This is a rumor. DigiTimes said today that the Chinese-language Economic Daily News has reported Sharp is planning to build a Gen 6 TFT-LCD plant with Shanghai-based SVA-NEC Liquid Crystal Display (SVA-NEC). But Masuyoshi Takaoka, a divisional GM in Sharp’s Liquid Crystal Display Group, says the company has no knowledge of the rumor, according to the Economic Daily News. Of course, denying knowledge of a rumor doesn’t mean it’s not true. So let’s just ask if this particular rumor is plausible.

Ken Werner
Senior Analyst and Editor
of MDTV Retailer

About 8 years ago, Sharp’s new president Katsuhiko Machida made a very dramatic statement. He set a demanding deadline by which every Sharp TV set would be based on LCDs. It was an improbable goal, but at the time Sharp was a struggling second-tier maker of CRT TVs and many other electronic devices that sold more cheaply than the Sony equivalents, and for good reason. Sharp might be able to limp along as a me-too manufacturer or it could dramatically change the rules of the game.

Initially, Sharp’s goal was well ahead of the LCD panel technology needed to support it. The first few generations of the company’s LCD-TV sets were expensive and lousy, with strikingly bad motion blur and mediocre viewing angles. The panel technology wasn’t ready, but Machida had set his deadline.

In this painful process, Sharp’s engineers learned a lot, and panel technology began catching up with the application. Eventually, Sharp was not only making good - and then very good - LCD-TVs with its own panels, it also owned most of the market. Furthermore, its AQUOS brand had become synonymous with high-quality television. Sharp’s strategy of being first to the dance has paid off.

But it was inevitable that the company’s overwhelming market share would erode as Samsung, LG, Matsushita, Philips and arch-rival Sony developed their lines. Sony was surprisingly slow in developing a significant market share, but with the introduction of its Bravia line in the second half of last year, the company soared from a single-digit share to about a third of the U.S. market. In 4Q’05, for the first time, Sharp lost its leading LCD-TV sales position - and it was lost to Sony.

Part of the problem, Sharp said, was that it didn’t have enough LCD panels to fill all the orders it had received. The company aggressively pursued a program of sourcing panels from Taiwanese makers (as did Sony). It is believed that Sharp currently sources 26- and 32-inch panels from AUO, CMO, and Quanta Display. And Machida said in April that Sharp would increase its TV-panel procurements to the equivalent of 120K 32-inch LCD panels.

SVA-NEC - a joint venture between Japanese NEC and Chinese Shanghai Video Audio Electronics - currently operate a Gen 5 plant with a monthly output of 52K substrates. Most of those substrates are used to produce 15-inch monitor panels, a product that some second-tier manufacturers are being forced to sell for less than the cost of production. Everyone who is stuck with making small monitor panels is trying to shift his product mix to TV panels, which are still usually sold for more than what it costs to make them. SVA-NEC knows this, and has committed itself to investing $4B in a Gen 7 plant to be built in Shanghai, according to a story in the Beijing Morning Post.

So, adding an additional Gen 6 plant with support from Sharp would allow SVA-NEC to make 32- and 37-inch panels efficiently and give them a guaranteed customer in what is becoming a soft market. It would also give them plants from Gen 5 to Gen 7, which would provide the flexibility to adjust product mix to changing market requirements. In addition, Sharp would have a guaranteed supply of panels made to its specifications, and would be learning the lesson in cooperation taught by Sony and Samsung in creating their S-LCD line.

And let’s not forget that SVA-NEC would become the dominant LCD panel manufacturer on the Chinese mainland, eclipsing BOE.

So this rumor sounds plausible to me. No we have to wait a little while and see if it’s true.