Market leader Matsushita Electric Industrial Co. (Panasonic) and Hitachi Ltd. announced Thursday an agreement to supply each other with giant plasma panels for televisions. Starting in fiscal 2007, Matsushita will supply Hitachi with 103-inch panels, and in fiscal 2008, Hitachi will reciprocate by supplying Matsushita with 85-inch panels.
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Just such a horizontal partnering arrangement was one of the recommendations of an analysis I wrote in the June issue of Projection Monthly with Flat Panel Coverage. The handful of remaining plasma suppliers are facing eroding market share from LCD-TV suppliers.
But for PDPs to remain a major contender in flat panel TVs, it will have to maintain a shipment volume on a par with that of LCD panels in the 40-inch class - the main battlefield. Sheet volume is a crucial factor in maintaining cost competitiveness, but also in things like capturing new brands and securing sales floor space.
PDP has seen its strength in the 40-inch segment challenged recently. As has been reported, PDPs slightly out-shipped LCDs in the 40-inch range in 2006, but that will change in 2007. Momentum is with LCDs as consumers appear to be favoring them over PDPs.
Part of the reason was that a number of new LCD fabs came online over the last year including a 7G plant by S-LCD and an 8G fab from Sharp, which flooded the market and pushed down prices. The other reason is the rapid adoption of 1080p - something LCD has and PDP is just now starting to offer.
While competition in the 40-inch range is critical, it is not clear the PDP makers are committed to the fight. Many are refocusing on larger screen sizes, but historically, volumes decrease above the 50" range, so this strategy may push them out of the mainstream screen sizes. And, they must have the capital to invest and compete.
Fortunately, PDP suppliers can expect rapid 1080p growth in Q2′07, as Matsushita ramps sizes including 42, 50, 58, 65 and 103 inches. All other major plasma suppliers are now shipping 1080p panels.
But going to 1080p will cost 20 to 30% more for PDPs, compared to only 5 to 10% for LCDs. As the global market moves toward Full HD, the need for further cost reductions will even greater if PDP hopes to survive.
Matsushita has made it clear it is pursuing increased shipment volume. In January 2007 the firm announced it would invest ¥280B into a new plant in Japan, its fifth manufacturing facility. Production capacity is expected to be 12M TV sets (42-inch equivalent) annually, which is more than the 11.1M sets the other four fabs achieve combined. The firm is also aggressively pursuing cost reduction, installing production equipment to cut ten 42-inch panels from a sheet.
If the trend accelerates and all the PDP manufacturers begin beefing up their production stances, PDPs could take back the leading position. But Pioneer is treading water, Hitachi has decided to put off the decision on construction of a new factory until fiscal 2008, Funai Electric Co. has gotten out of plasma TVs altogether, and LG Electronics is closing inefficient PDP lines. So that leaves only Matsushita as the main leader so far.
So is sharing and consolidation an answer? Matsushita and Hitachi originally agreed to a comprehensive partnership in the plasma panel business back in February 2005. The idea was to collaborate on development, production, marketing, and the handing of intellectual property rights. But so far, the only fruits of that agreement have been the establishment of a joint company to manage IP and the adoption of 1.8mm glass sheet for panel production.
Now, in addition to agreeing to supply one another with giant plasma panels, the two companies will look for ways to further deepen their relationship, such as through the sharing of main components and materials.
With a 30% share of the global market for plasma TVs, Matsushita is the clear winner in this field. But there is danger in going it alone, because the parts and materials makers want to be able to benefit from economies of scale. By partnering with Hitachi to share giant panels, Matsushita aims to guarantee a market for these producers.
Either way, we see the domain of PDP-TV retreating to larger sizes and smaller market share, after a temporary rebound in the second quarter of 2007, despite Matsushita’s sole efforts to stem the tide.