Great article describing the TV industry and why the Japanese companies are struggling and how aggressive others are being now, as well as continue to invest and plan for the future.
LG Electronics will steal a march on its rivals by bringing forward the
launch of a 55-inch flat TV using next-generation technology, raising the stakes
in a cut-throat battle for the living room between Asia's top tech
powerhouses.
The South Korean firm will introduce its organic light
emitting display (OLED) TV in several European countries in May, well ahead of
an original plan to launch in the second half, a source familiar with the matter
said.
That would edge out cross-town rival Samsung Electronics and
cement, at least for now, South Korean dominance in the television market over
long-time leaders Japan, but it also highlights the fierce competition reshaping
Asia's flat panel industry.
"(In the past) if you wanted a top quality TV
you had to buy a Sharp, Panasonic or Sony. Those days are gone," said Steve
Durose, senior director and head of Asia-Pacific at Fitch Ratings.
The
Japanese, who ruled the global TV market in the 1980s and 1990s, have been
battered by their aggressive South Korean rivals, weak demand for the TVs they
make and a stronger yen that erodes the value of the their exports. Sony,
Panasonic and Sharp expect to have lost a combined $21 billion in the business
year just ended.
Some 200 km across the Korea Strait, LG Electronics is
expected to report a quarterly profit of $267 million on Wednesday, even after
LG Display, a flat-screen maker in which it has a near-38% stake, posted a $156
million operating loss for January-March.
The red ink bleeding across
Japan's tech industry comes at a time when the TV market is heading for a
technology choice—between credit-card-thin OLEDs or ultra-high definition
sets—that may consign today's LCDs to the bargain shelf. Whoever can mass
produce affordable OLEDs will have a headstart.
Sony, for one, will
recall with concern how it lost out in a similar consumer technology battle over
home videotapes in the 1980s, while Toshiba's HD DVD format was later crushed by
Blu-Ray.
IF THE PRICE IS RIGHT
Sony was first to market OLED TV
technology in 2007, but halted production of the $2,000 home screens three years
later amid a global downturn, and switched its focus to 3D. Sony limits sales of
OLED screens costing as much as $26,000 to businesses that can afford the high
price tag.
In January, Samsung and LG displayed prototype 55-inch OLED
screens at the Consumer Electronics Show in Las Vegas. Samsung has already
signalled its intent on OLEDs, saying in February it will spin off its LCD panel
business.
For makers of OLED displays, which boast sharper images and do
not need backlighting, the obstacle to consumer acceptance is price.
You
can buy 10 LCD TVs for the likely price of $10,000 for a big Samsung or LG
model. That means LCD is likely to remain the dominant force in the global TV
market for a while.
An executive at LG Display said an internal study
indicated consumers would start buying OLED TVs once the price falls to 1.3 to
1.4 times that of an LCD set.
Japan, meanwhile, has a potential rival
offering—ultra high-definition sets, dubbed 4K, that boast pictures four times
sharper than today's HDTV sets. Sony, Panasonic and Sharp all have this
technology, but face a broadcasting infrastructure hurdle, as television
stations would need to record in 4K for viewers to watch the new ultra
high-definition standard.
"However, if the sets are used to view video
downloaded from the Internet then higher definition could be viewed more
easily," said Kazuhira Miura, an industry analyst at SMBC Nikko Securities in
Tokyo, potentially giving Japan an edge in any trend for connected smart
TVs.
Given that, it's too early to write off the Japanese, but they may
need help to get their operations back on track.
GRAND ALLIANCE?
One
option being explored is an alliance of Japan's major TV makers, brokered by the
government, which would allow them to pool their R&D cash, engineering
know-how and eliminate overlapping costs. Japan has already taken a step down
this road, with Sony, Toshiba, and Hitachi combining their small LCD operations
into Japan Display, a state-sponsored company two-thirds owned by the
taxpayer.
But TVs may be a different matter.
"Creating a united
maker is going to be hard," said Yoshiharu Izumi, analyst at JPMorgan in Tokyo,
citing different corporate cultures and traditions and entrenched feelings of
rivalry after decades of competition. "An alliance just to cut costs doesn't
really make sense. Of course any tie up doesn't have to be between Japanese
companies, it could be Taiwanese."
