_Sharp sub to build new Gen 10.5 fab in Guangzhou
Sharp sub to build new Gen 10.5 fab in Guangzhou
Sakai Display Products (pvt), which is jointly owned by Sharp (6753.JP), Dai Nippon Printing (7912.JP), Toppan Printing (7911.JP), and SIO International (pvt), which is a Cayman Island based investment firm owned by Hon Hai (2317.TT) founder and Chairman Terry Gou, has signed a cooperation agreement with the Guangzhou City government to develop a display location that will include a Gen 10.5 LCD fab, a TV assembly line and a white board fabrication line. The expected investment is expected to be $8.84b with construction beginning in March 2017 and expected production in 2019, which will be based on oxide backplane technology. Sakai Display currently owns the world’s largest format LCD plant (Gen 10), located in Sakai, Japan, along with its two color filter fabrication lines, and a variety of component suppliers that are co-located on the Sakai site. When the fab was built in 2009 it was by far the most sophisticated LCD production facility in existence, and while the timing of a fab that was geared to produce very large TV panels was likely a few years too early, it was a step that changed the way panel producers thought about the longer-term picture of the display industry. Terry Gou, who has been a private investor in the Sakai plant for a number of years, just increased his stake in the company to over 53%, while reducing Sharp’s ownership to 26.7%.
Today however, there are two other large format fabs being built, both in China. BOE (200725.CH) is constructing a Gen 10.5 fab in Hefei which should see production around mid-year 2018, and China Star (pvt) is constructing a Gen 11 facility in Shenzhen, which is expected to be in production by 2Q 2019. The new Sharp fab is expected to have a maximum raw capacity of 90,000 sheets/month with a 3370 x 2940 format, and if our timeline expectations are met, will increase Sharp’s overall capacity by 45.7% by the end of 2020, despite the fab not being at full maximum capacity. When the fab is fully built out, which we expect will be by September 2021, the overall increase in Sharp’s capacity would be 68.5%.
During the last few weeks we have noted that Sharp’s new owners have made some aggressive decisions concerning their production plans relative to their customer base, particularly reducing their commitments to Samsung Electronics (005930.KS) and Chinese TV brand Hisense (600060.CH), in order to facilitate the resurgence of the Sharp brand worldwide, although we believe Samsung has recently committed to a 10% stake in the new China Star Gen 11 fab that has just begun construction, in order to guarantee capacity. This approach, which is the antithesis of the previous management’s conservative style, is a major bet on the continuation of large TV trends that have been increasing the average panel size of LCD TVs over the last few years. Now adding the construction of a new large format fab to the mix steps up the game even further for Hon Hai/Foxconn. If they are successful in restoring the Sharp brand, the bet will pay off quickly in display ‘years’, but if not, they will have the same issue that the previous management had with its Gen 10 fab, which faced low utilization rates as the market for large screen TVs took longer to develop than originally expected. Sharp also faces competition from the Chinese panel producers mentioned above, who are known in the display space for their ability to dominate a particular display segment, despite their more narrow focus.
All in, the biggest beneficiaries of the construction of these large format display fabs are the tool and component suppliers. Companies like Applied Materials (AMAT), Orbotech (ORBK), and Coherent (COHR), who’s tools are essential to the production of LCDs, and substrate glass suppliers like Corning (GLW), Asahi (5201.JP) and NEG (5214.JP), will see demand from such large fabs positively impact overall demand. That said, and we don’t want to put a negative spin on the resurgence of large format fabs, we have seen the industry over anticipate the demand side of the market more than once, usually citing trends (such as the increasing size of the average TV or the eventual adoption of an 8K TV format) that they expect will continue forever, which eventually play out or are changed by a technology breakthrough. This makes us a bit more wary of very large financial and capacity commitments such as these than the panel producers themselves, and forces us to watch the industry even more closely to spot when trends are beginning to change.
