Fewer liquid-crystal display television (LCD TV) sets were outsourced to contract manufacturers in 2012 than in 2011, the result not only of increased internal production by barnstorming Chinese and South Korean TV brands, but also because TV brands relying on the outsourced model-particularly the Japanese-lost ground, according to a new report on the subject from information and analytics provider IHS.
Based on the node of production involved, LCD TVs made by outsourced manufacturers saw their share dip last year to 32.2 percent, down from 35.4 percent in 2011. In comparison, the share of LCD TVs made in-house rose to 67.8 percent, up from 64.6 percent. While only a few points of gain or loss are involved, the movements are deemed significant because each production node-whether outsourced or in-house-is strongly defended.
The market will be in close competition again this year as share for each node is projected to be unchanged. The numbers then hold steady more or less in the years to come, with the outsourced market increasing its share slightly to 33.0 percent by the end of 2017. As the dynamics of outsourcing by LCD TV brands shift, competition will inevitably intensify among both electronic manufacturing services (EMS) providers and original design manufacturers (ODM), the two rival sectors that make up the outsourced manufacturing market.
Contending with the Japanese factor
With the global LCD TV market slowing down as it reaches maturation, TV brands have become more sensitive to how their sets are produced. Outsourcing can prove advantageous because manufacturing is handled by makers with plenty of experience and economies of scale, freeing brands to concentrate on new technology, marketing and other vital activities while also conserving precious dollars otherwise needed for production overhead and equipment.
The players in the outsourcing camp, however, are up against formidable entities that hew to the in-house production model-TV brands like Samsung and LG; as well as a clutch of increasingly prominent Chinese makers, such as TCL, Hisense and Skyworth. These in-house entities possess impressive vertically integrated supply chains that not only provide one-stop solutions for their own internal brands, but can also offer their facilities to other brands and customers needing a tightly coordinated operation.
In particular, the outsourced community had a tough 2012 because their Japanese customers fell on hard times. Sony, Sharp and Panasonic all registered declines in their TV business-reversals that also spelled hardship for their makers. Based in Taiwan, contract manufacturers Hon Hai, Pegatron, Wistron and Compal Electronics went through a rough patch as business with their Japanese partners tumbled. In contrast, their in-house rivals-exemplified by Samsung and LG, currently the world's two biggest LCD TV brands-continued to reap success as those brands became global best-sellers.
Highlights last year for LCD TV makers
Among LCD TV outsourced manufacturers, Hong Kong-based TPV is likely to remain the largest player in the future, having taken over the production of Philips-branded televisions as well as sets from other original equipment manufacturers (OEM). TPV was already the biggest contract maker last year, and was fourth overall in LCD TV shipments after Samsung, LG and Sony.
In the electronics manufacturing services (EMS) sector within the outsourcing market, Taiwanese Hon Hai remains the best-positioned given its expanded manufacturing footprint, reinforced relationship with Sony and vertically integrated supply chain for LCD TV panels, modules and assembly. However, its growth potential in the future could be weakened somewhat by the continuing lackluster performance of its main customer Sony, as well as by a fractured relationship with its other targeted customer Sharp.
Two of the newer LCD TV makers, Compal and Wistron of Taiwan, first got their feet wet in the notebook PC-making business. However, both companies now also working in the LCD TV space are heavily reliant on single customers-Toshiba and Sony, respectively. Failure to diversify their clientele will hurt these makers' potential down the line, IHS believes.
Considerations for OEMs when choosing a maker
TV brands considering a partnership with outsourced manufacturers should contemplate several points before signing on, IHS believes. These include strategic considerations on how contract partners can improve resource allocation, alleviate inventory burdens, increase asset flexibility and plug gaps in the brands' product lineup.
In the last couple of years, several joint ventures have come about between outsourced manufacturers and LCD panel suppliers to forge vertically integrated supply chains.
Hon Hai's subsidiary Innolux, for instance, merged with Chi Mei Optoelectronics to form Chimei Innolux, the largest LCD TV panel supplier in Taiwan. Hon Hai has also acquired a10 percent equity in Sharp and 47 percent of Sharp's 10th-generation LCD panel facility in Sakai, Japan.
Meanwhile, TPV and Taiwanese-based AUO have created a joint venture called BriVictory in China to provide original design manufacturing (ODM) services. TPV and AUO also established a new joint venture in Brazil to build LCD TV modules and TVs domestically to serve the Latin America market.
These joint ventures indicate the strong desire among outsourcing manufacturers to establish close relationships with LCD panel makers in order to secure panel supply and reduce material costs.
Read more >> Weak Japanese OEMs Disrupt TV Outsourcing