Indeed, there are signs that
cooperation is picking up between Japan and contract manufacturers in its former
colony of Taiwan to take on South Korea, another former colony. Taiwan's
manufacturers have plants and know-how at low prices as well as a complete
supply chain for LCD production.
"The Japanese need the capacity, while
the Taiwanese need outlets. Japan has the technology, but may not necessarily be
able to implement. So it's a match," said D a vid Hsieh, Taipei-based Greater
China market vice president at specialist research firm DisplaySearch. "Because
Japan's scale is smaller, that's why it has to work with Taiwan. The added scale
in TV panels will match Korea."
MORE COLLABORATION
Recent media
reports have linked Sony with AU Optronics in a tie-up to make TVs, while
Taiwanese component maker Hon Hai Precision Industry, which belongs to the same
Foxconn group as LCD panel maker Chimei Innolux, recently became the top
shareholder in Sharp and invested in its Sakai plant, Japan's most advanced LCD
facility.
Taiwan's LCD industry would benefit from tie-ups with Japan
through increased cooperation and outsourcing. The industry lost $4.3 billion
last year, and AU is expected on Thursday to report a first-quarter loss of some
$430 million.
"Taiwan doesn't have the edge in many of the technologies,"
said H.P. Chang, head of research at Taiwan-based specialist LCD industry
research company Witview. "Even if your company wants to consolidate, others may
not want to. Samsung will not sit and wait for you to grow. Taiwanese and
Japanese companies need to explore ways to collaborate."
While Taiwan's
government has leaned on banks to help loss-making Chimei extend its loan
repayments, it takes the view that any consolidation should be led by the
industry itself, though it would look at how it could help.
"I don't
think Taiwan's government really wants an industry consolidation because that
will create many job losses," said Samson Hung, a Taipei-based analyst for
UBS.
But, without consolidation, business will be tough for Taiwanese
firms as they lack international branding and their investment costs are forever
rising.
"They have to consider how to allocate resources, how to share
intellectual property. They have argued for a long time," said Jamie Yeh,
Taipei-based analyst at Barclays. "Not just country to country, but they also
have to consider cultural and language factors."
CHINA CHASING?
Also
in Taiwanese makers' rear-view mirror is China's fledgling panel industry—at a
fair distance today, but one that could quickly catch up. Some rising players in
China include TCL Corp, BOE Technology, Tianma Microelectronics and Infovision
Optoelectronics.
"I think Chinese players will keep working on their own.
They don't have financial concerns," said Witview's Chang. "They will keep
growing and eventually become a threat to Taiwan's capacity."
Of course,
Japan's tech manufacturers could bite the bullet and seek to tie-up with the
South Koreans, tapping into their lead in OLED TVs. There is a precedent: Sony
had an LCD joint venture with Samsung, though exited it last
year.
"Japanese firms will probably be considering OLED tie-ups with not
just Taiwanese but also Samsung and LG, as the technology is more likely to
become the next display for TVs and they haven't invested heavily into this
technology yet," said Ji Mok-hyun, an analyst at Meritz Securities in
Seoul.
For now there is an air of confidence in South Korea, looking
across at a struggling Japanese industry.
"We've been No.1 in the TV
market for six years and I think Japanese firms are sticking to their massive,
but unprofitable, TV business simply because it's their legacy business," said a
senior executive at Samsung, who asked not to be identified as he was not
authorized to speak to the media.
James Jeong, chief financial officer at
LG Display, said: "We're talking to TV manufacturers, including Japanese, for
cooperation (in OLED supplies). There'll be plenty of opportunities for
cooperation and tie-ups in the display industry... as long as it's not your
sworn enemy."
A senior LG Electronics executive, who also didn't want to
be named, noted problems in Japan in product innovation, supply chain management
and slow management decision-making, as well as a focus on the domestic market
over exports.
"It's like a swimming contest," the executive said. "Once
there's a gap, it's really difficult for the follower to narrow the gap
dramatically as the one ahead continues to move ahead."