LCD Manufacturing in the USA? Don’t Hold Your Breath

​This week as the presidency of Donald Trump has begun we have seen new reports that Foxconn is studying the possibility of building an LCD plant in the US, in conjunction with its now-subsidiary Sharp.  It’s not the first time this idea has been floated, and it won’t be the last.  Given the clear statements made by President Trump during the election campaign about favoring US manufacturers, it would be wise for any company with substantial sales in US end-markets to be reviewing their manufacturing plans.  Nevertheless, although there might be some advantages to making LCD in the US, there are huge (yuge!) barriers to overcome before this would become a reality.

Foxconn chairman Terry Gou was quoted on Sunday, January 22 as saying that the investment under consideration would amount to more than $7 billion.  The investment could be supported by Japan’s Softbank Group Corporation, whose head Masayoshi Son is a close friend of Gou’s.  Gou was quoted as saying “There is such a plan, but it is not a promise, it is a wish” that would depend on investment conditions and negotiations at both state and federal levels.

As a key part of his “America First” campaign theme, the 45th president has repeatedly called for imposing a 35% import tariff on goods from Mexico, and as much as a 45% tariff on goods from China.  In response to criticism from President Donald Trump, automakers in particular have announced a wave of investments and a pull-back from production in Mexico.  For example:

• General Motors announcing $1 billion in new US investment, including moving axel production from Mexico to Michigan, and creating or retaining 2000 manufacturing jobs in the US, as well as adding 5000 new salaried jobs “over the next few years”
• Ford canceling plans for a new assembly plant in Mexico and investing $700 million to expand production in Michigan
• Fiat Chrysler announced $1 billion in new investments expanding production of Jeeps in Ohio and Michigan
• Hyundai and Kia announced their plans to invest $3.1 billion in the US over the next five years; Hyundai has assembly plants in both the US and Mexico
• Toyota announced that they would invest $10 billion in the US in the next five years, responding to Trump criticism about production in Mexico

We have not seen any similar announcements about display manufacturing.  In contrast, although Foxconn described in early December that they were “in discussions regarding a potential investment that would represent an expansion of our US operations”, their actual investment announced on December 30th was an $8.8 billion deal in Guangzhou, China.
 
It’s no accident that there have been almost no investments in new LCD fabs outside of China for the last 4 years.  All the investments have been in China because local governments there have been willing to partner with display companies, even those with little track record such as HKC.  In China, local government investment can supply as much as ½ of the capital required for a new LCD plant, so any investment outside of China becomes unattractive unless it gets a similar level of government support.

Could such government support be secured in the US?  There have been some very large government subsidies for manufacturing.  For example:

• The state of Nevada provided $1.25 billion in incentives to Tesla for the electric automaker’s “gigafactory”, on the condition that Tesla invests $3.5 billion within the next 10 years. 
• Mississippi offered incentives worth as much as $1.33 billion to Nissan for building and expanding an auto assembly plant there.
• The state of Washington offered a package of tax breaks worth $8.7 billion to Boeing as incentive to build the 777X airliner in that state, extending a deal initially struck in 2003 at a value of $3.2 billion

The difference between these deals and some of the LCD deals in China is that the US deal is most frequently a reduction of business income taxes and property taxes, and the headline figure is typically inflated by calculating a total amount over 30 years, whereas in China the local government becomes a part-owner of the manufacturing plant, and the money is available immediately.

Nevertheless, if we imagine that with some combination of business opportunity, government incentives, and creative financing a company would decide to invest in a new display plant in the US, then we encounter the next hurdle: the display supply chain.  For a period of 25 years, display suppliers have built an infrastructure and expertise in Asia, and while importing components and materials is possible (and for certain materials like liquid crystal, importing the raw chemicals is likely the most economical solution), a local supply base is essential for making a productive fab. 

Although some of the cutting edge display technology involves flexible displays on plastic substrates, the big investments in Gen 10.5 fabs still will require glass, and even plastic substrate production in smaller size is executed using a carrier glass.  Up to now, every Gen 10 or Gen 10.5 fab built has had a glass plant co-located, because Gen 10.5 glass is too big to ship economically.  So any big LCD investment in the USA would need a corresponding big investment in display glass: the Corning investment in Hefei, China associated with BOE’s Gen 10.5 fab amounts to $1.3 billion, with 2/3 of that money coming from government and commercial incentives.

The most likely supplier of display glass to a US fab, of course, would be Corning.  Corning has an existing plant in Harrodsburg, Kentucky with several fusion draw lines.  That plant made the first volume production display glass in the LCD industry, and was Corning’s only site for melting LCD glass into the 1990s.  It currently manufactures Gorilla glass cover glass, and this plant has been cited by Apple in defense of claims that the iPhone does not support US jobs. 

While Corning would be the most likely choice, it might not be the only alternative.  Corning’s competitor Asahi Glass Company has substantial operations in automotive and architectural glass in the USA, and recognizes more than 10% of its revenues in the Americas.  While the borosilicate chemistry of display glass is profoundly different than the soda lime used in automotive and architectural applications, Asahi uses the float process for forming all its glass, so process expertise would not necessarily be lacking in the US.

Glass is not the only material in a display, but most other materials in an LCD cell (or for that matter in an OLED stack) are much more easily transported.  I recall a discussion with an analyst from Merck who indicated that the entire supply of LC materials for the industry for a year would fit in my office.  Although this was a few years ago, and we now may be up to several offices, it doesn’t change the economics.  Merck makes core chemicals mainly in Germany, but has mixing operations in LCD-manufacturing countries, a sort of final-assembly step for that product.

Beyond the capital-intensive LC cell, though, is yet another challenge to US display manufacturing.  Module assembly is the most labor-intensive step, and for this reason most module assembly today, even for LC cells made in Taiwan, Korea, or Japan, occurs in China.  So a US-based display maker would look to find a cheap source of labor for module assembly.  Under the Trump administration, Mexico is not an option, so module assembly costs are likely to be higher.  Likewise, the next step in production, the assembly into electronic devices, is often co-located with module assembly because it is also labor intensive, and therefore it also would add cost.

All this suggests that the challenges to making displays and devices in the US are daunting, making a development like a big Foxconn LCD plant in the US unlikely.  Even if those challenges could be resolved, Foxconn would run into another barrier that would delay implementation.  With the current queue of Gen 10.5 fabs standing at five (BOE, CSOT, LGD, Foxconn, and HKC), implementation of yet another fab would be limited by equipment vendor capacity.  DSCC sources suggest that Gen 10.5 exposure equipment from Nikon is likely booked with these fabs until 2020 or even later.  If you’re looking to buy a 65” TV with a US-made panel, you’re likely to need to wait until the 2nd Trump administration.
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While we’re not likely to see large-scale US display manufacturing soon, the impact of President Trump’s “America First” approach will see itself in some moves on device assembly, the subject of my next article.