March 22, 2024: Omdia addresses Sharp’s G10 LCD factory closure rumor and its implication for the FPD industry

Note: This article is based on stories published in the Mainichi Shinbun and other public media as well as Omdia data, scenario analysis, and speculation. Neither Sharp nor Sakai Display Products has confirmed any of the content or scenarios discussed here.

During the week of March 17, 2024, a story that Sharp will shutter Sakai Display Products (SDP), its Gen 10 LCD factory in Japan, began percolating through the flat panel display (FPD) supply chain. By Thursday March 21, the story was being reported in the public press. At the time of writing this article, Sharp has not publicly commented on the news. 

The Sakai Gen 10 (2880 x 3130 mm) factory was built in 2008 and began commercial production in the summer of 2009. It was the world’s first Gen 10 class fab; back then it was an extremely ambitious project and an engineering marvel. 

Unfortunately, just as the factory was ramping up, the global economy was falling into the Great Recession, and high-volume LCD TV panel production was already moving out of Japan to lower-cost regions. Despite many technical and seasonal market successes, the factory never reached its full potential as expected. SDP became an albatross for Sharp; it was spun out as a separate company with capital injections from Terry Gou and Foxconn, ownership was divided between multiple partners, and this shifted several times over the years. In 2022, Sharp re-consolidated SDP as a wholly owned subsidiary. The rationale behind that strategy was highly questionable from the start, and in light of the current situation, is likely to come under even greater scrutiny. 

Although SDP did achieve a 4.1% operating profit in 2021 during the pandemic super cycle, that was still significantly lower than the 13% industry average. During the post-pandemic FPD market slump, SDP’s operating margin fell significantly to -29.1% in 2022. Although not yet released, results for 2023 will likely turn out to be similar. Even though SDP was able to increase factory utilization from 28% in 1Q23 to 89% in 1Q24 as it increased sales to Samsung VD, LG Electronics, Hisense, and others, the low panel prices at which it was forced to sell at have prevented it from returning to profitability. With glass dimensions not optimized for current industry standard panel sizes, an aging factory, a continued weak end market, and heavy competition from Chinese suppliers, a viable recovery plan has become increasingly difficult to realize. SDP has become an unsustainable burden for Sharp and its shareholders. 

Although the strategy Sharp will employ to resolve its SDP challenge has yet to be confirmed, some potential scenarios include:

• Temporary closure
• Immediate permanent closure
• Continue to run through the end of its 2024 fiscal year (March 2025) to fulfill commitments to current customers, and then close permanently.
• Propose a recovery plan, win investor support, restructure its business, and continue to borrow money to finance operations until it is able to turn a profit.  

Shutting down SDP would certainly create challenges for some of its key clients such as Walmart Onn, Samsung VD, and LG Electronics, but the overall impact on the TV supply chain would likely be minimal. Other suppliers have sufficient capacity to cover this loss once panels are designed-in and qualified by brands. At the same time, tightening supply will likely result in moderately higher panel prices.

Although closing SDP may have a positive impact on Sharp in the long-term, the impairment it will incur from writing off assets, employee severance packages, potential penalties for non-fulfillment of contracts, and other restructuring costs for Sharp will be heavy. Key materials suppliers of SDP would also need to suffer related restructuring costs. 

SDP’s annual TFT capacity was 8.87 million square meters in 2024. This accounted for approximately 2.6% of the capacity dedicated to producing large-area FPD panels. If this capacity is permanently shuttered, it would represent another significant step towards industry consolidation and would hasten industry recovery as shown below.   

In 2023, factories located in China accounted for 77% of Gen 7 and larger substrates, on which the vast majority of TV panels are fabricated. If SDP is closed down, production will become even further consolidated in China, extending to more than 80% of global supply. In this scenario, leading Chinese TV panel suppliers such as BOE, China Star, and HKC will gain even more leverage when negotiating with global TV brands.