In an effort to increase its competitiveness in the North American consumer market, Toshiba Corp. (Tokyo: 6502) is selling its Chihuahua, Mexico-based LCD production facilities to PC manufacturer Compal Electronics Inc. The announcement, made in a press release today, comes on the heels of market reports that LCD TV demand in North America is "alarmingly" weak, despite increasing prices for LCD panels worldwide.
"In a global TV business characterized by intensifying competition, Toshiba is promoting an LCD TV business strategy of optimized global production and procurement in order to streamline its operating structure and reinforce cost competitiveness," the Tokyo-based consumer electronics company said in its release.
Toshiba does not appear to be exiting the LCD business and characterizes the sale of the Mexico plant as reorganizing its LCD supply structure. This is consistent with an announcement Toshiba made in December that it was establishing an LCD manufacturing joint venture with El Araby Group, an Egypt-based consumer electronics company. That venture supports Toshiba's strategy of establishing local manufacturing and supply lines for products to meet regional needs, according to news reports. Toshiba also owns a Japan LCD manufacturing plant that was temporarily closed following the March earthquake and tsunami.
Compal, which also sells LCD-based consumer electronics, is a Toshiba original device manufacturer (ODM) for products destined for the North America market. Toshiba will continue to design and develop new products while leveraging Compal's cost-effective manufacturing expertise, the companies say.
The move is reminiscent of measures taken by PC manufacturers that sold their businesses to contract manufacturers more than a decade ago. To save on R&D costs, companies such as IBM began allowing EMS companies to take over the design and manufacturing of second- and third-generation PC products, spurring the development of ODMs. Eventually, IBM sold its PC business to EMS provider Legend Group to become standalone PC company Lenovo.
Although the timing might not be optimum -- LCD prices are on the rise -- the move makes long-term sense for Toshiba, which will continue to utilize the Mexico facility as a source of locally-bound products. LCDs increasingly are becoming commodity products with wide supply and demand swings.
The current price increases, IHS iSuppli says in a release
, is due to stockpiling following the Japan earthquake. Interestingly, iSuppli notes that companies are buffering their stock as further protection against supply chain disruptions, and similar measures are being taken in the semiconductor market as inventories continue to build. (See: Is More Inventory the 'New Normal'?