Tech Hardware Supply Chain - Gazhoo

Bhavin Shah
(852) 2800-8538
bhavin.a.shah@jpmorgan.com
Asia Pacific Equity Research
20 April 2009
likely be operational in July 2010. Most of the panels to be produced in the new line
should be in the 30-inch and 40-inch range, and larger ones should mainly be plasma
panels. Output of 46- and 52-inch panels are also a possibility, because the company
has chosen to go with 8G rather than 7.5G technology.
Panasonic aims to increase the proportion of 50-inch and larger TVs from 10% in
2006 to 18% in 2009, boosting its market share in the 37-inch and larger segment to
at least 25% by 2010. In 2010, the company also plans to raise the proportion of
plasma panels sold to other companies from the current low level to 20%-25%, and
the proportion of LCD panels sold to other companies to 10%, assuming that the
output is at full capacity. In line with these strategies, Panasonic decided to supply
panel cells to Hitachi but Pioneer’s exit from PDP TV could be negative for
Panasonic.
Management has not made disclosures about margins on plasma panels, but it sees
room for cost reduction through shorter lead times (it expects the Amagasaki No. 5
plant to have a lead time of 1.8 days, 47% shorter than the Ibaraki No. 1 plant’s, and
33% fewer processes than the No. 1 plant). The company also plans to differentiate
its LCD panels by using IPS Alpha, thereby reducing the number of driver ICs and
backlights.
Toshiba
A partnership with Sharp should improve Toshiba’s profit in the TV business. We
estimate that the company’s FY2008 LCD TV sales were ¥550 billion (up 10%
Y/Y)—or 7 million units. The business was profitable in 1H08 but the company
could have lost ¥15 billion in 3Q08; we estimate a several billion yen loss for FY08.
Under a LCD panel and semiconductor partnership formed with Sharp in December,
Toshiba will likely source 40% of its LCD panels from Sharp in 2010 and supply
half of the system LSI devices that Sharp uses for its TVs. The deal should give
Toshiba a steady source of LCD panels and make it a major buyer of system LSI
devices, after Sony. Toshiba is looking to sell its 16% IPS Alpha stake to Matsushita
and unwind its joint venture with Hitachi and Matsushita. Toshiba had been sourcing
its LCD panels from SEC and LGD, besides IPS Alpha, but is likely to reduce the
proportion of supplies from these companies and instead increase the proportion
from Sharp. As a result, most of its LCD TVs are likely to be made of VA-type
panels rather than the traditional IPS-type panels. Sales of 32-inch full HD sets,
besides 37-inch and larger ones, began in March 2008. The company had planned to
sell SED and OLED TVs, but has shelved the SED TV plan for now. It has decided
to focus on developing small and mid-size OLED TVs.
Hitachi
We believe management has shifted its strategic focus to profitability. Five key
aspects of the company’s new TV business strategy, announced in February 2008
are: 1) a downward revision of sales target for 2010 (from 6.5 million to 3.6 million);
2) an increase in panel sales target to other companies (500,000 in 2H08, 1.2 million
in 2009); 3) to develop thinner panels (plasma panels—from 130mm in 2008 to
35mm in 2009 and 10mm in 2010-12; LCD panels—from 35mm in 2008 to 19mm in
2009 and 15mm in 2010-12); 4) ecology (to halve the power consumption by 2010);
and 5) to focus on the Asian market, including Japan and China.
159