Asian TFT-LCD market drives manufacturing trends
11/01/2004
Asia is the focal point of the thin-film transistor–liquid-crystal display (TFT-LCD) industry. In 2005, almost 100% of new equipment sales for TFT-LCD fab lines will be in Asia [1]. This has been the pattern for more than a decade. There are macroeconomic factors and industry cyclical factors involved. The chart below points out the natural cyclical downturns in the TFT-LCD industry created by overcapacity, which creates a supply/demand imbalance. In fact, this has created the moments of greatest opportunity for those companies that took aggressive steps to add new capacity and were able to time their investments to the industry upturn.
The TFT-LCD sector is extremely cost-conscious with a highly elastic demand; therefore, it depends on the continuation of falling cost structures and product prices to drive new demand. The very factors that pushed the TFT-LCD industry in previous cycles to invest first in Japan, then Korea, and finally in Taiwan, are still very much in play in the coming cycle with a focus on China.
Barriers to entry
Increasing the likelihood of China's influence on the TFT-LCD market are the influx of foreign direct investment (FDI) and China's growing consumer class. Not lost on the world's financial community is the fact that since 2002 China has been the world leader in attracting FDI, surpassing the US. The impact on the industry is that the availability of capital overcomes one of the natural barriers of entry to an industry where a state-of-the-art fab costs $2 billion. Most, if not all, of the major competitors in this sector have each invested billions of dollars in TFT-LCD infrastructure in China.
The second natural barrier to entry in the TFT-LCD industry is technology, but this has also proven to be surmountable. Relatively new players are now market-share leaders, facilitated by a combination of technology transfers including joint ventures, licensing agreements, and relative ease of transfer of the technical labor market. Failure of previously successful companies tends to be marked either by bad investment timing to the supply/demand cycle, or the complete lack of aggressive investment in the next generation of equipment and the subsequent inability to compete in the marketplace due to lagging cost structures.
 The crystal cycle and strategic initiatives. (Source: J.A. Matthews, "The East Asian Technological Miracle," Marquarie Graduate School of Management, Sydney, June 2004) |
The US focuses more on new product development and equipment manufacturing. In fact, a significant amount of equipment manufacturing still takes place in the US. TFT-LCD equipment manufacturing faces the same pressures on profitability as the rest of the industry.
The political environment is significant for manufacturers because countries with significant TFT-LCD infrastructure try to keep the status quo by facilitating R&D between industry and government, providing highway and facility infrastructure including tax breaks, attempting to mandate domestic content rules, and vertically integrating suppliers and equipment manufacturers. Adding production value helps keep industry within national boundaries.
The market challenges equipment suppliers
TFT-LCD has penetrated 100% of the PC notebook market and >50% of the PC monitor market. LCD TVs represent the product area of greatest potential growth for the industry. Penetration into the large-screen TV market is contingent on factory expansion and the anticipated benefits of lower manufacturing costs. Capital expenditures by TFT-LCD panel suppliers are expected to result in substantially lower production costs for panels over the course of 2004 and 2005. Lowered production costs are critical to increasing the penetration of LCD TVs into the large-screen TV market due to the high price elasticity in the market for consumers. Greater diversity of panel sizes suitable for different applications is another trend that will benefit from these investments, allowing flexibility in equipment size when making purchases.
The requirements of the TFT-LCD industry have produced a challenging business environment for equipment suppliers. The industry trend has been a lessening of the lead-time for the introduction of each new generation of equipment over a decade to a new generation being introduced nearly every year. The short development cycle, combined with increased fixed capital costs for facilities to accommodate larger machines, affects profitability. Service infrastructure investment is key to meeting end-user requirements for machine uptime and overall production targets. For equipment suppliers, this means expanding customer service support to additional countries as the industry continues to extend operations to low-cost regions and countries such as the People's Republic of China.
