Industry news

Foxconn Electronics (Hon Hai Precision Industry) is apparently committed to pursuing its plans to establish an LCD panel factory in the US through cooperation with Sharp, according to media reports out of Japan. Sharp is said to be taking take the lead in the project, and the Japan government is expected to use the project as a way to impress newly elected US president Donald Trump with a promise of thousands of jobs for the US and billions of dollars in foreign investment, though it will probably also require more than a billion dollars in domestic investment as well .

In January, Foxconn chairman Terry Gou stated that the company is considering the US investment based on strong demand for large-sized TVs in the North America market and the costs of transporting such panels. According to Nikkei Asian Review, the project has now been confirmed by Sharp executives, with the estimated JPY800 billion ($7.13 billion) investment being reported as a response to pressure from Trump on foreign manufacturers to invest in the US and create jobs there.

It is expected that the fab would be at least a 10G fab. Gou noted previously that Sharp is currently the world's only panel maker that operates a 10G factory and therefore is the best partner to provide panel technology for this project.

Its technology leadership may only be one of the reasons that Sharp was selected to lead the project. The Japan Times is reporting that Sharp is looking to recruit other Japan-based companies, such as makers of LCD panel manufacturing equipment, to participate in the investment, and the company is serving as the lead in getting a combined new loan quota of JPY300 billion from Mizuho Bank and the Bank of Tokyo-Mitsubishi UFJ. These connections may be another reason that Foxconn is giving Sharp the lead with the project.

However, building an LCD fab is no easy task. In addition to the cost of setting up the facilities, a local supply chain needs to be established. Currently, LCD panel makers are mostly located in South Korea, China, Taiwan and Japan, as are their upstream suppliers, including makers of glass substrates, polarizers, backlight modules and materials, with all players forming clusters around Asia. In order to set up a panel factory in the US, Foxconn may have to invite suppliers to set up factories there. But how many of them will be willing to do so, as far as cost and competitiveness are concerned?

For example, the main component for LCD panel manufacturers is the glass substrate, with US-based Corning being the market leader in that area. Corning does have LCD glass manufacturing operations in Harrodsburg, Kentucky but those facilities have mostly focused on R&D and are unlikely to be able to supply mass produced 10G substrates. Corning's investments for mass production of larger sized substrates have been focused in the Asia region, close to where the current LCD fabs are located. It is probably also unrealistic to expect that 10G substrates can be shipped from Asia to any US fab so Corning would have to build a 10G glass substrate facility in the US. That would take time and money.

As a point of reference, Corning announced an investment in a 10.5G LCD glass substrate (2,940mm x 3,370mm) facility in Hefei, China in December 2015 but the facilities are not expected to begin supporting mass production of LCD panels for TVs until the third quarter of 2018. The Hefei facilities are also expected to require a total investment of US$1.3 billion.

Another concern of locating an LCD fab in the US would be the higher cost of labor, though increased automation of panel production lines has decreased reliance on labor, rendering land, water and power costs more important, Digitimes reports have noted.

On the other hand, there would be savings in logistics costs. Display Supply Chain Consultants has a highly informative blog post that explains the logistics savings that could be realized by locating an LCD plant in the US, which tabs the overall average shipping costs for TVs sold in the US to be about US$10 for a 65-inch LCD TV that uses a locally made panel, compared to a cost of US$23 for a Mexican-assembled TV or $30 for an Asian-assembled one. The blog also notes that demand for the more than two million LCD TVs sized over 60-inches could be completely satisfied by locally produced panels.

Higher costs in other areas for locally produced TVs can be also be offset by import duties, something president Trump has already suggested may happen.