Panel partners put faith in LCDs

The LG Philips joint venture has unveiled plans for flat screen dominance and CRT longevity.

To the untrained eye, the joint venture between Dutch electronics giant Philips and the electronics division of South Korean conglomerate LG to create the world's largest supplier of cathode ray tube (CRT) and liquid crystal display (LCD) monitors could be seen as simply a sensible partnership that allows each firm to complement the other's technologies and geographical markets.

On the surface, indeed, this seems to be the case. In 1999, the two companies created LG Philips LCD for the production of LCD panels for desktops, notebooks and TVs. Last year the two companies formed LG Philips Displays to combine strengths in the CRT space.

Since their creation, both joint ventures have claimed, with supporting figures, to be leaders in their respective fields by market share.

But, if you look a little deeper, you find some interesting cultural synergies between the Dutch and the Koreans which could help to explain a few things.

The first thing that strikes you when you travel around Korea is that, as in Holland, there are vast numbers of greenhouses on almost every available space cultivating fresh produce.

The second thing that both countries share, is an overwhelming passion to succeed. In component manufacturing and assembly, a market that has been compared to the Cold War arms race, coming second is not acceptable.

Bearing these facts in mind, it is perhaps small wonder that another Dutch/Korean venture, the South Korean football team, run by Dutchman Guus Hiddink, had such a phenomenal run in this year's World Cup.

"It's a high-stakes poker game and you have to play to win," said Allard Bylsma, European general manager at Philips CE, PC peripherals and wireless.

It is also a game that requires deep pockets and a lot of faith in what you are doing. As with integrated circuit chip fabrication plants, investment is usually made in the downturns of economic cycles.

In many ways the LG Philips joint venture resembles the running of the South Korean football side. Combining the organisational excellence, teamwork and will to win of LG with the business acumen of Philips, the venture is making all the right moves to capture the emerging LCD market.

At the same time it is shoring up the still lucrative CRT space, which saw a turnover of $4bn from sales of 60 million units last year.

Fifth-generation TFT

In May, LG Philips LCD took the wraps off what it calls its P4 manufacturing line, the world's first fifth-generation thin film transistor (TFT) LCD factory, in Kumi, South Korea.

With three other factories in Kumi producing LCD panels for notebook PCs, desktop TFTs and TVs, P4 manufactures panels of 1,000mm x 1,200mm.

When its P5 facility comes online, scheduled for the first half of next year, LG Philips hopes to offer panels of up to 1,100mm x 1,250mm.

David Barnes, technical advisory consultant at LG Philips, told vnunet.com's sister publication Computer Reseller News (CRN) that "P5 is Kaizen", and a year or two ahead of the competition. He also said that bringing P5 online will "help the channel, because they can get comparable sizes from the same supplier".

Building on Barnes's channel comments, Bylsma insisted that the best strategic route to market is to "talk direct, but deliver indirect".

Even with corporate accounts, the key is to deliver the type of service that the end-user wants, according to Bylsma, but to fulfil that customer through a reseller or a system builder. This is because vendors typically cannot offer the complete picture to their customers without the help of partners.

"The reseller is key," said Bylsma. "Through co-operation with the vendor, customers can be offered an ongoing service."

Talking about the joint venture and the extra capacity that the introduction of the P5 line would bring to both companies, Bylsma said that resellers will be offered a wider portfolio of products that they can offer their customers.

Previously, 15in panels could offer little differentiation apart from brand. As bigger sizes and more volume come on-stream at more tempting prices, resellers will enjoy more benefits, Bylsma claimed.

The P4 line is currently churning out up to 30,000 panels a month. When phase two comes online this figure will rise to 60,000. With the introduction of the P5 line, which offers customers more display size, Bylsma believes that Philips can offer its resellers and customers a better service and a wider LCD service solution.

To this end, LG Philips LCD hopes to offer up to 120,000 sheets for 15in to 30in panels per month by the end of 2003, with a further investment of $1bn.

Supply and demand

General concerns about maintaining reliable supplies, especially when it comes to LCDs, has made allocation a key priority for the joint venture. The vast majority of components manufactured at Kumi are likely to end up ready for assembly at Philips factories in Suzhou, China.

As LCD panels ramp up in size, reaching a sweet price point in the 17in segment, Bylsma hopes the alignment between P4 and P5 will give a stable flow. "P4 and P5 will give the channel a total portfolio of sizes and features," he said.

Talking about the role of distribution in getting flat panels to market, Bylsma suggested that there should be a "give-and-take mentality" with a long-term plan. "Short-term [outlooks] can bring quick wins but won't give resellers sustainable and credible growth," he said.

