Customers' Investments in LCD Panel Plants Pose Risks
In addition to the article on Toshiba Corp's plan to build a new manufacturing plant for LCD panels, which was published Dec 14, 2010, The Nikkei reported that Sharp Corp will construct a new production line for LCD panels in its morning edition Dec 16, 2010.
On the same day, Sharp commented, "We did not make any official announcement. And we would like to decline to comment on individual deals," in its news release.
However, as the demands for smartphones and tablet PCs are growing and set makers are trying to purchase panels from more manufactures for stable supply, it is possible that Japanese panel makers are increasing their production capacities.
The reported investments in the LCD panel plants seem to be practically made with financial help from Apple Inc, which is a major customer for LCD panels designed for smartphones and tablet PCs. And Apple is expected to purchase most of the panels manufactured in the new facilities.
Such a method of investing in the LCD panel plants is attractive to panel makers, whose burden on capital investment is drastically reduced. But it carries various risks depending on contract terms.
For example, the operation rate of a manufacturing plant might be controlled by a customer. In this case, even when the panel maker wants to maintain the operation ratio by slightly lowering the prices of panels so that the entire balance of payment improves in a bust period, the maker might have to lower the ratio in complying with the customer's wishes.
When being influenced by customers' intention, panel makers might find it difficult to operate their plants in the best way for the makers. Therefore, it is important for panel makers to carefully check contract terms when negotiating over such deals.