It’s getting hard to manufacture displays in Japan. Now that the yen is expensive against most other currencies and the Korean won is cheap, and Japanese labor and land costs remain expensive, it has become very difficult for Japanese manufacturers of displays and display-centric products to price their products competitively.

Ken Werner
Senior Analyst and Editor

It would seem the only alternative is to manufacture offshore, but that has been a hard decision to make. The Japanese, after all, are very good at manufacturing. Building on the quality insights of W. Edwards Deming, they re-invented manufacturing practices (initially in the auto industry), producing goods of very high quality with great efficiency. It must hurt now to find that being superb at what you do isn’t enough. The planets also have to align in your favor, and part of alignment includes not having competitors who are as smart, as experienced, and as well-capitalized as you are. The planets did align for Japan in the 1980s; now, they don’t.

Americans, who agonize regularly over the exporting of much of our manufacturing expertise, can be expected to sympathize. (When did you last see a business plan for an American or European start-up display company that did not include a reference to an "Asian manufacturing partner"? I can think of two, and they didn’t survive.)

So some Japanese companies are doing what would have been literally unthinkable two or three years ago. Sharp’s new strategy is to build joint-venture plants outside of Japan to supply local demand (while aggressively rounding up global TV-making customers for panels from Sharp’s domestic Gen 10 plant).

And Toshiba Mobile Display (TMD) will establish a joint venture in Guangdong, China with TFT-LCD panel players from China and Hong Kong with total investment up to US$100M, Digitimers‘ Yvonne Yu reported today, basing her story on "a various reports from China-based media." TMD will take a 19.9% stake in the joint venture, with the Chinese panel makers taking 60%. CNBC Asia reported a couple of days earlier that TMD had said the Chinese player is the Greentech Group, and that the other 20% stake would be taken by a Hong Kong Investment fund.

TMD will transfer equipment from its closed Gen 2.5 and Gen 3.5 amorphous silicon plants in Japan to the new JV, and will also transfer LTPS production technology, while maintaining its LTPS lines in Japan. Equipment installation in China will begin this September 2009, with production slated to start in 2010, Yu’s sources said, who added the new facility will focus on handset panels, car-use panels, notebook panels and 22-inch and smaller LCD TV panels, the reports added — in other words, the bulk of what TMD already does.

Toshiba seems to be making the most of the flexibility it gained when it bought out Panasonic’s 40% stake in TMD (which then stood for Toshiba Matsushita Display) in April. TMD had an operating loss of ¥36.2B ($380M) in FY2008, but said it plans to cut 25% of the fixed costs in its LCD business this year and break even for FY2009 (which runs through March 2010).

If this pans out, Japanese display makers may start bragging about their "Chinese manufacturing partners." But they will probably have to swallow hard when they do.