Technology drivers for equipment suppliers
Substrate size increases are both the key to lowering manufacturing costs and the greatest single challenge for equipment suppliers. Hardware and process requirements must be modified for larger substrates. Substrate scaling requires maintaining the same film quality and deposition rate over the ever-expanding substrate area, faster and more efficient chamber cleaning, handling large glass substrates with the same precision requirement and throughput spec, and reducing the cost-of-ownership (CoO) while enhancing system productivity.
The cluster tool architecture maximizes system throughput while reducing production cost on a per-panel basis, as well as running cost of the equipment. With 1870×2200mm substrates in mind, it is necessary to work out technical solutions that ensure accurate conveyance while achieving the same or faster speeds for the glass substrates, which have grown heavier as well as larger.
Manufacturing management: staying agile
Manufacturing changes have affected both TFT-LCD panel makers and equipment suppliers. Equipment suppliers must adapt to changes in the business environment and proactively address market and customer demands. The strategic flexibility of manufacturing operations has become an increasingly important issue for organizations. One requirement for equipment suppliers is to be "close to the customer."
A number of publications and research papers have coined the term "agile manufacturing." A central tenet of this concept is that product requirements must be met at the right price, with the right quality, and at the right time [2]. With end users' needs constantly changing, suppliers have to become more flexible.
In the pursuit of greater flexibility, AKT has implemented a business model in which up to 40% of the overall system build is outsourced. AKT also has created a modular system configuration, where buyers purchase highly configurable assemblies instead of managing piece parts. Module manufacturing means suppliers are held accountable for the production, quality, and complete testing of their modules. AKT is able to ship fully tested modules directly to customer fabs without further integrating the system for final test in the factory. As a result, overall lead-time has decreased and cost structure has improved.
This close alliance with key suppliers gives AKT a significant advantage: to quickly adjust to changes in product volume and product mix. The strategy allows consistency and control over the fixed-cost component of sales in times of expansion by utilizing capacity increases at our supply base; it also makes use of supplier engineering resources and helps drive cost to a standard.
AKT also has implemented ship-in-transit (see "Transportation of TFT-LCD substrates"), which can be broken down into the following steps: working with turnkey module suppliers in Asia, the supplier builds the complete module in Asia, inspects and tests the module on site, and ships directly to our final customer. The biggest impact of this strategy is on overall product lead-times and transportation costs.
Conclusion
The TFT-LCD industry has generated more publicity, interest, and overall excitement than at any time in history. To achieve success, all sectors of the industry — from manufacturers to component suppliers to equipment suppliers — share the responsibility of managing the CoO of final products. For equipment suppliers, our contribution has been to support cost reductions by substrate enlargement, rethinking manufacturing methods and infrastructure, and CoO reductions by introducing novel process and cleaning technologies. There is still a lot of work to do before we see a flat-panel LCD television in every home and LCD monitor in every office.
References
- 2003 FPD Equipment Report, Display Search, Tables 4.6–4.9, 1999–2003 Equipment Investment Schedules including R&D, Pilot and Non-Capacity Investments, pp. 93–97.
- I. Christian, H. Ismail, J. Mooney, S. Snowden, M. Toward, et al., "Agile Manufacturing Transitional Strategies," Proc. 4th SMESME Intl. Conf., May 2001.
Kerry L. Cunningham received his BS in finance from San Diego State U. and his MBA from Santa Clara U. He is a product marketing engineer at AKT, an Applied Materials company, 3101 Scott Blvd., P.O. Box 58039, Santa Clara, CA 95054; e-mail [email protected].
Transportation of TFT-LCD substrates
TFT-LCD substrates tend to be very large, resulting in transportation challenges. For example, the first shipment of the AKT-40K PECVD in July was transported in 27 crates, weighing a combined 250,010 lb (113,126 kg). The typical air-transportation limit for the cargo width dimension is <3m, as is the highway-tollbooth width limitation in land transportation. In-transit module shipping directly to customers and module test and ship from Santa Clara also help alleviate these issues.
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