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Saturday, Dec. 31, 2011
Firm pools three giants' prowess in small panels
The rapidly growing smartphone and tablet computer market is changing the face of the Tokyo commute: Many now can be seen flicking their fingers across touch-screen panels while riding public transportation.
Japan's electronics manufacturers, many of whom are suffering from the strong yen and competition with other Asian rivals in the TV market, see a big opportunity in the exploding demand for small and midsize LCD panels in these mobile devices.
Some are concerned Japanese firms might end up going down the same path as the nation's once dominant semiconductor and TV makers, who have since been surpassed by their regional rivals.
But Shuichi Otsuka, who will be heading a joint venture established by Hitachi Ltd., Sony Corp. and Toshiba Corp., says this time the story will be different for Japanese players. His new firm has the combined technological edge of three electronics giants and is even receiving support from a state-backed corporation.
"As I learned about the industry, I realized that (the company) is actually different from past examples in which Japanese firms boasted high technologies but lost in the actual business," said Otsuka, who is set to become president and CEO of Japan Display Inc.
The joint firm, to be launched in spring, will have the largest global market share for small and midsize panels at 22 percent in terms of sales, putting it ahead of Sharp Corp.'s 15 percent and Samsung Electronics Co.'s 12 percent.
Otsuka, former chief operating officer at Elpida Memory Inc., stressed that the three giants have cutting-edge technologies, especially in high-definition screens, wide-angle displays and power-saving functions.
He also pointed out that the financial help from the Innovation Network Corp. of Japan, a semigovernmental fund, will be a big boost in preparing for the explosive demand for smartphones and tablet devices. The size of the small and midsize panel market is expected to grow to ¥4.2 trillion in 2015 from ¥1.6 trillion in 2010, INCJ said.
When a certain smartphone model becomes globally popular, such as Apple Inc.'s iPhone, providing LCD panels for it can sometimes require devoting an entire factory line.
But because it usually takes more than a year to launch a production line after making a decision to invest in it, it's often too late to invest when the demand actually emerges, said Otsuka.
Thus, the funds from INCJ will help Japan Display make large-scale investments in advance to get a leg up on its rivals, Otsuka said, adding that no Japanese firms can really afford to make bold investments because they are facing tough competition made worse by a persistently strong yen.
In launching Japan Display, INCJ will invest ¥200 billion. The company led Hitachi, Sony and Toshiba through the negotiating process for the joint venture.
"It is a market that Japanese makers can dominate with their advanced technologies. This is a once-in-a-lifetime opportunity," INCJ President Kimikazu Nomi told a news conference in Tokyo in August when he announced the plan to establish Japan Display.
Hiroshi Sakai, an analyst at SMBC Friend Research Center, said it is true that many Japanese electronics makers do have technological advantages, but when it comes to price, the advantage goes to other Asian makers.
A key to success for Japan Display is to build up closer relationships with customers who value advanced features, for example Apple, he said.
"If they can make win-win relationships with such customers, I think there is a chance" for Japan Display to beat Asian rivals.
"But at this point, it is still not clear" if potential customers other than Apple will come along, said Sakai.
Indeed, in recent years, Japanese makers have lost share in their TV businesses to their Asian rivals.
On Oct. 31, Panasonic Corp. President Fumio Otsubo announced that Panasonic plans to shrink its TV business.
"Makers around the world have flooded the flat-panel TV market in recent years and accelerated the commoditization of the product and driven down prices. As a result, it's been difficult to show off our technology and differentiate our products from theirs," he said.
To restructure its money-losing TV business, Panasonic plans to cease production of plasma displays at its No. 3 plant in Amagasaki, Hyogo Prefecture, by the end of fiscal 2011 as well as an LCD panel factory in Mobara, Chiba Prefecture.
The Mobara factory was bought by Japan Display in November.
Sony, whose TV business has been in the red for seven years, also disclosed a revised business plan for the division in November.
Because it has become increasingly tough to turn a profit on TVs, makers have had no choice but to shift their focus to markets with better prospects, such as small and midsize LCD panels.
Larger LCD panels are used in only a few products, such as TVs and computers, so makers produce them in large volume, which drives down prices, according to a report by EM Data Service Corp., a Tokyo-based electronics industry research firm. Meanwhile, by applying cutting-edge technologies, small and midsize panels can be customized to meet the needs of a wider range of products, including cellphones, portable video game devices, digital cameras and car navigation systems.
"The LCD industry is undergoing a big change," said Sharp Corp. President Mikio Katayama, in June, explaining the tough situation TV makers are in.
Katayama also declared that Sharp is planning to reinforce its production line for small LCD panels.
Sharp will lose its top position in small and midsize panels with the launch of Japan Display. Some in the industry say Sharp would be better off on its own as because it can make decisions faster than the merged firm can.
In fact, this is the biggest hurdle facing Japan Display. Past mergers, including one among Elpida Memory, Hitachi and NEC in dynamic random-access memory, had trouble integrating smoothly.
"I understand that this is what people are really curious about. They are watching if I can really do it," said Otsuka, who also worked at semiconductor giant Texas Instruments Inc. in the U.S., adding he knows what it takes to become a leading international company.
Otsuka said he will make decisions based on what's best for giving the company global reach.
And since INCJ will own 70 percent of the new firm, with the rest split between the three companies, it is not Sony, Hitachi or Toshiba that will lead the company, said Otsuka.
Given that, "I'm the only person who can lead this company from a neutral position," said Otsuka.