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Toshiba Revamps Regional LCD Supply Chain

In an effort to increase its competitiveness in the North American consumer market, {complink 5648|Toshiba Corp.} is selling its Chihuahua, Mexico-based LCD production facilities to PC manufacturer {complink 1259|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’?.)

5 comments on “Toshiba Revamps Regional LCD Supply Chain

  1. Adeniji Kayode
    July 13, 2011

    Barbara, Do you think Toshiba will do the same thing in other regions and perhaps even get out of the LCD production market? And is it likely that some other OEMs in the market will do the same? It seems to me that the LCD market should be hot now considering high demand for the components from OEMs.

  2. Daniel
    July 14, 2011

    “LCD TV demand in North America is “alarmingly” weak, despite increasing prices for LCD panels worldwide”

    Barbara any particular reason for these lesser volume sales. Toshiba is facing these problem only in North America or globally?

  3. Jay_Bond
    July 14, 2011

    I am curious about what Toshiba's overall plan is. Are they trying to localize all of their global businesses or are they looking at eventually exiting the market all together? I know there is a lot of focus on LED's and OLED's taking hold in the market. Is Toshiba looking at these opportunities as a possibility?

  4. Eldredge
    July 15, 2011

    I suspect Toshiba's move is motivated largely by the observation that

    “LCDs increasingly are becoming commodity products with wide supply and demand swings.”

     This type of production can be a big distraction for an OEM if it can be handled with a dependable set of suppliers.

     

  5. Barbara Jorgensen
    July 15, 2011

    Thanks all for the questions and observations. Toshiba responded to my inquiries earlier this week immediately and here is what the spokespeople in Tokyo said:

    As written in the release, this transfer of the Mexican plant is positioned in Toshiba's continous, overall review of the optimum production/supply structure of LCD TVs for major markets. Toshiba is committed to reinforcing our global presence in the LCD TV market, including Mexico, and we continue to use the Mexican plant, which will be transferred to Compal in terms of ownership, as an important source of Toshiba-branded TVs.

    Other than Mexico, our major LCD TV plants are in China, Porland, Indonesia and Egypt. We have also been using Compal as an ODM source of TV products for the North American markets.

     

    To answer some of the questions, I think the price fluctuations in LCDs is more of a production issue–since they are manufactured like semicondcutors they yield a specific number of panels per glass so any time production ramps up you end up with x number of panels even if you need y. ALso, I could envision Toshiba eventually exiting the business because LCDs are becoming a commodity item. Companies such as Toshiba could spend the R&D bucks on developing OLEDs, for example, and leave ther LCD manufacturing to companies such as Compal.But the strategy of producing locally for local demand is a good one and I hope it benefits the company–I like their products althought he tend to be on the pricy side for my needs.

     

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