Abstract

Reasons behind Toshiba-LPL Alliance

After IPS Alpha Technology, formed by Hitachi, Toshiba, and Panasonic, decided to set up a plant in the Czech Republic city of Zatec, Hitachi almost immediately announced it would establish an LCD TV assembly plant in the same location. Moreover, Panasonic originally had an LCD TV production site in Plzen, and most observers expected that Toshiba's choice of a manufacturing location would favor the Czech Republic. However, Toshiba chose Wroclaw in Poland as its LCD TV production site, and furthermore allied with LPL.

In fact, the IPS Alpha Technology partners Hitachi, Toshiba, and Panasonic have taken quite different approaches regarding flat-panel TV product planning. Hitachi and Panasonic are using LCD for flat panel TVs in the 30-inch range. For 40-inch and larger flat-panel TVs, the companies use PDP (Plasma Display Panel). Toshiba, however, has focused on developing SED (Surface-conduction Electron-emitter Display) technology. LCDs have gradually improved in terms of performance and size, while SED TVs have failed to smoothly ramp up to volume production. For this reason, Toshiba's product planning for large flat-panel TVs has shifted toward LCDs. The company's LCD TV product line has expanded from the 32-inch and 37-inch range to the 42-inch and 47-inch range.

If the IPS Alpha Technology facility in the Czech Republic reaches its targets for production capacity and panel sizes, the allocation of production that Toshiba receives will be insufficient, and the company will urgently need to seek other sources.

LPL is one of two companies worldwide that is using IPS (In-Plane Switching) wide viewing-angle technology in an LCD TV panel facility. The company expects that the LCD module facility in Wroclaw by 2011 will increase annual output to 11 million units, with panel sizes assembled including 26-, 32-, 37-, and 42-inch. Simply put, for wide viewing angle technology, size differences, and production capacity needs, the LPL facility in Wroclaw can fully support Toshiba's future needs in the European LCD TV market.

In addition, LPL has suffered from continuous losses, creating increasing financial pressure for the company. LPL has announced that it will delay the construction of its 8G LCD panel production line and reduce its capital expenditures for the next fiscal year, while one of the original shareholders, home appliances giant Philips, has said it aims to dispose of its stake in LPL. For this reason, the fact that Toshiba recently paid US$46 million to acquire a 19.9% stake in LPL's LCD module facility in Wroclaw, Poland will help LPL improve its financial situation, and help secure future LCD TV panel customers. Toshiba's stake is only 19.9%, and therefore the future profit and loss situation of LPL's subsidiary in Poland will not seriously affect Toshiba's financial performance. Furthermore, Toshiba will gain a stable supply of LCD TV panels.

Industry Supply Chain Developing in Eastern Europe

Large TV makers' production deployment in Europe has helped to form an LCD TV industry supply chain. As LCD TV vendors set up local production in Europe, the companies need to deal with such issues as import duty risks, flexible production, and maintenance services. Most of the Japanese and Korean panel companies have already decided to establish LCD module assembly facilities in Eastern Europe.

One of the characteristics of the panel industry is its large and complex supply chain. In order to ensure the effective operation of the supply chain, reduce related transportation costs, and secure stable supplies, Japanese and Korean panel companies have drawn along component suppliers to set up factories in Europe. For example, after Sharp, polarizer supplier Sumitomo Chemical also set up facilities in Poland, and 3M decided to increase its investment in Poland. In addition, Orion, Sanritz, Nitto Denko, Sohbi Kohgei, Hanwa and other companies have evaluated the possibility of building factories in the nation. In Korea's more sharply delineated system of panel makers' supply relationships, LPL's component partners, including Heesung Electronics, LG Innotek, Dong Yang, LG Chem, Ochsung Display, and Lucky SMT are looking into setting up factories in Wroclaw and are negotiating on incentives with the local government under LPL's strong leadership.

EMS Providers Join the Fray

As competition in the global EMS industry becomes tougher, EMS companies have gradually expanded their manufacturing services in recent years from PC products to consumer electronics products. In the past, Flextronics set up LCD TV assembly and shipment operations in Hungary for TCL and Acer to tap the European LCD TV market. Later, Jabil followed up its successful experience with Sharp in the North American market by announcing it will set up a LCD module facility in central Poland. Jabil is therefore expected to obtain Sharp's LCD TV assembly orders to meet huge LCD TV demand in Europe.

As the LCD TV industry gradually matures, EMS companies are entering LCD TV manufacturing. For this reason a number of EMS heavyweights have not only created LCD TV R&D teams, but also have aimed to integrate upstream components, looked into the possibility of establishing partnerships in Europe with LCD TV panel makers to make LCD modules and set up LCD TV maintenance services. In addition to providing complete services, the EMS companies can also accumulate relevant panel module assembly experience.

Panel makers have key production capabilities and back-end assembly experience. As the EMS companies aggressively push into the business, jointly investing in LCD module facilities with EMS providers will help reduce investment risks for panel makers. But the panel makers will also need to share specialized back-end module assembly know-how, and their leading role in the industry will gradually decline.

Appendix

List of Companies