AU Optronics Gets Land

Yesterday in the LCD Panel Market Roundup we noted AU Optronics was looking for land to to build four new LCD plants. The total investment was estimated to be at least T$400 billion ($12.7 billion). Yesterday the government granted them land in Erlin, Changhua County. Digitimes says:

The Taiwan government has selected a site in the central region of the island nation where AU Optronics (AUO) will invest NT$500 billion (US$15.91 billion) to build its next generation fabs, according to authorities with the Central Taiwan Science Park (CTSP).

During a meeting on Wednesday, a selection committee under the National Science Council decided on a piece of 400-hectare land in Erlin, Changhua County to be the site for a new CTSP campus where AUO will build its new fabs, the authorities said.

Well at least they have the new site. We will be on the lookout for news on the ground breaking ceremony.

Digitimes: Taiwan government decides site for AUO's NT$500 billion LCD fab projects

LCD Panel Market Roundup

In Will Taiwan LCD Makers Move to China? we observed that Taiwan panel makers may move to China and we also noted China's struggle in developing the LCD market. Although legislation being passed is for lower generation plants, it seems some Taiwanese panel makers are still interested in Taiwan. Reuters reports AU Optronics will invest in a new 10G plant in Taiwan. Reuters wrote:

AU Optronics would invest at least T$400 billion ($12.7 billion) to build four new LCD plants after Taiwan's government makes a decision on the location of a new production zone, a local newspaper said on Wednesday.

AU Optronics, the world's third-largest LCD maker, has invested T$600 billion in the industrial science parks in central Taiwan, and AU would build four LCD factories using more advanced generation 10 and above technology, the Economic Daily News reported, without citing sources.

Later on Wednesday, Taiwan's government is expected to choose a site where local companies can expand production from one county in central Taiwan, the Chinese-language newspaper said.

An AU official would only say that the company needs a large piece of land where it can build new plants over the longer term. AU, which competes with larger rivals Samsung Electronics and LG Display of South Korea, has said it is planning to build a new state-of-the-art LCD plant to tap future demand for flat-screen televisions.

However, a current inventory oversupply and a decline in demand has caused a downswing in the panel market as a whole. Digitimes notes this downturn may have a negative effect on the LCD driver IC design houses. Digitimes observed:

Taiwan TFT-LCD panel makers believe falling price for panels will be end by the end of August. However, the panel makers are looking to reduce average prices on their components, placing pressure on Taiwan LCD driver IC suppliers, which are seeing disappointing order visibility, casting a shadow on their sales growth and margin expectations for analog IC design houses this quarter, according to market watchers.

The sources mentioned although LCD driver IC suppliers expect sales in the third quarter to grow from the second quarter, the range of growth has shrunk about 50% this year. In addition, TFT-LCD panel makers usually implement a cost-down strategy when demand is weak, meaning driver IC suppliers have to cut their prices by 10-15%. Therefore, Taiwan LCD driver IC design houses are facing the pressure of both disappointing sales and declining margins.

The downswing in the market has also caused delays in China developing their LCD panel market and has led Digitimes to question whether the next generation fabs will be developed in China. Digitimes notes in a commentary:

There have been talk coming out of China about Shanghai-based SVA Group planning to build its 6G LCD panel plant. But while the panel market is being hit by a price slump, as well as worries about serious over-supply emerging next year when major makers ramp up their next-generation productions, one cannot help but wonder how soon SVA will kick off construction of its 6G plant, if it ever materializes at all.

Since last year, reports coming from China's media have almost invariably indicated that SVA is going for a 6G line for its next-generation project, in line with government directives concerning the feasibility of panel production at the generation.

But such a project has been dogged by a persistent sense of uncertainty. Just last month, SVA was said to be considering teaming up with Sharp to build a 7.5G LCD plant in China while abandoning its original 6G plan. The 21st Century Business Herald, which made the claim, indicated that while SVA already obtained government approval to build the 6G line with a ground-breaking ceremony having been scheduled for September 28, over-supply from the world's 6G capacities was causing the company to consider skipping 6G in its production migration.

Of course these rumors have been denied and China still says the original 6G fabs will be built.

Not all is doom and gloom for the panel market though. iSuppli is predicting the large panel market sector will pick up. iSuppli observes:

After nearly three months of plummeting profitability and precipitous price plunges, the large-sized LCD panel market finally is due for a recovery in September, iSuppli Corp. predicts.

“The large-sized LCD panel market has been mired in a state of severe oversupply since the start of June, due to lower-than-expected panel demand and high inventory levels throughout the supply chain,” said Sweta Dash, director of LCD and projection research at iSuppli. “Conditions have worsened in August, with poor economic circumstances causing prices to decline at an even faster pace than before. However, panel production cuts, combined with the clearance of inventory and a recovery in demand from televisions, desktop PC monitors and notebook PCs are expected to shift the supply/demand equation back to balance in September. This will lead to a recovery in pricing.”

iSuppli defines large-sized LCD panels as those having a diagonal screen dimension of 10 inches or larger.

