What Does LCD Merger Mean for Apple?

With three of Japan's leading LCD makers set to merge into the world's largest display entity, {complink 379|Apple Inc.} may want to think twice about further antagonizing South Korea's {complink 4751|Samsung Electronics Co. Ltd.} with patent-related lawsuits.

Reuters reported that Sony Corp., Toshiba Corp., and Hitachi Ltd. are set to merge their liquid-crystal display operations using $2.6 billion from a Japanese government-backed fund. The merged entity will be the world's largest maker of the LCD panels used in smartphones and tablet computers, and it will have its sights set on leapfrogging the current market leaders, Sharp Corp. and Samsung Electronics.

The merger also puts Apple, a consumer electronics superstar, in an awkward position. It currently sources the majority of its LCDs from Samsung, LG, and Sharp. It has been rumored that Apple plans to invest $1 billion in Sharp to secure a steady stream of displays as it rolls out the iPad3. (Neither Apple nor Sharp has ever confirmed the pact.) However, there have been some questions about Sharp's ability to provide stable quantities of quality panels.

Apple is embroiled in a patent dispute with Samsung, currently the world's largest supplier of LCDs. So far, the suits have not damaged the display-sourcing relationship between the two companies, but the dispute is getting uglier. (See: This Apple Win Should Not Stand.)

If Sharp does indeed have yield problems and Apple alienates Samsung, where does that leave Apple? In a pretty awkward position, I'd say. One of the most valued features of the iPad is the touch screen, which is the primary user interface and accounts for most of the device's physical footprint. If either the supply or the quality of screens begins to falter, Apple could lose some of its fan base. And there is no shortage of contenders waiting in the wings for their tablet offering to take off.

There's no question someone will step in to fill any gaps left by Samsung or Sharp, but the list is short. LG could divert more capacity to Apple, but that could damage other sourcing relationships. Another major LCD contender, AU Optronics, is facing charges of price-fixing. Sharp may have to solve its yield problems fast.

Only a few weeks ago, Apple seemed invincible. Now Steve Jobs, its longtime CEO, is stepping down, and one of its major supply lines is in jeopardy.

There are still many hurdles facing the merged LCD entities. Some of them, according to Reuters:

The 90-percent government-owned [investment] fund, set up in 2009 to promote innovation in Japanese industry, could come under fire for using public money to prop up a volatile business in its biggest investment to date…
How the three firms, which use two different types of display technology, will merge operations is unclear. The announcement did not include details of how they intended to deal with business overlaps either.

Still, the three firms together controlled 21.5 percent of the market for small and medium-sized displays last year, the research firm DisplaySearch estimates. Sharp controlled 14.8 percent, and Samsung Mobile controlled 11.9 percent. Apple may have to do some fence-mending.

13 comments on “What Does LCD Merger Mean for Apple?

  1. elctrnx_lyf
    September 2, 2011

    display market is one which can disrupt the complete suppy chain of any oem. the difficult to forecast and plan gets affected like a flip of a coin. As reuters pointed out its really unclear how sharp n hitachi working on different lcd technologies can merge the manufacturing.

  2. Daniel
    September 2, 2011

    Barbara, for smartphones and tablets LCD panel plays an important role. The demand for such devices is very high and expects a steep growth in coming years. I think post merge, the new company becomes one of the leading player in LCD manufacturing sector. Another business issue is, I have a doubt that whether the merged new company is able to have the same volume of business, which has contributed by the individual companies. This is because, customers prefer certain companies based on their uniqueness or smartness.

  3. mfbertozzi
    September 3, 2011

    We have discussed so far about earthquake and its impact on Japanese electronics / micro-electronics producers. Maybe merge that involves Sony/Toshiba/Hitachi has been done considering as strategy to set up a final step ahead for definitely overtakes that issue.  In general, merging process takes time then I don't think Apple is going to meet with considerable downsize of its business in the short term.

  4. itguyphil
    September 3, 2011

    With enough change happening with the Jobs departure, I do not anticipate any major downsizing happening in the near future.

  5. t.alex
    September 3, 2011

    Perhaps the merging is at business level. Operations and technology level are still maintained seperately at first.

  6. _hm
    September 3, 2011

    Apple need best quality LCD. This merger will help them toward this goal . Apple should encourage it and may even invest more money in this adventure. It will help them most.


  7. elctrnx_lyf
    September 4, 2011

    i feel the demand for apple products will only be in positive trend as the population of younger generation is increasing. the merger will be really happy with this because their lines will be always operating to the full capacity. What i wonder how will the other oem's of tablets are actually going to affected by this. Will they be happy or not?

  8. Adeniji Kayode
    September 5, 2011

    @-hm, you are right, Apple is really at the top of the consumers list right now, promoting the merger can make them more better.

  9. Anand
    September 6, 2011

    Only a few weeks ago, Apple seemed invincible. Now Steve Jobs, its longtime CEO, is stepping down, and one of its major supply lines is in jeopardy.

    @Barbara, you are right. Looks like Apple will have tough time going ahead. In you opinion how would have Steve jobs approached this supply line jeopardy ?

  10. stochastic excursion
    September 6, 2011

    The LCD merger may have the effect of forcing a few concessions from Apple.  However, Apple adds too much value to be seriously threatened by a monopolization of any one component. 

    It's unclear that the merger is meant to topple the major players in the consumer electronics market.  If that happens, Apple may well have some residual rainmaking capability from the Steve Jobs days.  In this industry, game-changing breakthroughs have been the norm, and economies of scale may not make the difference.

  11. Taimoor Zubar
    September 6, 2011

    Barbara, how much, do you think, are the chances that Apple also tends to invest into this merged facility and choose it to supply the displays? It may serve as an effective move to compete against Samsung. Do you think such a move will be beneficial for Apple?

  12. Barbara Jorgensen
    September 7, 2011

    Taimmor–Interesting question. My impression from reports is that Apple is unlikely to invest in the LCD merger. Its alliances seem to be stronger with the Korea-based compnaies and there are reports that it is looking to partner with emerging compnaies in China. The connection there is Foxconn–Applle manufactures through Foxconn and Foxconn has invested in some LCD companies in the region.

  13. _hm
    September 7, 2011

    As per EETimes, Apple invested $3B in LCD technology in 2010. The company was in Japan. Was it Sharp or other LCD maunfacturere?


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