2006 seems to be the “year of LCDs”. With hot sales of laptops and LCD televisions, an increasing number of Chinese companies are striving to be a major part of the LCD industrial chain - the TFT-LCD production line. But hardships along the way may well go beyond anyone’s wildest imagination.
The Shenzhen-listed display manufacturer BOE Technology Group announced on March 24, 2006 that it would invest RMB8 million (US$1 million) in the newly established Julong Optoelectronics, becoming its biggest shareholder with 40% shares in hand. Shenchao Technology Investment holds 20% and four other manufacturers of household appliances - TCL, Skyworth, Changhong, and Konka, hold 10% each. Thus, Julong Optoelectronics obtained technical support to march into the field of TFT-LCD displays.
A wave of domestic investment in the TFT-LCD industry is gaining momentum: SVA and BOE established G5 TET-LCD production lines in Shanghai and Beijing respectively; this was followed by a Longteng Optoelectronics project in Kunshan, Jiangsu Province; Tianma in Shenzhen made a joint-stock effort with five other companies, including its big shareholders, Shenzhen Zhonghang Industry and Shanghai Zhangjiang Group, to build Shanghai Tianma Microelectronics, with RMB3.1 billion (US$389 million) planned for a G4.5 TFT-LCD production line. Shandong Shengda Optoelectronics even planned to construct the first G6 production line in China, while Henan Ancai Hi-Tech ambitiously planned to invest RMB2.1 billion (US$263 million) with an aim of entering the upstream section of the TFT-LCD industry - the glass substrates.
Those in the LCD industry know that it is extremely difficult to invest in TFT-LCD production lines in China - much more difficult than one would imagine. According to CCW (China Computer World Group) Research, investors in the panel industry have only a 50% success rate in the Chinese mainland. Upstream panels for laptops and LCD TVs can only be provided by production lines above G5, and if they invest in production lines for big size screens, the success rate will be even lower.
Can Chinese enterprises get over these high thresholds?
The Mysterious Third G5 Production Line
If you are going to a certain factory in the industrial park in Kunshan, you have to tell a taxi driver the detailed address and location, because there are hundreds of factories scattered there and even local people may get lost. But Longteng Optoelectronics is an exception. Any taxi driver in Kunshan can take you there without any directions. This is not only because more than a hundred Taiwanese and dozens of Japanese take taxis to Longteng every day, but also because the place itself is very mysterious: after a drive to the east along the wide street, visitors have to get out at a sentry and walk along the road. After crossing a 300-meter-long green belt, they see a spacious area with large living quarters on the left and buildings on the right, where construction workers hustle and bustle and strong security people are on constant patrol. Father away, even bigger reserved spaces can be found.
What Longteng Optoelectronics is building is a G5 TFT-LCD production line, the third in China, after SVA and BOE. The Kunshan Industrial Park spares no effort in the construction of this production line. On the west side of the factory, a highway is under construction, which shall lead directly to the expressway connecting Shanghai and Nanjing.
According to plans, the first phase of the project shall produce 30,000 pieces each month and mass-production will be carried out by June 2006. However, the infrastructure has not been completed; it is just being transferred to the MEP and the lustration system - so it is extremely hard to start mass production as previously planned. More critically, optoelectronic projects require large numbers of technical staff and many coordinating enterprises to settle down, and this process has only just begun.
In fact, this eye-catching project remains confidential in terms of sources of funding as well as technical sources. The sponsor, the Kunshan Industrial Park, was even more secretive. Owing to the complexity of the productive technology of the G5 TFT-LCD, known as the core technology in control of the total cost of the industrial chain, only some manufacturers in Japan, Korea and Taiwan have the capability of establishing and manufacturing G5 production lines. No enterprise is willing to sell or transfer their technology.
BOE was able to purchase the LCD production lines from Hydis in 2003 because Hyundai Group had to sell the TFT-LCD business. But they are merely G2, G3, and G3.5 production lines. NEC of Japan agreed to establish a G5 production line with SVA because it’s conducting the strategic construction and has given up the TFT-LCD developing plan. Before this, NEC had only been involved in the construction of a G3 production line and not the G5. The Taiwan authorities strictly forbid the transfer of TFT-LCD technology into the Chinese Mainland. This means that the five LCD enterprises in Taiwan with a G5 manufacturing capability, known as the five tigers - AUO, CMO, Chunghwa Picture Tubes, Hannstar, and QDI, will find it very difficult to succeed in the Chinese Mainland.