China: Shifting Development Focus from Foundries to Fabless IC Design

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WitsView, a division of TrendForce, reports that upstream LCD component suppliers based in China have significantly expanded their manufacturing capabilities through 2016 and will become stronger competitors against their international first-tier counterparts in 2017. As more advanced LCD panel fabs (Gen-8 and above) are being built in China and begin operation, local suppliers of materials and components such as glass substrates and polarizers are gearing up to fulfill their demand. 

An examination of China’s LCD panel manufacturing from the upstream finds that domestic glass substrate suppliers currently do not have furnaces capable of processing substrates for panels larger than Gen-6 (150cm x 185cm). However, a major local glass supplier Dongxu Group formed a partnership with Japan’s Nippon Electric Glass (NEG) in second half of 2016 and together they will build a Gen-8.5 furnace in Fuzhou, China. With the more advanced furnace, Dongxu will able to enter the supply chain of the compatriot panel maker BOE Technology (BOE). On the other hand, Dongxu is putting notice to other established international suppliers (e.g. Corning, AGC and even NEG) that they will be facing increasing Chinese competition in the near future. 

Chinese polarizer suppliers have also made some important changes in their operations through 2016, according to WitsView. Previously, Chinese suppliers such as SAPO and Sunnypol mainly made polarizers for Color Super-Twist Nematic (CSTN) LCD panels. For polarizers used in other more high-end types of LCD panels, Chinese suppliers import them from abroad and sold them to panel makers after cutting. 

This April, Dongxu has entered the frontend of polarizer manufacturing by forming a joint venture Wuxi Xuyou Material & Technology with Japan’s Sumimoto Chemical and South Korea’s Dongwoo Fine-Chem. Sunnypol has also invested in a new polarizer factory in Hefei, China. This facility, which began operation this October, will be producing 1,390mm- and 1,490mm-wide polarizer films for TFT LCD panels. Another joint venture, Kunshan Chimei Material Technology, is currently readying its polarizer manufacturing plant located in the greater Suzhou region of Jiangsu Province, China. Kunshan Chimei is a joint undertaking by Taiwan’s major polarizer supplier Chimei Materials Technology and Shanghai-based state-own enterprise Jinjiang International. 

The relations between China’s display industry and international polarizer suppliers will eventually change from the current state of cooperation to competition. First-tier suppliers in Japan such as Nitto Denko and Sumimoto Chem, along with Taiwanese suppliers Chimei Materials and BenQ Materials, will soon be facing challenges from Chinese rivals.

Market LCD driver ICs will offer less opportunities for Chinese design houses due to changes in LCD panel designs 

As China’s 13th Five-Year Plan places great importance on the semiconductor sector, there is an expectation that the continuing, large-scale investments in domestic wafer foundries will also greatly improve the prospects of home-grown fabless IC design companies. WitsView notes that Chinese driver IC suppliers were initially very optimistic about the market situation. However, the latest LCD panel design solutions such as Gate-on-Array (GOA), Dual-Gate and Tri-Gate all intend to reduce the number driver ICs per panel. WitsView also finds that the current driver IC market is about raising sales volume at the expense of product margin. Therefore, Chinese design houses will struggle to turn a profit in the LCD driver IC market. This turn may also make them cautious towards other IC applications.