No sooner had we posted our Supply Chain Matters and Supply Chain Expert Community posting on Monday, A Supply Chain In Turmoil- What’s Ahead for PC’s, than the first significant salvo announcement comes to light.
Reuters and other media are reporting that Japan’s Sony Corporation, Toshiba Corporation, and Hitachi Ltd. will together merge their money-losing small liquid-crystal display operations to form a single company to be named Japan Display. Adding more twist is that the new venture will be backed by $2.6 billion of funding from The Innovation Network Corp. of Japan, a government backed agency who will take a 70 percent ownership stake in the combined entity, while each of the merging companies will hold a 10 percent ownership stake. The goal is to complete the merger by 2012 and list the new company as an operating entity by March of 2016.
The Reuters story notes that the announcement is a response to competitors such as Japan’s Sharp Corp, Taiwan’s AU Optronics and South Korea’s Samsung Electronics which are outpacing industry competitors and garnering a good share of long-term supply contracts. The obvious supply chain dominant force is Apple who buys a lot of small LCD’s to support its smartphone, player and tablet products. Rumors have been circulating that Apple has plans to ramp-up iPad production levels to 10 million units per quarter, while the iPhone is experiencing healthy sales volume in China, which imply a lot of displays. Sharp is rumored to receive a considerable investment from Apple while Samsung has key supply agreements with other high volume smartphone clients including its own smartphone division.
Another twist to this Reuters story is the notation that Hitachi had been in separate talks with Apple’s prime contract manufacturer Hon Hai Precision Industry (Foxconn), about a joint LCD panel venture with Hitachi. In our recent Supply Chain Matters commentary regarding Hon Hai’s Annual Meeting, we made note of another LCD joint venture with Sharp. Apparently multiple bets are being covered.
At first take, we view two significant takeaways from this announcement.
The first is how government funding was leveraged to insure industry survival of a chosen few providers. How do you think Sharp feels knowing that three of its Japan based competitors garnered the political influence to provide a competitor that equates to over 21 percent of the market for small and medium-sized displays? One would suppose that Japan’s leaders viewed this in the same context as perhaps the U.S. bailout of Chrysler and General Motors, to compete against rival Ford Motor Company. The one nix however was that more jobs and more supply chain capability was at stake in the U.S. and the timing was in the depth of the past financial crisis in 2008. It is not likely that this action would happen in the current political environment of a government spend crisis.
The second is the most obvious for our supply chain community, the actions and buying influence power of certain supply chain dominants such as Apple and select others, and how that cascades to volume and profitability pressures in associated supply chains. HP’s announcement and uncertainty concerning its PC and mobile computing business compounded with the business challenges for Nokia and RIM will likely precipitate other announcements in the days to come as the shift from PC to mobile products drives more strategic supply chain decisions.