It seems the panel sector, like increasingly more sectors in the global economy, is struggling. Although there is good news about the potential recovery of the large screen sector and optimistic investments by AUO in Taiwan, the market is still struggling. Some believe a global meltdown is just around the corner. Of course, predicting the future is difficult, so we won't try.

Reuters: Taiwan's AU to invest T$400 bln in new LCD plants -paper
Digitimes: LCD driver IC design houses feeling the pain of panel makers
Digitimes: Are China's next-generation LCD fabs really coming?
iSuppli: Large-Sized LCD Market Set for September Recovery

Panel Makers Focus on PND

Well the LCD industry it seems has followed the memory industry into a downswing. This has resulted in some companies realigning their focus and strategy. Some of the small-to-medium size panel makers are according to Digitimes hedging unstable demand in the digital frame and low cost PC markets by targeting the portable navigation device (PND) sector. Digitimes writes:

While AU Optronics (AUO) and TPD Displays have been the major LCD panel suppliers for portable navigation device (PND) applications, weakening small- to medium-size panel demand has made other LCD panel makers look to the segment as well, and prices are expected to drop accordingly, according to market sources.

With panel sizes for digital still camera (DSC) and PND applications being of a similar size and with an OEM customer base being concentrated in Taiwan, Taiwan panel makers have an opportunities to make headway in the PND segment. While demand growth in the PND market is slow, it is steady and stable, unlike the fluctuating orders seen in the digital photo frame and low-cost PC segments, the sources noted. However, prices for PND panels are expected to drop in the second half of the year.

Digitimes continues further on saying:

Chunghwa Picture Tubes (CPT) and Innolux are focusing on low-cost PC and PND panels for small-to-medium size product in the second half of the year, Wintek also entered the supply chain for PND panels in the second quarter. CPT indicated that demand for PND panel will grow but the overall price for small size panel will continue to drop.

Well I suppose they have to do something. They cannot just sit around and hope for the best.

Digitimes: LCD panel makers turning to PNDs for new orders

No 10G AUO Plant in China

We noted earlier this month the Taiwanese government is allowing more and more manufacturing technologies to be imported to China which, according to them, will help Taiwanese firms remain competitive.

In Will Taiwan LCD Makers Move to China? we observed the laws surrounding LCD panels were being loosened and more opportunity for Taiwnese firms to invest in China were being opened. We also argued in Mr. Ma please don't move the fabs to China and China Strategy for Fabless Chip Designers that Taiwnese firms should be careful not to import too much technology into China as there is a lack of intellectual property rights protection. We observed this lack of protection in Hon Hai Fights in Shenzhen where Chinese courts are delaying proceedings brought by Hon Hai against their competitor in South China. This lack of action by the Chinese legal system allows the Chinese companies to become more competitive. However, in China Strategy for Fabless Chip Designers we also speculated the lack of partnerships between Taiwan fabless design houses and their Chinese counterparts was perhaps due to this lack of trust.

When I commented to a friend of mine that I thought the government was wrong to lift restricitions on imported technologies, he pointed out that although the legal restrictions were being eliminated, the business decisions were still in the domain of the companies, not the government! We agree! This certainly seems to be the case for AU Optoelectronics (AUO).

AU Optoelectronics (AUO) has made the decision not to invest in 10G fabs in China, even though the government may allow them to. Right now AUO are looking for land in Taiwan to build their newest 10G fab. Rebecca Kao at Digitimes writes:

AU Optronics (AUO) will not build its 10G plant in China although the Taiwan government is considering allowing the island's LCD panel makers to set up front-end production lines in China, according to AUO president LJ Chen.

Taiwan has a strong cluster of players in the LCD panel industry, enabled by abundant talent, rich resources, sound infrastructure, and advanced technologies, Chen said. With the panel industry growing fast in Taiwan, it will be impossible for AUO to consider China as the site for the 10G project the company is planning, he added.

AUO has been looking for land in Taiwan for its 10G project. Taiwan is considering lifting a ban on LCD panel makers setting up front-end production in China, although the latest speculations have been that the government may only allow makers to run 6G and lower-generation lines.
Chen commented that relaxing the ban will benefit the development of the panel industry in the long run, but the government will still need to assess a host of issues, such as the extent of the relaxation, timing, capex, supply chain, China's competitiveness, and import taxes. The most important factor is demand in the market, he added.

For example, Chen said, if China imposes taxes on imported LCD TV panels, Taiwan makers may then consider operating front-end production in China. But there are a lot of factors that panel makers cannot handle alone, and therefore careful evaluations must be done before running panel lines in China, he said.

Chen said AUO does not see any need to set up lower-generation lines in China for the time-being.

The decision for Taiwanese firms to invest in China will always be a business decision. Not a political one. Sure enough, the Chinese government can create an attractive investment environment and indeed seem to be doing so as we noted in Attracting Taiwan, and the Taiwanese government may lift restrictions, but the decision will always be made by the management teams, not the governments. China and the Chinese government must understand, for high-tech firms to be willing to put their latest technologies into China, they must be assured their intellectual property rights will be protected. If not, only older technologies will land on their shores.

Digitimes: AUO will not build 10G line in China