Abstract

Persisting Growth Stage Leaves Opportunities

Over the period 2004 - 2008, the global small and medium-sized panel industry achieved a shipment value CAGR of 8.0%, and a shipment volume CAGR of 4.7%. Broadly speaking, the global small and medium panel industry is still in the growth stage of the industry lifecycle, with a trend towards further upgrading of technology standards. In 2004, more than one quarter of both total global shipment value and global shipment volume derived from Taiwanese panel makers; Taiwan had established itself as one of the world's leading suppliers of small and medium panel.

Considerable Gains, But Pressure Building

The The Four Leading Taiwanese small and medium panel makers - AUO, PVI, Toppoly and Wintek - have focused on application product markets that are still growing, including digital cameras and portable DVD players. All four companies have achieved great success in customer development, and as a result their operational performance in 2004 was highly impressive.

However, despite these four companies' recent success, the competition between the leading Taiwanese, Japanese and Korean panel makers is becoming steadily more intense. In the case of the Japanese digital camera panel market, which AUO has developed successfully, it is anticipated that in 2005 AUO will begin to experience significant competitive pressure from Korean maker Samsung. The portable DVD player market on which PVI has been focusing will soon be entering the mature stage of its product lifecycle; as a result, price competition may become increasingly intense. Wintek has been very successful in securing customers among the leading mobile phone vendors. In the short term, Wintek will face competition in this market both from other Taiwanese panel makers such as AUO, Toppoly and PVI, as well as from Japanese and Korean panel makers. However, Wintek stands a good chance of fending off this competition if it develops certain advantages, such as customization capability, an emphasis on customer relations management, and vertical integration and low production costs. A further boost will come after passing customer certification. The company will then , ramp-up of large volume shipment of a-Si TFT-LCD and OLED panel -- whether manufactured in-house or outsourced -- for mid-range and high-end handsets, while a the same time maintaining a steady flow of contracts for MSTN-LCD and CSTN-LCD production.

The Cost Race

The emergence of China as an important new force in the world economy has not only created new business opportunities for the Taiwanese panel makers, it has also helped them to build competitive advantage through the reduction of production costs. China thus has a very important role to play in the global development strategy of the Taiwanese panel makers. Currently, the area that Taiwanese small and medium panel manufacturers are emphasizing most in their China strategy is the establishment of LCM factories in China to keep production costs down.

Wintek's China operations display both the greatest depth and the greatest breadth; China-based production now accounts for nearly 60% of Wintek's total shipment volume, with the Wanshida plant in Dongguan - which has approximately 6,000 employees - being responsible for back-end assembly and processing. In Taiwan, Wintek has achieved a high level of vertical integration, as a result of which it continues to enjoy significant competitive advantage deriving from low production costs.

In the last few years, AUO has been moving production of TFT-LCD panel modules from Taiwan to its Suzhou plant in China; China now accounts for over 90% of AUO's total production. PVI and Toppoly have also been speeding up the transfer of TFT-LCD module production capacity to China. Japanese and Korean vendors have been speeding up the development of their China operations too, with the aim of being able to compete more effectively against the Taiwanese makers on production cost. Aggressive expansion of module production capacity is already underway at Sanyo Epson Imaging's Suzhou plant, Sharp's Wuxi plant, Hitachi's Suzhou plant, Samsung Electronics' Suzhou plant and Samsung SDI's Tianjin plant, in response to the increasingly intense competition in the global small and medium panel market.　

Two Scenarios

Small and medium panel is used in a very wide range of applications. To survive in the fiercely competitive small and medium panel market, panel makers need to be able to develop customized designs - or modify existing designs - to meet customers' needs as rapidly as possible. A whole range of procedures - including design, sampling, production, shipment, returns handling, stocking up, customer service and handling customer complaints - must be completed in the shortest possible space of time. Only by meeting the customer's needs every time can the panel maker hope to maintain a healthy relationship with that customer and secure a steady flow of orders, both now and in the future.

