In the high stakes game of "LCD Panel Poker" it’s common for gutsy technologists to bet billions of dollars on next generation fabs that lower cost and improve efficiencies for the seemingly insatiable electronic display market.

Steve Sechrist
Senior Analyst and Editor

But top Korean makers LG and Samsung are being dealt out of the next hand by mainland China. Both companies are "on hold" with plans to invest $4B (for gen 8 fab) and $2.2B (for gen. 7.5 fab) in mainland China respectively, pending approval to their investment plans that never came. Now a recent article in Korea Times accuses China of "Stalling" on the process that was originally due from Chinese central planners, in April-2010.

The economics of the deal are simple. Both Korean firms together command +40% world-wide LCD panel market share and see China developing into the world’s largest market for LCD panels—and both want a piece of the action to help them maintain LCD dominance. China is looking for both investment, and technology transfer to help leapfrog that nation into a world display powerhouse, as China moves up the technology curve supplying higher value add products to both domestic and foreign markets. Currently, China is producing LCD panels from gen5 fabs, so the move to gen 8 and gen 7.5 will add a significant boost to both productivity and manufacturing efficiencies (lower cost.)

But the Korea Times reports a recent (June-2010) trade agreement between the two China’s, mainland and Taiwan, may be at the heart of the "stalling" issue. The ECFA (short for Economic Cooperation Framework Agreement) establishes a "special status" between the two nations, not unlike the relationship that exists with China and its Special Administrative Regions Hong Kong and Macau. While the agreement came under intense debate, polarizing the small island nation of Taiwan with concerns of getting too close to mother China, suppliers like Korean based LG and Samsung are beginning to feel the effects.

In his Display Daily column on January 21st, Taiwan’s Newest Tiger Roars; AUO Roars Back, Ken Werner stated that Taiwan-based display maker CMO was recently purchased by a much smaller Taiwan LCD maker, Innolux. Innolux has ties to the deep pockets of China-based Hon Hai which in turn owns Foxconn, maker of the iPad and iPhone as well as a myriad of other products. This is significant because, as Werner puts it, "CMO has a lousy debt/equity ratio, along with excellent technology, advanced-generation manufacturing facilities, and an extensive customer base."

In fact, the purchase created the world’s No. 3 LCD maker Chimei Innolux (CI) with about 17% world market share, and operating gen 8.5 LCD fabs. But there’s more, not only does this affect LCD technology transfer, (Taiwan to mainland China) but next generation OLED panels as well. Werner reported that in the merger "CMEL, Chi Mei’s OLED subsidiary, is included in the purchase, as is TPO, the separate maker of small displays, which has LTPS fabrication capability and has developed OLED technology (but has no commercially available OLED products.)"

So for now, word on the street is the Beijing government is likely to snub the investment and technology transfer ( gen 7.5 and gen 8 ) from the Koreans, and approve the Foxconn / CI gen 8.5 LCD line in Chengdu, Sichuan Province, western China. This includes a total investment of $5B, and up to 100K high tech jobs. As for the two Korean giants, the game is shifting with China holding all the cards—in a command-based economy can shut the door on investment and market access with little or no repercussions.