The Possible Cooperation Could Be Beneficial for Panel Supply/Demand
Currently, there is a situation oversupply in the panel industry. In 2009, new capacity in which panel makers have invested will gradually come online. Furthermore, existing panel makers in China have plans to set up 6G and higher production lines, making the overall supply/demand situation even harder to control.
Therefore, the possible transfer of the 6G line from Sharp to SVA could lower the possibility of Chinese manufacturers setting up 6G lines themselves. Overall supply will not continue to grow in this way, benefiting the long-term development of supply/demand in the industry.
In the Short Term, Cooperation Could Impact Panel Procurement for Products Aimed at Chinese Market
Most of the panel production process is completed in China. When cell panels are imported into China by overseas companies, processed into modules and exported overseas, no import duties are levied. However, if these products are sold in the Chinese domestic market after completing the module, a 3% duty is levied. If Chinese manufacturers complete the whole process in China, they avoid this duty, and therefore enjoy cost competitiveness in the Chinese market.
The sales of Chinese TV brands are mostly in the Chinese market, and it is expected that Chinese TV brands will lower their panel procurement shares from Japanese, Korean, and Taiwanese manufacturers, as they focus on the use of domestic products and price advantages. As for the procurement strategies of international TV brands, however, the overall impact is expected to be limited, besides the possibility that they might increase their procurements from SVA for product lines focusing on the Chinese market. An exception might be Taiwanese makers. Recently, these makers have had significant interaction with Chinese TV brands in light of developments, such as Chinese government's policy to push home appliance products in the country's rural areas. If the discussed tie-up between Sharp and SVA would become reality and develop quickly, Taiwanese makers will feel a certain degree of impact.
Long-term Impact on Panel Industries in Other Countries
Japan
The origin of LCD panel manufacturing is in Japan. In the past, the country's manufacturers closely protected their LCD production technologies. However, after the financial crisis in 1997 and the rise of the Korean industry, Japanese makers started to release their technologies to Taiwanese makers, and switched to the production of high-profit products, such as small- and medium-sized panels. If the partnership under discussion will indeed be established, it can be regarded as the second time the Japanese industry releases its LCD panel technology. It is expected that this will lead to an even greater focus on TV panel production in Japan's industry.
If Sharp releases its 6G line to SVA, it can also be regarded as production capacity adjustments for its existing 8G line and its 10G line, which is close to starting mass production. Furthermore, if Sharp and SVA would jointly invest in the establishment of an 8G or higher production line after 2010, by that time the amortization of Sharp's existing 8G line will be completed, while the 10G line will most likely already be in mass production. Therefore, such a new joint production line would have only a limited effect on Sharp, and Sharp will have an extra source of revenue in the form of royalty payments.
Korea
The Korean panel industry has recently outperformed other industries due to the devaluation of the Korean Won and the above-average sales performances of major conglomerates' TV brands. With TV brands continuing to record strong sales and makers such as SDI aggressively investing in next-generation production lines, the discussed partnership is not expected to have a large impact on the Korean panel industry.
Besides the fact that SVA cooperated with Japanese companies early on, which led to the current possibility of a partnership with Sharp, there are also precedents for panel cooperation between Korean and Chinese companies, such as the past cooperation between BOE and Korean Hydis. It will therefore be interesting to see whether Korean panel makers will also aggressively pursue cooperation with Chinese companies and follow the example set by Sharp.
Taiwan
Chinese and Taiwanese panel manufacturers are somewhat alike, as they are not supported by larger conglomerates and specialize in panel manufacturing. However, Chinese makers currently do not pose a significant risk to Taiwanese makers as their production scales are relatively small, they focus on monitor panels and as their customer portfolio primarily consists of Chinese branded vendors. If Chinese makers, with the support of Sharp, aggressively invest in production lines higher than 8G, and if Taiwanese makers are relatively slow in investing in these lines due to insufficient capital or market demand issues, the Chinese industry will have an opportunity to catch up to the Taiwanese industry. In the long-term future, this could thus lead to an increasing threat for the Taiwanese industry.
Furthermore, with the transfer of 6G lines and the establishment of 8G and higher production lines, China will have the opportunity to gradually become the center of the East Asian upstream panel supply chain. If this were to happen, the impact on Japanese and Korean companies would be limited as they have strong control over upstream raw materials. However, Taiwan could be marginalized by this development, which would hurt its competitiveness.