Foxconn signs Gen 10.5 fab agreement with Guangzhou government
Foxconn (2354.TT), now the parent of Sharp (6753.JP) has signed an agreement with the Guangzhou Municipal Government to build a new Gen 10.5 LCD fab that will specialize in producing 8K TV panels. The project, which is expected to cost 61b yuan ($8.87b US) will be funded by a $1.7b investment by Sharp/Foxconn/Hon Hai (2317.TT) and municipal financing. The project is expected to bring 70 new supply chain firms to the area, with LG Display (LPL) already operating a Gen 8 fab in a nearby location.
We believe the new fab will be broken into two phases, with each having a maximum capacity of 45,000 sheets/month. We project the ramp to begin in September 2019 (phase 1) and September 2020 for phase 2 with the primary backplane technology based on IGZO[i]. Given that the project has been given a fast track by the local government, there is a possibility that the construction, equipment move-in, and production ramp could be pulled in, although it is far too early to make changes to our timeline, but we note that workers on such projects are given both monetary and psychological incentives to bring such large scale projects in ahead of schedule, and projects at BOE (200725.CH) and China Star (pvt) that have been completed ahead of schedule are good indications that the Sharp/Foxconn project will have the same result.
For us, two questions remain. First, will the fab really focus on producing 8K TV panels, given the very limited market that currently exists? We mentioned some of the drawbacks of 8K in yesterday’s note, and while NHK, which is close to the Japanese equivalent of US Corporation for Public Broadcasting, is broadcasting some content in 8K currently, the goal is to broadcast the 2020 Tokyo Olympics in full 8K as the service is rolled out fully. NHK is certainly the leader in the 8K ‘race’, with some of the 2016 Rio Olympics being shot and broadcast in 8K, but given the high resolution content, which cannot be handled by most TVs, the viewing had to be done at ‘viewing centers’ in key cities with special 8K sets. By the time this fab opens, the assumption is that 8K will be well on its way to replacing 4K, and so the focus, but a focus on 8K panel production would tend to be a marketing differentiator, rather than a major plan until the world catches up to 8K.
Second, Foxconn’s chairman, Terry Gou, has pledged to build a TV factory in the US to satisfy the tariffs expected to be levied on goods imported to the US by the Trump administration. Is this the factory that was going to be built in the US? Likely not, as the odds against a true display panel fab being built in the US are relatively small given the salary requirements of US workers and the lack of display manufacturing expertise and infrastructure. That said, we do see the possibility of a TV assembly plant here, with a high component of automation and a lower manufacturing skill set needed. Will it satisfy the needs of both the Trump administration (jobs to present to the media) and Mr. Gou (avoiding a costly tariff)? Most likely, but it seems the new panel fab will be built in China as originally expected.
[i] Indium Gallium Zinc Oxide
We believe the new fab will be broken into two phases, with each having a maximum capacity of 45,000 sheets/month. We project the ramp to begin in September 2019 (phase 1) and September 2020 for phase 2 with the primary backplane technology based on IGZO[i]. Given that the project has been given a fast track by the local government, there is a possibility that the construction, equipment move-in, and production ramp could be pulled in, although it is far too early to make changes to our timeline, but we note that workers on such projects are given both monetary and psychological incentives to bring such large scale projects in ahead of schedule, and projects at BOE (200725.CH) and China Star (pvt) that have been completed ahead of schedule are good indications that the Sharp/Foxconn project will have the same result.
For us, two questions remain. First, will the fab really focus on producing 8K TV panels, given the very limited market that currently exists? We mentioned some of the drawbacks of 8K in yesterday’s note, and while NHK, which is close to the Japanese equivalent of US Corporation for Public Broadcasting, is broadcasting some content in 8K currently, the goal is to broadcast the 2020 Tokyo Olympics in full 8K as the service is rolled out fully. NHK is certainly the leader in the 8K ‘race’, with some of the 2016 Rio Olympics being shot and broadcast in 8K, but given the high resolution content, which cannot be handled by most TVs, the viewing had to be done at ‘viewing centers’ in key cities with special 8K sets. By the time this fab opens, the assumption is that 8K will be well on its way to replacing 4K, and so the focus, but a focus on 8K panel production would tend to be a marketing differentiator, rather than a major plan until the world catches up to 8K.
Second, Foxconn’s chairman, Terry Gou, has pledged to build a TV factory in the US to satisfy the tariffs expected to be levied on goods imported to the US by the Trump administration. Is this the factory that was going to be built in the US? Likely not, as the odds against a true display panel fab being built in the US are relatively small given the salary requirements of US workers and the lack of display manufacturing expertise and infrastructure. That said, we do see the possibility of a TV assembly plant here, with a high component of automation and a lower manufacturing skill set needed. Will it satisfy the needs of both the Trump administration (jobs to present to the media) and Mr. Gou (avoiding a costly tariff)? Most likely, but it seems the new panel fab will be built in China as originally expected.
[i] Indium Gallium Zinc Oxide
Sharp Raw Display Capacity - 2004 - 2020 - Source: SCMR LLC, Displaysearch, Company Data
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