Go West, young man, and grow up with the country.
     - usually attributed to Horace Greeley, who founded the New York Tribune in 1841.

Ken Werner
Senior Analyst and Editor

Let’s say you’re a major manufacturer of LCD panels and you have a Gen 8.5 - or maybe even a Gen 10 - fab. Where do you go next?

Increasingly, the answer is "Go West" - west to mainland China, that is. Not that any South Korean, Taiwanese, or Japanese panel maker has built an advanced generation fab in China yet, but all of them have talked about it and some are actively negotiating. The motivation for building on the mainland is clear. China is the fastest-growing market for LCD-TVs, and Chinese set-makers would like local sources of supply - all else being equal - for a variety of not-at-all-mysterious reasons.

How active is the market? During the one-week Lunar New Year celebration in February, between two and three million LCD-TVs were sold. That compares with the 146 million LCD-TVs that were shipped worldwide in all of 2009. Chinese companies imported roughly three million LCD-TV panels from Taiwan in January and 2.6 million more in February, according to figures from Taiwanese panel makers compiled by Digitimes.

As interested as Chinese set-makers and Asian panel-makers have been in establishing production on the mainland, the governments of Taiwan and South Korea have been cautious. Transferring advanced-generation panel technology and manufacturing know-how seemed like voluntarily amputating the family jewels and shipping them overseas. Over the last few weeks, though, a consensus seems to have emerged that it would be okay to build plants on the mainland as long as they were based on last-generation technology instead of current- or next-generation technology.

In early February, Taiwan’s government removed the ban on mainland China fabs, saying it would improve the competitiveness of the island’s LCD industry. Panel makers would be free to set up Gen 5 (and lower) fabs on the mainland, but the Taiwan government would permit only three fabs of Gen 6 or greater.

AUO CEO L.J. Chen said locating fabs on the mainland would enable panel makers to provide better service to China clients and shorten the time of delivery. Any fabs AUO builds on the mainland will be built in eastern China since the company already has a production base in Suzhou, Chen said. Rival CMO withheld comment, citing its pending merger with Innolux and TPO.

Late last year, the South Korean government had given its approval to Samsung and LG Display to build plants in China, but this week industry sources said the Chinese government may decide to take control of the situation and allow only four or five next-gen fabs to be built on the mainland. Three Chinese manufacturers - BOE, InfoVision Optoelectronics (IVO), and TCL - have already been given approval for Gen 8.5 projects, leaving only one or two more slots if this policy is continued.

Samsung has expressed interest in building a Gen 7.5 fab in eastern China, but AUO stands a better chance, sources say, because of its existing module factory there and the increasing cooperation between China and Taiwan.

AUO’s K. Y. Lee said recently his company will submit an application to the Taiwan government for building the Gen 7.5 plant, with investment totaling US $3.12 billion, said the Chinese-language Economic Daily News. Lee said it would take about 18 months to build the plant, and that he expects production to start in H2′11.

There’s a lot more to come. The Chinese panel makers have experienced repeated delays in bringing lower-generation fabs on-line, and there have been reports of poor yields in the past - poor yields that were not necessarily communicated to the appropriate agencies in Beijing. This story is just beginning.

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