By David Hsieh
DisplaySearch

Last week, Sharp announced that it will expand its alliance with CEC (China Electronics Corp.), the parent company of CEC-Panda, a Chinese TFT LCD panel maker. Sharp sold its Gen 6 line to CEC-Panda back in 2011, and now has decided to play an important role in CEC-Panda’s planned Gen 8 TFT LCD fab in Nanjing. Nanjing CEC-Panda LCD Technology Co., with 17.5 billion RMB ($2.9 billion) in capital, will be a joint venture between CEC Group (92 percent) and Sharp (8 percent), the first joint Chinese-Japanese TFT LCD fab. This follows Samsung and LG Display’s efforts to build Gen 8 fabs in China through joint ventures with TCL and Skyworth, respectively.

There were several factors leading up to this announcement:

• When Sharp sold its Gen 6 line to CEC two years ago, there was a condition attached that if CEC decided to invest in a higher-generation fab, Sharp would enter into a joint venture and provide technical assistance.
• As reported in the Quarterly FPD Supply/Demand and Capital Spending Report, CEC-Panda originally planned to establish a Gen 10 fab in Nanjing, but due to the risk and lack of technology readiness, the company shifted their focus to Gen 8.
• As a government-owned company, a source of technology is a necessary condition for the Chinese government to approve the Gen 8 investment.
• With smart handheld devices (smartphones and tablet PCs) growing faster than LCD TV, CEC-Panda is planning to shift its business focus from TV to smart handheld device panels, which require high resolution, slim form factor, low color shift, high color saturation and low power consumption. This shift requires high performance technologies and processes, which Sharp can provide.
• Sharp will benefit from the cash flow coming from royalty and technology transfer income, and will have first priority for the allocation of the output of the Gen 8 fab.
• Sharp is the first to implement oxide TFT (in particular IGZO) technology for handheld devices, in order to achieve low power consumption and high resolution. Sharp may implement IGZO technology in Nanjing, not only to help the joint venture company to ramp up high resolution panels, but also to collect royalties from any IGZO production.

So what might be the impact to the TFT LCD industry?

• As we have analyzed, by 2015, there will be 8 Gen 8 fabs in China, at which point China will have the most Gen 8 capacity; one of these will be the CEC-Panda/Sharp line. As the LCD TV market matures, some of these fabs will start to produce high-resolution smart handheld device panels.
• Taiwanese panel makers might be further marginalized and forced to reshape their strategy toward the China market. Taiwan panel makers are the largest suppliers to China at present, with LCD TV panels supplied by AUO and Innolux, and smartphone and tablet PC panels supplied by HannStar and CPT. However, with Korean and Japanese makers invested in China, Taiwanese panel makers will be the only ones facing import duties. Taiwan panel makers will be forced to make additional panel cost reductions or somehow create a unique offering in China (such as new TV sizes, or large but lower resolution smart handheld panels).
• CEC-Panda is not recognized as a leading panel maker due to its limited product mix (monitor panels and 32” in Gen 6) and lagging technology. The company has no experience in high resolution (like 4Kx2K) TV panels or smart device panels. However, with help from Sharp, CEC-Panda may become a competitor for high-end panels.
• Foxconn had intended to get closer to Sharp to access to high-resolution and low-power technologies, but has not been able to strike an agreement with Sharp, and the relationship is so far limited to the Sakai Gen 10 joint venture and TV business.

This column was reprinted with permission from DisplaySearch and originally appeared here.