In its announcement of fiscal third-quarter results earlier this year, JSR Corp. disclosed that it had already exceeded its profit forecast for the full year. The Japanese manufacturer of synthetic rubber and electronic materials explained that the unusual event happened largely because foreign demand for its liquid-crystal display (LCD) materials "rose dramatically."
Seiichi Hasegawa, managing director of the company's electronic and display materials business, says, "We were a bit surprised last fiscal year to see a 50% increase in our sales of display materials." Plants that produce color photoresists, protective coatings, and spacers went from operating one shift, five days per week, to three shifts, seven days per week.
The world LCD market doubled in value from $20 billion in 2001 to $40 billion last year. And the fast pace of growth is set to continue. Between 2003 and 2008, Hasegawa says, production of LCDs will increase from 8 million to 40 million m2. It makes more sense to measure the LCD market in square meters than number of units, he explains, because the displays come in different sizes.
Masami Nakamoto, senior managing director in charge of electronic materials at Sumitomo Chemical, says the introduction of 40-inch LCD TVs is one of the main reasons the market is growing so fast. Although TVs are still a fraction of the overall LCD market, they will account for half of market growth in the next few years.
Nakamoto says the growth would be even higher were it not for the stubbornly high retail price of the units--about $8,000 in the U.S. for a 40-inch LCD TV. He does not expect prices to fall rapidly, because about 70% of the cost of producing an LCD panel is the raw materials.
Whereas Sumitomo is expecting the market to grow at 30 to 40% per year in the short term, some LCD manufacturers are expecting demand to double or triple every year. It would seem difficult to make accurate sales forecasts in an industry where a conservative forecast is 30% growth and an optimistic one is 200%, but producers of electronic materials claim that keeping up with demand is not difficult at all.
At JSR, Hasegawa says sales last year were actually only a little more than the company had originally expected. Moreover, JSR electronic materials plants usually operate at only one shift per day when they produce new materials for which the market is not yet well developed. Its other electronic materials plants operate two shifts per day. The company can obtain reliable sales forecasts by keeping track of how much its customers invest in new capacity. "It's relatively easy to follow," he says.
AT SUMITOMO, Nakamoto says it's a matter of being ready for when customers increase their orders. Over the past two years, Sumitomo has invested more than $770 million in LCD materials facilities, tripling capacity. With a total of six plants in Taiwan, South Korea, and Japan--the only countries producing thin-film-transistor LCDs--the firm is ready to handle spikes in demand, Nakamoto says.
Sumitomo's most significant investment in the LCD market is its new fifth-generation color filter plant in South Korea. Built at a cost of $245 million, the unit allows Sumitomo to coat large sheets of specialty glass with color photoresists and other process chemicals. The coated glass is then sent to Samsung Electronics, which uses it in its fifth-generation LCD plants.
When Sumitomo's plant came on-line last year, it was state of the art. But in March of this year, Sharp Electronics came on-line with a sixth-generation LCD plant in Japan that treats its own glass substrates. And last October, Samsung broke ground in Tangjeong, South Korea, on a $17 billion, seventh-generation LCD manufacturing complex that will produce its own supply of seventh-generation glass substrates.
A fifth-generation display plant works with glass substrates of 1.1 x 1.3 meters, while a seventh-generation facility processes substrates measuring 1.87 x 2.2 meters. The larger area substrates allow manufacturers to produce larger displays as well as reduce the cost of making smaller ones.
To supply their rapidly expanding customers, major investment programs by suppliers of LCD raw materials have become the norm. In March, LG Chem more than doubled its capacity for polarizing film in Ochang, South Korea, to 9.3 million m2. Last year, the firm's polarizer sales grew 80% to $125 million, and the year before, by 150%. LG expects sales to keep growing at 50% annually for the next few years.
In Germany, Merck KGaA is investing $300 million in a second plant producing liquid crystals. Merck already enjoys a 60% share of the liquid-crystal market, and the company has no competition in advanced applications like liquid crystals used in TV sets.
Producers of industrial gases are also busy building new plants. In January, Air Products & Chemicals' South Korean subsidiary won a contract to supply the Samsung plant planned for Tangjeong with nitrogen, oxygen, nitrogen trifluoride, ammonia, argon, and silane.
At the same site, Praxair is building plants that will supply helium and hydrogen to Samsung. The firm has also been selected to supply future requirements of nitrogen, oxygen, and argon. And BOC's Edwards has won a contract to supply vacuum systems for gases used at the Samsung plant.
Liquid-crystal technology is becoming more mature and large-scale, but technical improvements still have a crucial role to play. Sumitomo's Nakamoto says that building larger plants won't be enough to reduce the retail price of 40-inch LCD TVs to $3,000, as manufacturers of consumer electronics aim to achieve. "We will have to implement new technologies," he says.
One type of LCD material that is looking particularly promising at JSR is photosensitive column spacers. Only JSR and Nissan Chemical produce the material commercially, and Hasegawa says that JSR has more than 70% of the market. The spacers are used in the production of LCD TVs and high-end computer displays.
Because images change more rapidly in LCD TVs than in computer monitors, the liquid crystals inside TV panels have to be aligned differently. JSR's spacers allow electronics manufacturers to implement "vertical alignment" and "in-line spacing" technologies that account for this difference.
LG Chem's R&D is looking at ways to simplify the structure of polarizers and use different materials to make them, a spokesman says. The firm is also trying to come up with polarizers that improve the viewing angle and the brightness of the image, perpetual challenges for LCD manufacturers.
Nagase & Co., a producer and trader of chemicals, has been addressing the desire by electronics manufacturers to better control and reduce their consumption of processing chemicals like etchants, strippers, and photoresists. In addition to making several of these process chemicals, the firm has invented devices, such as stripper control systems, that monitor consumption of chemicals during the LCD manufacturing process.
Yasushi Fujioka, a Nagase spokesman, acknowledges that it's not good business for Nagase to enable its customers to reduce consumption of the materials that it is trying to supply them with. However, he says the growth in the LCD market is more than making up for the loss.
Japanese companies have been criticized over the past decade for generating low profits while over-investing in emerging businesses with unclear potential. But the strategy has worked for JSR, which started investing in LCD research in 1988. And Sharp, the company that mass-produced the first calculator making use of an LCD screen, has been researching liquid-crystal display technologies since the 1970s. These firms and others, like Merck, that long ago perceived the potential of the LCD market, are now harvesting the result of their earlier commitment to an emerging business.