Strong ties with TV vendors and a weak currency likely give Korea's makers of LCD panels the advantage over Taiwan's during the downturn
In recent years, Korean, Taiwanese, and Japanese makers of liquid-crystal display panels have fought hard to establish dominance in the key tech market. And for most of 2007 and 2008 there was plenty of business to go around. Today, though, the economic crisis is slashing demand for the panels, used in flat-panel TVs, computer monitors, and cell-phone screens. While that's likely to hurt everyone in the battle, the Koreans expect the downturn to play out to their advantage. "This challenging period will give us a good opportunity to widen our lead," says Lee Bang Soo, a vice-president at LG Display, the world's second-largest LCD panel maker after its compatriot Samsung Electronics.
The Koreans are already gaining. Manufacturing costs today exceed what producers can charge for the panels, so Taiwan's four biggest makers have slashed output by half or more. AU Optronics (AUO), the leader in Taiwan and the global No. 3, saw its market share for panels bigger than 10 inches plunge to 11% in November, from 19.2% in January, while share for Taiwan's Chi Mei Optoelectronics fell to 9%, from 12%, says market researcher DisplaySearch. Samsung, meanwhile, increased its share in the segment by 8.5 percentage points, to 32.5%, during the period, and LG jumped 3.1 points, to 23.5%.
One big advantage the Koreans enjoy is their strong ties with TV vendors. Samsung runs an LCD-panel joint venture with Japan's Sony (SNE), giving it a direct pipeline to the world's two hottest TV brands. Samsung and Sony together had 42% of the market for LCD TVs in the third quarter of 2008, DisplaySearch estimates. LG Display is the primary supplier for two of the three other top TV brands: its parent, LG Electronics, and Philips, which has a 13.7% stake in LG Display. (Japan's Sharp, the remaining major player in LCD TVs, makes its own panels.) "Vertical integration with major set makers is vital for us," says Samsung Vice-President Kwon Gye Hyun.
As a result, Taiwanese LCD-panel makers have been relegated to selling to smaller brands and playing a backup role for the bigger brands. That means their orders get canceled first when markets shrink. LCD TVs account for well over half of all LCD consumption and represent a rare area of potential growth in the consumer electronics industry in the near future. Researcher iSuppli forecasts the global LCD TV market will rise to $101 billion in 2012, from $61 billion in 2007.
While the Taiwanese acknowledge the Koreans are extending their lead, they say the battle is far from over. They're counting on their relatively strong position in emerging markets and say they will continue to invest in initiatives that will make their operations more efficient. "AU is taking this opportunity to sharpen its core competence," Andy Yang, a finance vice-president at AU Optronics, wrote in an e-mail. "In addition, our R&D [department] is actively continuing the development of new technologies."
Still, the Taiwanese have to contend with a weak Korean currency that continues to help Samsung and LG. While Taiwan's currency was nearly flat against the U.S. dollar in 2008, the Korean won plummeted almost 26% against the greenback, making Korean exports far cheaper. "If the Korean won stays weak, the Taiwanese won't have any chance to win back their share," reckons Henry Wang, general manager at Taipei-based researcher WitsView, which specializes in display devices.
A potentially bigger problem is a delay in investing in next-generation production technology. Samsung and LG are the only ones planning to launch new plants this year capable of churning out panels bigger than 52 inches, used for big-screen TVs. Taiwan Premier Liu Chao-shiuan said on Dec. 25 his government would help the island's LCD industry weather the global recession. Yet analysts say any bailouts won't allow troubled Taiwanese companies to build new plants costing at least $3 billion each. "They can't afford to plan for anything else but their survival now," says Lee Hak Moo, display analyst at brokerage Mirae Asset Securities in Seoul. "The Koreans are poised to increase their lead."