Besides having to face intense competition on production cost, manufacturers of small and medium-sized panel also need to be able to meet customers' demands for a wide range of different designs. To survive, a panel maker must be capable of creating value for its customers by producing a wide variety of different panel types for them.

The leading Japanese, Korean and Taiwanese panel makers are all planning to convert their 3.5G and lower production lines over to the manufacturing of standardized small and medium-sized TFT-LCD panels. This move on their part will intensify the already fierce competition in the small and medium panel market. It can be anticipated that one of two possible scenarios will emerge:

(1)　 TFT-LCD will achieve unchallenged dominance. Leading customers will cease to insist on being given a wide range of different designs, and will accept the standardized panel sizes offered by the leading TFT-LCD panel makers. In this scenario, TFT-LCD panel's share of the small and medium panel market will shoot up, putting TFT-LCD far ahead of competing technologies such as CSTN-LCD, MSTN-LCD and PM-OLED and making it the dominant technology for small and medium panel applications. Passive-matrix technologies will be confined to low-end, niche markets.

(2)　 TFT-LCD does not achieve total dominance; no domino effect is created. Leading customers continue to demand a wide range of different panel designs, because the adoption of standardized TFT-LCD panel sizes would prevent them from differentiating their products from those of competitors. In this case, TFT-LCD would continue to face real competition from other panel technologies such as CSTN-LCD, MSTN-LCD and PM-OLED.　

Regardless of whether reality turns out to be closer to the first scenario or the second scenario, all small and medium panel makes will have to adjust to a new industry environment in which 3.5G and lower production capacity is being switched over to the manufacturing of small and medium-sized TFT-LCD panel. Those companies whose small and medium-sized TFT-LCD panel production capacity is too limited - such as PVI - and those companies that have no TFT-LCD panel production lines whatsoever - such as the CSTN-LCD panel makers, module makers and LCM design houses - will need to collaborate with other makers that have surplus TFT-LCD capacity. They will be able to purchase standardized TFT-LCD panel products from these makers and then perform back-end processing, focusing on strengthening their ability to design and manufacture a wide range of different modules. If they can achieve this, then not only will they be able to avoid losing orders from existing customers, they may even succeed in developing new customers.

By and large, the small and medium panel makers do not appear too concerned about the conversion of 3.5G and lower production capacity to production of small and medium TFT-LCD panel by the leading Japanese, Korean and Taiwanese panel makers. They appear to accept that some companies will have to adapt to the new situation by restructuring, or else withdraw from the market altogether. The leading Taiwanese small and medium panel makers are already looking for new business models; TFT-LCD panel makers, CSTN-LCD panel makers, module makers and LCM design houses are busy forming alliances to complement one another's capabilities. It remains to be seen whether this wave of alliance-building is a temporary phenomenon brought about by the intensification in competition, or whether it marks the emergence of a new, more or less permanent division of labor within the industry.

Aggressive Development of New Display Technologies

Displays can be made to support more colors by increasing the grayscale in the driver and control chips. With CSTN-LCD technology, a faster reaction speed can be achieved either through the use of fast liquid crystal technology, through cell gap control, or by getting the driver and control chips to scan more electrodes with each scan. The brightness of transmissive color displays can be improved by adjusting the brightness of the backlight source; the energy consumption of light source modules can be reduced by improving the emission efficiency, by adjusting the microstructure of the surface of the light guide panel to provide more uniform dispersal of light, or by changing the microstructure of the reflecting panel to enhance reflectivity. There are thus various different ways in which panel components can be modified. With the adoption of multi-tasking driver technology, CSTN-LCD panel can new provide a video display capability of up to 30 images per second.

