Sharp Focuses on Manufacturing (Solar panels)

A $9 Billion Plant In Japan Will Make LCD, Solar Panels
By YUKARI IWATANI KANEJuly 9, 2008;

In an old seaport city near its Osaka headquarters, Sharp Corp. is building a $9 billion factory complex the size of 32 baseball stadiums to make liquid-crystal-display panels and solar panels. The complex, which Sharp broke ground last November, will be the world's largest LCD and next-generation solar panel plant when it is ready sometime in the next fiscal year, ending March 2010. It will house most of its major suppliers on the same premises. Sharp itself will invest about $4.3 billion.
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While Apple Inc. is leading a trend in the electronics industry to outsource hardware manufacturing and focus on design and software, Sharp is making a huge bet that keeping manufacturing of LCD and solar panels in-house will give it a big competitive advantage.
The Sakai factory is the culmination of a decision 10 years ago by Katsuhiko Machida, Sharp's chief executive, to narrow the company's focus when it was barely making a profit. Sharp at the time was making cathode-ray tube televisions, but they weren't highly regarded because the company didn't make its own tubes. It was also making big investments in semiconductors, but was a minor player in the competitive industry.
So Mr. Machida, then president, ended production of CRT TVs, cut investments in semiconductors and focused on LCD technology, even though it was still an emerging, money-losing business. Mr. Machida, who saw potential in using LCD panels in televisions, declared that Sharp would replace every traditional television with an LCD TV in 10 years.
In the past decade, Sharp has become one of the world's largest LCD-panel manufacturers, and it nearly doubled its revenue to 3.4 trillion yen ($31.7 billion) and more than tripled its operating profit to 183.7 billion yen. Sharp's solar-panel business, meanwhile, is still small, but it is the world's second-largest manufacturer of the product after Germany's Q-Cells AG.
There are big risks. Prices for LCD panels have been steady so far, but several companies are planning new plants that will significantly increase global supplies, which could lead to price declines. What's more, some rivals like Sony Corp. also are developing next-generation technologies like the organic light-emitting diode, or OLED, which could eventually make LCD technology obsolete.
Still, if Sharp continues to be successful, the focused-manufacturing strategy could be a model for other Japanese electronics makers, which find Apple's outsourcing model a turnoff and are still trying to figure out a way to remain a manufacturer while growing its profit in an industry that is rapidly commoditizing.
In 2001, Mr. Machida created a stir by declaring his intention to build a $1.4 billion LCD panel plant in the town of Kameyama in central Japan, even though the trend at the time was to move factories offshore to places like China, where products could be made more cheaply.
The construction of the Kameyama plant was a turning point for Sharp, because it led to a technological breakthrough that allowed the company to make bigger and better panels before its rivals. For the first time, Sharp's TVs were in strong demand, particularly in Japan, as consumers sought to buy made-in-Kameyama TVs.
The new plant, built near its headquarters, takes that strategy a step further. Designed for both LCDs and solar panels, which share a similar manufacturing process, it will include factories for its major suppliers including Asahi Glass Co. and Corning Inc., which makes the glass for the panels. Even the gas and electric companies will have facilities on the premises.
Sharp plans to continue to make televisions and other electronics goods. But Mr. Machida says he believes LCD and solar panels will be more important to the company's survival and growth because they can differentiate themselves by packing more technology into them.
"There will eventually be no distinction between a parts manufacturer and an electronics maker," says Mr. Machida, adding that LCD panels have the potential to embed so much technology that a television in the future could consist of just a panel and a plastic frame.
When that happens, Mr. Machida figures that the parts makers will profit even if the finished goods become commoditized.
Whether Sharp can survive with the current strategy in the long term is still an open question. But Mr. Machida says he isn't worried because he just needs to recover his investments, something he is confident he can do.
By that time, Sharp hopes that its investments in its solar-panel business will pay off. Solar currently generates just less than 1% of global energy, but that is expected to increase to as much as 37% in 2040, according to the Cambridge, Mass.-based Prometheus Institute for Sustainable Development, which follows the industry. The research firm also estimates that the market could increase to more than $1 trillion in 2040, compared with $20 billion last year.
Sharp believes that even if competition increases, there should be plenty of business to go around. Sharp last month made another huge bet in this area by forming a partnership with an Italian power company to investigate the possibility of building a solar-generated electricity plant.
Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com