Sakai Display Products (pvt), which is jointly owned by Sharp (6753.JP), Dai Nippon Printing (7912.JP), Toppan Printing (7911.JP), and SIO International (pvt), which is a Cayman Island based investment firm owned by Hon Hai (2317.TT) founder and Chairman Terry Gou, has signed a cooperation agreement with the Guangzhou City government to develop a display location that will include a Gen 10.5 LCD fab, a TV assembly line and a white board fabrication line. The expected investment is expected to be $8.84b with construction beginning in March 2017 and expected production in 2019, which will be based on oxide backplane technology. Sakai Display currently owns the world’s largest format LCD plant (Gen 10), located in Sakai, Japan, along with its two color filter fabrication lines, and a variety of component suppliers that are co-located on the Sakai site. When the fab was built in 2009 it was by far the most sophisticated LCD production facility in existence, and while the timing of a fab that was geared to produce very large TV panels was likely a few years too early, it was a step that changed the way panel producers thought about the longer-term picture of the display industry. Terry Gou, who has been a private investor in the Sakai plant for a number of years, just increased his stake in the company to over 53%, while reducing Sharp’s ownership to 26.7%.
Today however, there are two other large format fabs being built, both in China. BOE (200725.CH) is constructing a Gen 10.5 fab in Hefei which should see production around mid-year 2018, and China Star (pvt) is constructing a Gen 11 facility in Shenzhen, which is expected to be in production by 2Q 2019. The new Sharp fab is expected to have a maximum raw capacity of 90,000 sheets/month with a 3370 x 2940 format, and if our timeline expectations are met, will increase Sharp’s overall capacity by 45.7% by the end of 2020, despite the fab not being at full maximum capacity. When the fab is fully built out, which we expect will be by September 2021, the overall increase in Sharp’s capacity would be 68.5%.
During the last few weeks we have noted that Sharp’s new owners have made some aggressive decisions concerning their production plans relative to their customer base, particularly reducing their commitments to Samsung Electronics (005930.KS) and Chinese TV brand Hisense (600060.CH), in order to facilitate the resurgence of the Sharp brand worldwide, although we believe Samsung has recently committed to a 10% stake in the new China Star Gen 11 fab that has just begun construction, in order to guarantee capacity. This approach, which is the antithesis of the previous management’s conservative style, is a major bet on the continuation of large TV trends that have been increasing the average panel size of LCD TVs over the last few years. Now adding the construction of a new large format fab to the mix steps up the game even further for Hon Hai/Foxconn. If they are successful in restoring the Sharp brand, the bet will pay off quickly in display ‘years’, but if not, they will have the same issue that the previous management had with its Gen 10 fab, which faced low utilization rates as the market for large screen TVs took longer to develop than originally expected. Sharp also faces competition from the Chinese panel producers mentioned above, who are known in the display space for their ability to dominate a particular display segment, despite their more narrow focus.
All in, the biggest beneficiaries of the construction of these large format display fabs are the tool and component suppliers. Companies like Applied Materials (AMAT), Orbotech (ORBK), and Coherent (COHR), who’s tools are essential to the production of LCDs, and substrate glass suppliers like Corning (GLW), Asahi (5201.JP) and NEG (5214.JP), will see demand from such large fabs positively impact overall demand. That said, and we don’t want to put a negative spin on the resurgence of large format fabs, we have seen the industry over anticipate the demand side of the market more than once, usually citing trends (such as the increasing size of the average TV or the eventual adoption of an 8K TV format) that they expect will continue forever, which eventually play out or are changed by a technology breakthrough. This makes us a bit more wary of very large financial and capacity commitments such as these than the panel producers themselves, and forces us to watch the industry even more closely to spot when trends are beginning to change.
Regional Share - Display Industry 4Q 2016 - Source: SCMR LLC, Displaysearch, COmpany Data
Regional Share - Display Industry 4Q 2020 - Source: SCMR LLC, Displaysearch, Company Data
Raw Capacity - Gen 10+ display Suppliers - Source: SCMR LLC, Company Data
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