The different small and medium panel technologies are already capable of providing more or less the same number of colors and the same levels of brightness and power consumption. However, the resolution that can be achieved does still vary between technologies. Research on human vision and display pixel count published in Nikkei Electronics magazine in 2003 indicated that, in the case of portable devices, the user could see the display clearly at a distance of 25 cm to 45 cm, and that within this range people with normal eyesight of 0.8 to 1.0 could distinguish between levels of resolution between 150 ppi and 340 ppi. The highest resolution that can be achieved with a-Si TFT-LCD panel is around 150 ppi; to achieve higher resolution than this, LTPS TFT-LCD technology must be used. The article went on to say that Japanese and Korean vendors might succeed in developing new display products with resolution of over 300 ppi before the end of 2005.

Whereas in the past the competition between Japanese and Korean small and medium-sized panel vendors focused on the number of colors supported, brightness, power consumption or reaction speed, the emphasis is now shifting to resolution.

In the case of a-Si TFT-LCD panel, increasing the resolution may cause the aperture rate to fall, making the image on the display too dark. At the same time, an increase in resolution will also result in smaller electrode width, smaller capacitor area and smaller a-Si TFT components. a-Si has low electron mobility, so a reduction in the size of electrode width and in a-Si TFT component size will lead to a deterioration in driver performance, while reduced capacitor area may lead to a worsening of image quality due to low contrast, cross-talk, or flicker. The new emphasis on resolution in the competition between small and medium-sized panel vendors thus puts a-Si TFT-LCD at a disadvantage compared to LTPS TFT-LCD and LTPS TFT-OLED.

Recently, the leading Japanese and Korean vendors have begun to establish LTPS TFT-LCD and LTPS TFT-OLED production lines, and have been rolling out new panel products that provide higher resolution. The Japanese and Korean panel makers are now able to produce 1.8-inch LTPS TFT-LCD panel with resolution of 219 ppi, whereas the Taiwanese makers can only achieve 156 ppi for the same size of panel; for 3.x-inch to 7.x-inch panel, the figures are 200 ppi and 133 ppi respectively. The Japanese and Korean makers now possess strong LTPS TFT-LCD and OLED display technology development capabilities, high yield rates and high production capacity; they have also accumulated a large number of important patents. Increasingly, the color panel module products of the Taiwanese makers will be confined to mid-range and low-end applications where price pressure and price competition are more intense, resulting in lower profit margins.

Faced with this challenging competitive environment, Taiwan's small and medium panel makers will need to maintain their advantage on production cost in the mid-range and low-end color panel segment, while at the same time working to upgrade their panel specifications to develop the high-end market. Given the lead that the Japanese and Korean panel makers already have in the development of new display technology, if the Taiwanese makers fail to re-orient themselves towards high-end panel products, they may find that their operational performance begins to deteriorate.

Appendix

Research Scope

This report covers the various different types of small and medium-sized panel technology, including TN-LCD, MSTN-LCD, CSTN-LCD, a-Si TFT-LCD, LTPS TFT-LCD, PM-OLED and AM-OLED, as well as the various types of electronics product that use small and medium-sized panel, including mobile phones, PDAs, DSCs, DVCs, automotive applications, portable DVD players, car audio, car instruments, calculators, handheld PCs, Pachinko machines, games, clocks, and "Other". The "Other" category of application products include MP3 players, IP phones, DECT (Digital Enhanced Cordless Telecommunications) phones, electronic dictionaries, industrial devices, medical devices, portable TVs, PPCs (Personal Programmable Calculators), fax machines, health devices, education devices, e-books, web viewers, POS (Point of Sale) equipment, etc.

Research Focus

The research conducted for this report focused on Taiwan's four largest manufacturers of small and medium-sized panel: Wintek, AUO, Toppoly and PVI. The selection criteria adopted were that the companies selected must among the top four Taiwanese small and medium-sized panel makers with respect to operating revenue in 2004; between them, the four companies concerned accounted for 53.6% of the industry's total operating revenue in 2004.

Glossary of Terms