[PConline News] When discussing the LCD industry, many well-known players such as Samsung Display, LG Display, BOE from China, and AUO from Taiwan immediately come to mind. However, it was the Americans who invented liquid crystal technology, while the Japanese were the pioneers in applying and advancing it. Over the span of fewer than 60 years, the dominance of the LCD industry has shifted from the U.S., Japan, and South Korea to China, experiencing four major transformations. We’ll now examine the state of the LCD industry through the lens of the "liquid crystal cycle."
Before LCD technology emerged, CRT display technology was already prevalent. When the American Radio Corporation developed the first LCD prototype, they felt both excitement and disappointment. Excitement stemmed from the birth of a revolutionary new display technology, but disappointment arose because this technology seemed far less mature than CRT. It was monotonous, slow, and limited to small sizes, making it unsuitable for flat-panel TVs. However, the Japanese recognized the potential of this technology and first implemented it in the watch industry before expanding into calculators, instrument displays, and eventually flat-panel televisions.
In the ongoing cycle of research and development, production, product application, and technological breakthroughs, Japan invested heavily in LCD technology. By the 1990s, Japanese companies nearly monopolized the entire LCD market. Companies like Sharp, celebrated for their "LCD craftsmanship," made significant contributions to LCD technology advancement.
However, after a prolonged period, as LCD production entered its first cycle, Japan's LCD industry began to face numerous challenges.
The LCD screen is divided by generations, referring to the ability to cut larger LCD panels. Higher-generation production lines can produce larger panels. As demand for liquid crystals continued to grow with size (approximately doubling every three years), higher-generation production lines provided a broader competitive edge. Initially, LCD monitors were only suitable for watches, but to apply them in notebook displays, flat-panel TVs, and other products, higher-generation liquid crystal production lines were needed. Based on these generational distinctions, the LCD industry established a unique "liquid crystal cycle."
For instance, when 10.4-inch notebook displays met market demand, panel manufacturers flocked to invest in producing LCD panels of this size. Soon, supply exceeded demand, causing profits to plummet or even leading to losses. However, the reduced panel prices due to oversupply expanded the application of LCD displays, driving up the prices of under-capacity products. Companies then invested in expanding production. This cycle is known as the "liquid crystal cycle."
Once "production capacity release" and "demand expansion" fail to align properly, it causes sharp fluctuations in the profitability of the LCD industry chain. Unlike consumer products, the LCD industry gradually "creates" demand as LCD panels find more and more application scenarios.
Japanese companies failed to grasp this rule. During the downturn of the "liquid crystal cycle" from 1993 to 1994, when facing losses, they cut production and laid off staff. Meanwhile, Korean companies recruited retired Japanese engineers and began frantically investing in higher-generation LCD panels. When demand for larger panels arose, Japanese companies couldn't keep up.
In 2001, through the fifth-generation LCD production line, Samsung and LG completely surpassed Sharp and other Japanese companies.
The defeat of Japanese companies wasn't solely due to the failure of the "liquid crystal cycle." Their deep-rooted obsession with "unique skills" made it impossible for them to adapt to rapidly changing market demands, causing them to miss market opportunities step by step.
Japanese CRT and plasma technologies in the vacuum tube era, through "unique tricks" such as "single-shot triple beams," "Tili," and "diamond enamel," indeed earned them a high reputation and great product sales. However, as liquid crystal display technology evolved into semiconductor technology, it moved toward modular and standardized production. There was no fundamental difference in product technology and quality among various products. The entire industry's competitive approach shifted from being technically heroic to competing in R&D speed, supply chain management, cost control, and marketing promotion.
The greatest innovation in today's electronics industry is essentially the efficiency improvement brought about by the separation of hardware and software. For example, Apple focuses on product design and R&D, outsourcing production to Foxconn. However, Japanese companies initially rejected this innovative model. They stubbornly believed in vertically integrated business models, aiming to differentiate themselves through unique skills. But Japanese companies didn’t anticipate how rapidly the electronics manufacturing industry was changing, and their vertically integrated model became obsolete, unable to keep pace with more efficient competitors.
Consider today's smartphones, which are updated every six months. The design and development cycle is already very tight. If a company wants to own production, once there is a design update and product iteration, the entire product line must be restructured, not only increasing the cost of innovation but also lengthening the innovation cycle. What competitive advantages are there? If a company only needs to focus on upgrading product design, it can hand over production and manufacturing to factories like Foxconn, allowing the company to operate more efficiently and have more opportunities to enhance product innovation.
It is in such a highly commercialized society that China has risen to the top. Chinese LCD panel manufacturers have also seized tremendous opportunities in the booming LCD industry through their comprehensive acquisitions of Japanese and South Korean companies, accumulating factory technologies, and frenzied investments against the liquid crystal cycle.
How important is the tight division and collaboration of supply chain networks? A large number of small and medium-sized enterprises have gathered along the southeastern coast of China, with each company specializing in a very fine level of division of labor. For instance, in product mold companies, there are divisions for design, machining, and finishing. In design, it is further divided into CAD and CAM; in machining, it includes electrical discharge machining, wire cutting, and NC machining; and in finishing processes, there are detailed divisions such as grinding and assembly.
Once there are new innovation needs, thousands of supply chain networks can quickly reorganize and efficiently cooperate with production. Such a network with scale, efficiency, and flexibility is not available worldwide.
Many people believe that the LCD industry cannot compete because there is no technology. What can the Japanese know about technology? In fact, the LCD industry requires not only patented technologies developed in laboratories but also a vast amount of factory technologies that have been explored through trial and error. Although factory technology may not seem mysterious, it requires countless details to improve and tips to accumulate, eventually becoming a powerful technology that is difficult for competitors to replicate and surpass.
Against this backdrop, Chinese LCD companies have made significant progress. BOE, the largest panel maker in China, currently accounts for 22.3% of the world's total shipments, surpassing LG Display of South Korea and taking the top spot globally. The quality of LCD panels from mainland China, Taiwan, Japan, and South Korea is not significantly different, nor are the prices. Many Japanese and Korean TV brands use domestic LCD panels.
Of course, the rapid development of the domestic LCD industry in recent years is inseparable from government investment. Developing new liquid crystal production lines always requires tens of billions of investments, with a relatively long profit cycle. Few capitals are willing to invest without seeing short-term benefits. Only by investing through government shares can the capital be successfully raised. In addition to capital and technology, the support of local government policies is also essential. Employment, electricity, land, roads, water, and sewage must all receive government support for the LCD industry to develop in an orderly manner.
Summary: The transfer of dominance in the LCD industry is also a symbol of the shift in the electronics industry landscape in China, Japan, and South Korea in recent years. The impact of the liquid crystal cycle on investment strategies, the influence of global industrial chain division and collaboration on industrial innovation, and the impact of policy conditions on industry survival and expansion are slowly changing the game of the LCD industry. Survival of the fittest is the most crucial factor.
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