Tokyo Electron looks to LCD panel equipment fab in China

(October 21, 2010 – Nikkei) Tokyo Electron Ltd. (TOELF – 8035) plans to invest around 5 billion yen in China to build a new manufacturing plant for equipment used to produce LCD panels. Tokyo Electron has, to this point, manufactured its LCD panel fab equipment in Japan. The Nikkei (10/20) reports that competition from South Korean and Taiwanese rivals has intensified for Tokyo Electron.

"South Korea is working hard to enhance its chip equipment industry as a national policy. If the South Korean currency, the won, remains weak, it is possible that the country will emerge as a new, formidable rival for us. But Japanese makers still have technological advantages over their foreign rivals in such cutting-edge areas as miniaturization," said Tetsuro Higashi, chairman of Tokyo Electron Ltd. (8035), speaking with The Nikkei Veritas (10/17).

Tokyo Electron is expected to forge a preliminary agreement with the government of Kunshan in Jiangsu Province as early as Wednesday. Under the proposed arrangement, Tokyo Electron will set up a 100% production unit and will secure a roughly 400,000 sq. meter property in Kunshan for the plant.

The plant could begin operating as early as the second half of 2011. It will initially focus on manufacturing parts used in LCD panel-making equipment. At the same time, engineers will be dispatched from Japan to shift manufacturing technology for the equipment itself. Tokyo Electron plans to launch such production sometime in 2012-2013. Higashi, speaking with The Nikkei Veritas, noted that LCD fab equipment and chip-making equipment have different requirements, saying "we need to cut costs to maintain price competitiveness. We are seriously considering steps like increasing overseas purchases of parts. But we have no plans for overseas production of equipment because we are working on such core elements of competitiveness as product quality and (maintaining our) technological advantage in Japan. We once built manufacturing plants overseas in response to the globalization of our clients’ operations, but we have integrated production into our Japanese operations to ensure product quality."

Tokyo Electron’s plant in Yamanashi Prefecture, which currently manufactures the units, will retain some output.

The company’s plan to construct the plant in China comes as the government there spearheads efforts to build production lines for large LCD panels. A number of Taiwanese, South Korean and Japanese panel manufacturers are expected to make a foray into China starting next year, notes The Nikkei.

Tokyo Electron hopes to increase its sales to 1 trillion yen and become the No. 1 player soon by globalizing its operations and developing next-generation technology, said Higashi.

Higashi was interviewed by Nikkei staff writer Takehiko Hama.

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