Consumer Electronics

CCID Consulting projects, by the end of 2008, China's LCD TV shipments will reach 11.57 million, up from 7.26 million in 2007, and a projected growth rate of almost 60%. LCD TVs currently account for 90% of all flat panel TVs. The key driver for growth is China's increase in living standards of its extraordinarily large population. Consumers want color TVs, and are also replacing their older CRT TVs as well.

Competition intensifies.

The race to capture the China markets intensifies. Competition can be broadly categorized into two: multinational vendors such as Samsung, Sony, Sharp, and Toshiba, and China's domestic vendors such as Hisense, Skyworth, Konka, and TCL. The main differentiator between these two categories is the control of the upstream supply chain, where multinationals have a significant advantage.

Chinese vendors are facing the prospect of increased upstream panel prices, controlled by multinational vendors, and downstream price reductions at the consumer level. In short, Chinese vendors are squeezed at both ends of the supply chain, and the result is a large loss of China's LCD TV market share.

Competitive response.

Chinese vendors are responding by proceeding stepwise upstream in the supply chain and increasing efficiencies. The first step is developing LCD module production capability. In 2007, Hisense was the first Chinese vendor to do so. TCL and Konka are developing these capabilities in 2008.

Chinese vendors are also looking for ways to decrease cost by increasing efficiencies in assembly, such as those involving the LCD module and other components. Vendors may be able to find decreases in product costs in the 5% to 10% range.

By successfully adopting R&D capabilities in the LCD module, Chinese vendors are better able to develop more core design competencies, and move away from competing on price, and more on value.

Still a long way to go.

Given Chinese vendors' size and scale, the LCD module is a good first step. However, the core is still LCD panel production competencies, which require the technical expertise and scale economies that only a few Japanese, South Korean, and Taiwanese vendors have. They control the speed of scale of any technology transfer.

Chinese vendors will not be acquiring any LCD panel capabilities in the short term. Moreover, Chinese vendors' LCD module production is still fundamentally dependent on LCD panel supply, and therefore there is still investment risk in such a first step. Also, smaller Chinese vendors will be at further risk, as they will lack any upstream capabilities compared to larger vendors.

Governmental support.

Similar to the CRT era, the Chinese government played an important role in developing China's own CRT color TV industry. The government considers China's flat panel industry as strategic.

In 2007, the special government funds have been established to develop various aspects of the LCD supply chain, especially LCD panel production. These include funds for developing production capabilities in the areas of TFT-LCD screen and module; TFT-LCD color filter; glass substrate; IC driver; polarizer; LED backlight; associated manufacturing and test equipment; and integration of the final TV product.

With governmental support at the national and local levels, China has preliminarily formed LCD industry clusters in the Pearl River Delta, Yangtze River Delta and North China. Multinational vendors have come to invest in these areas for LCD module, panel, color filter, glass substrate, and other LCD materials.

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Ó 2008 CCID Consulting Co., Ltd.