electronics operated at a higher factory utilization rate of 85 percent to 90 percent in the first quarter, much higher than the 50 percent to 55 percent utilization rate of local firms, Citigroup said in an April 6 report.
With support from in-house brands and a weakening South Korean won versus the US dollar, LG Display and Samsung may become profitable next quarter, one quarter earlier than its rivals, Citigroup analyst Andrew Lu (陸行之) said in the report.
Despite a potential increase in orders, Taiwanese companies are concerned about the Chinese government’s role in joint ventures, which would make it more difficult for them to operate as efficiently as private firms, Yu said.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to