One example of this would be a shift to new technologies, such as from CRT to LCD, before the market had reached maturity. Maintaining a healthy CRT business, as well as encouraging the transition to LCD, is the preferred option at LG Philips LCD and Displays.

The two companies hope the investment will put the joint venture in pole position for a 'display-oriented world'. As well as pushing into bigger volumes and sizes of LCD panels, the venture has a strong offering in the traditional CRT space. Last year the company shipped 60 million units for production in 2001, giving it a market leading share of 24 per cent.

Despite consolidation in this sector and cooling demand, the joint company hopes to increase its market share and volumes to 80 million by 2005. For Bylsma, having a strong CRT offering in addition to future LCD aspirations is essential to lock down the day-to-day business.

With its volumes, LG Philips believes it can still get good revenue while giving existing CRT customers and resellers an upsell opportunity in the LCD space.

Grant Keenan, business manager at Philips distributor Computer 2000, confirmed that flat panels are really starting to fly in the corporate arena. Although it is the 15in offering that is shifting in the greatest volumes at the moment, he claimed that, over the next two years, 17in will take off.

"Especially when they drop down in price from around £800 to £500," he said. When this happens, Keenan claimed, 17in will be as popular as 15in is now.

But at present, he said, corporate customers are more likely to be persuaded to purchase 17in CRT displays, because they cost "next to nothing".

Eventually, CRT displays may be better suited to the system builder market, Keenan claimed.

TFT versus plasma

As prices go down and sizes go up, TFT LCDs could also offer a compelling alternative to plasma screens because of their longevity, style and price point, Keenan said. Although he is a fan of plasma, he said: "Plasma is great but the tube burns out in two to three years."

Andy Brown, EMEA research manager for mobile computing at analyst IDC, told CRN that 17in LCD panels were now entering the "sweet spot". Brown was also confident that LG Philips' enhancements to its production facilities would help it "hit volumes".

"Two to three years ago, supply was a big problem," he said. "Now this segment is in a much better position." Although Brown expects supply to be stretched in the short term, he claimed that supply problems should be ironed out by next year.

Looking at the road ahead, Brown said that 17in is entering volumes that will eventually move into the 19in space. He added that there has been a certain amount of anxiety in the contract manufacture market, following rumours that Hewlett Packard (HP) might take back some panel manufacturing in-house.

"There is a bit of tension at the moment among Korean and Taiwanese manufacturers, over HP's move to potentially pull the plug on some contract deals," Brown said. "There is also some concern that this decision may filter down to other products."

He added that there has been increased competition in this space from third parties and some players in China that can make substantial cost savings in labour.

In terms of uptake, Brown believes that, apart from a few niche areas such as banking, the business space is showing a noticeable reluctance to upgrade to 17in LCDs because of the prohibitive price. But Brown claimed that this will change as the price comes down.

He explained that LCDs in 17in and higher sizes will start to shift as a bundled item with smaller form factor PCs. Brown said this will "kick in the anticipated renewal cycle in 2003".

However, he pointed out that the current desktop market is still sluggish, and that there is not enough increased productivity to warrant making replacement or complementary purchases, except perhaps in specialist accounting businesses or banks.

Business justification

But the good news is that demand and, more importantly, desire is present in the business community. "The issue is business justification," said Brown.

Meanwhile, in Suzhou, China, Philips is assembling CRTs and LCD panels for its own lines and has signed contracts with Dell, HP, IBM and Fujitsu Siemens. Last week, Philips announced further technological features that it will bring to its products next year in the hope that this will give its resellers further differentiation.

Cor Saris, chief executive of Philips monitors, said that Philips is also looking at providing white-label goods for European system builders, but that no decision has yet been reached.

One new technology Philips is looking to port from its CRT monitors to its LCD panels is LightFrame technology which enhances brightness. Because moving pictures and gaming need brighter output than text editing, early generations of LCDs have been criticised for being too dark.

With LightFrame 3, which should ship by the end of the year or early 2003, users will be able to get a "TV-like effect for a combined multimedia experience", according to Jasper van Staaden, chief technology officer and development manager at Philips.

Building on Philips' experience with TV displays, LightFrame will come on automatically when users switch to certain applications that need extra brightness. Initially Philips intends to make LightFrame come on automatically for Internet Explorer.

The benefits for applications in areas such as ebusiness will mean that the colours seen on screen at, for example, a clothing retailer on the internet will be exactly the same colour as the fabric, according to Staaden.

Saris said that in the monitor business you have to "differentiate by innovation". And on the business side, he said that Philips is striving to create "the most competitive supply chain".

By introducing smaller bezel sizes, wider viewing angles, colours and technology such as LightFrame, Philips is hoping to stay ahead of the pack.

"The monitor business is cut throat and PC makers are very demanding. If you are not the best in class you will go down the drain," said Saris.