ANALYSIS - LCD makers' China dream sets stage for new glut
SEOUL/TAIPEI (Reuters) - A multi-billion dollar spending spree by Asia's flat-screen makers to set up cutting-edge LCD factories in China to capitalise on its huge television market could lead to the next screen glut.
South Korea and Taiwan, the world's two biggest producers of liquid crystal display (LCD) screens, had been badly hit in a previous race to set up bigger plants.
But this time, the market is betting on huge growth in China and shrugging off the risk of oversupply in the sector. In November, research firm DisplaySearch estimated that China would overtake North America to become the world's top LCD TV consumer in 2011, representing 21.3 percent of the global market.
Some analysts advise longer-term caution.
"Currently demand is stronger than expected and everyone has a bright outlook, ... but the strength won't last long," said KB Investment & Securities analyst Harrison Cho.
"When things heat up in China, oversupply will come at some point," Cho said, adding competition will drive up production by Korean and Taiwanese makers.
Analysts are nearly unanimous in their buy ratings on LCD makers LG Display, AU Optronics and technology powerhouse Samsung Electronics, according to data from Thomson Reuters I/B/E/S.
Planned investment projects in China are set to increase global LCD industry capacity by 15-20 percent, starting in late 2011, analysts estimate.
The move to China is critical not only for its cheap costs but also for its huge potential. China's policy to subsidise electronics goods purchases in rural areas has grown the market sharply last year.
According to DisplaySearch, LCD TV shipments in China are set to top 43 million in 2013 from 25 million in 2009.
A local plant will also help panel makers boost ties with Chinese TV brands and take advantage of lower tax policies.
"China's growing import tax and benefits for in-land production leave LCD firms little option," said Jason Kang, an analyst at NH Investment & Securities. "China will become the centre of LCD making."
So far, the South Koreans are leading as Samsung and LG Display both won the green light for massive China investment plans, following the relaxation of technology export restrictions by their government.
Most LCD firms had so far kept only back-end assembly lines in China to protect their advanced technologies, but growth prospects now outweigh caution over intellectual property.
Taiwan makers, including AU Optronics, are clamouring for similar moves under the island's current China-friendly administration. Japan's Sharp Corp has also been working to make LCD panels in China with local companies.
Taiwan may lift a rule that prohibits its LCD makers from making large panels in China in early 2010, media reports said.
Given Taiwan's ties with China, Taiwanese producers could overtake the South Koreans in Chinese production, said NH's Kang.
"The competition over a Chinese production base is getting fiercer."
For a Graphic on TV panel sales to China, click:
In the highly cyclical LCD industry, makers have learned to rein in output during downturns rather than getting caught in cut-rate price wars. In fact, supply controls have helped them recover fast from the severe downturn in late 2008.
But in China, companies are likely to be less restrained.
"China is an important market and a source of talent," said Yu Mingto, CFO of Mediatek, which supplies chips for digital TVs. "It doesn't make sense if we can't go."
Sales to Chinese TV makers account for 15-20 percent of total TV panel sales at Samsung and LG Display, the world's two biggest LCD screen makers, industry data shows. Taiwanese companies are more dependent on China.
Over the past two months, LG Display shares have jumped 30 percent Samsung shares are up 12 percent versus a rise of 6 percent in the wider Seoul market. AU also rose 26 percent, outperforming a 7.5 percent rise in Taiwan's benchmark market.
China has hoped to develop its own LCD industry for years, but struggled due to a lack of expertise and scale. Mainland-based players such as BOE Technology Group have so far mostly used older technologies that are unsuitable for large panels used in popular TVs.
"China's share of LCD capacity and shipments will rapidly increase within two years," said David Hsieh, vice president for the greater China market at DisplaySearch.
"Component and materials production will start to move to China and build a more complete supply chain," Hsieh said.
(Editing by Anshuman Daga)
- Tweet this
- Share this
- Digg this
- One dead, one wounded in shooting in Chicago financial district
- Israel, Palestinians locked in vicious circle of Gaza wars
- U.S. advises against non-essential travel to countries hit by Ebola
- Millions of jellyfish-like creatures wash up on western U.S. beaches
- UPDATE 3-Apache to quit gas projects in Australia and Canada
USB devices such as mice, keyboards and thumb-drives can be used to hack into personal computers in a potential new class of attacks that evade all known security protections, a top computer researcher revealed on Thursday. Full Article
Xiaomi's star rises as Chinese handset makers gnaw at Samsung's share: report. Full Article
Microsoft ordered by U.S. judge to submit customer's emails from abroad. Full Article