Posted by: Kenji Hall on July 31, 2007
Japan’s Sharp is a master of oneupsmanship. And why wouldn’t it be? To survive and stay profitable in the flat-panel TV business manufacturers have to pour billions of dollars into new technologies and factories that pump out ever-bigger TVs more efficiently. On July 31, President and COO Mikio Katayama showed why Sharp remains a money maker despite its relatively small size: a $3.2-billion investment to build the world’s most advanced plant for liquid crystal displays.
The new facility in Osaka—Sharp’s seventh for LCDs (fourth for TVs) when it’s up and running in 2010—will be what’s known in industry-speak as a 10th-generation plant. Translation: Every giant glass panels produced can be cut into six 60-inch LCD sets, eight 50-inch or 15 40-inch. Compare that to Sharp’s (8th-generation) facilities in Kameyama, central Japan, which can make a panel big enough for six 50-inch TVs, eight 40-inch or 15 30-inch. (Sony and Samsung have a joint venture in Korea that, from next month, will be making glass sheets 2.5m by 2.2m in size, which can be cut into six 50-in. panels each.)
What you’re witnessing is Sharp’s push deeper into turf once owned by rival technologies, plasma and rear-projection sets.
And here’s why: The company predicts that TVs with screens 40 inches and bigger will account for a growing sector of the market. Last year, they accounted for 14% of all 44.5 million LCD TVs sold worldwide. This year that figure is expected to rise to 20% of LCD sets and to 40% in 2011.
With the LCD TV market expected to grow to 72 million units this year, 100 million by 2009, and 120 million by 2011-—or 90% of all flat-panel TVs worldwide—-Sharp is running its crew ragged to meet demand.
To wait would be to risk missing out on the bonanza. The Japanese maker knows firsthand what that's like. During the yearend holiday season in 2005, the company's lack of production capacity allowed other makers stepping up production to snatch precious market share. Sony, Samsung and Philips all benefited from Sharp's misfortune. Even last year, with Sharp's factories going full bore, the company slipped in the TV rankings, from No. 1 in the first quarter (15.2% share) to fourth (11.4%) in the final quarter. (Sharp has said unit sales topped 6 million LCD sets globally in the fiscal year through March 2007, and forecasts sales this year at 9 million. It doesn't break out figures by calendar year.)
Sharp also wants to take advantage of a price gap in the LCD TV market. Gigantic high-end, high-definition TVs command a higher price, vs. smaller commoditized TVs. The more Sharp focuses on big TVs the more it's able to insulate itself somewhat from the dramatic price declines as low-cost competitors in Asia flood the market.
But Sharp isn't just adding another piece to its TV empire. Thenew Osaka facility is far more ambitious. Take its size. The plant will sit on a plot spanning 1.27 million hectares, four times the size of its Kameyama site. The plan is to build two plants: one making LCDs, another making solar cells. Having them in the same place means they can share materials and machinery. Solar panels and TV panels have a few things in common, including the glass substrate and gases used during production. That should save the company money and avoids the problem of having to keep up with two fast-growing, investment-heavy businesses from separate budgets.
The plot is so large that Sharp has invited materials and parts makers to set up shop next door. Corning, which makes the glass substrate, Dai Nippon Printing, which makes the color filter that get attached to the panel, and Kansai Electric Power Co. have all agreed to build facilities there. All told, the development will top $8 billion, and could be even larger if Sharp decides to invite more companies or add a TV-making facility on the premise. The company seems to have learned the benefits—-call it just-in-time-manufacturing economics-—of having suppliers in close proximity. Its Kameyama plant benefits from a sprawling supplier network known as Crystal Valley that quickly sprung up after that facility was built. The downside to all of this news: For plasma makers like Matsushita Electric Industrial, the world's No. 1 plasma panel and TV maker, the competition is going to get more intense, which could further exacerbate the slowing sales gains of recent months.
BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.