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IHS: TV manufacturers are outsourcing to survive

Posted: 25 Jul 2011 ?? ?Print Version ?Bookmark and Share

Keywords:TV manufacturers? LCD? contract manufacturing?

Global production of LCD TVs by contract manufacturers will double from 2010 to 2015 as plummeting prices and eroding margins are forcing many brands to outsource their factory operations, according to IHS iSuppli Research.

The two major segments of the outsourced electronics businesselectronics manufacturing services providers and original design manufacturer companiestogether will produce 127.9 million LCD TVs in 2015, up from 65.1 million in 2010. The EMS and ODM companies will account for 43 percent of LCD TV unit production in 2015, up from 36.2 percent in 2010.

Beyond cost reductions, a host of other benefits can be obtained by manufacturers in outsourcing LCD TV brands, said IHS.

A number of Japanese and South Korean original equipment manufacturers, which operate LCD panel and module production plants in addition to LCD TV manufacturing facilities, increasingly utilize contract manufacturers in order to improve asset flexibility, reduce headcount and contain operating expenses.

According to IHS, among other reasons, using contract manufacturing mitigates the impact of exchange rate fluctuations, especially with the Japanese yen which has appreciated by approximately 25 percent in the last three years, hurting the export business of Japanese brands and forcing many to resort to ODMs for lower-cost LCD TV manufacturing.

Among leading Japanese brands, Toshiba has been the most aggressive in outsourcing. Sony also has been active on this front, initiating rounds of restructuring efforts in 2009 and divesting its LCD manufacturing facilities in Mexico and Slovakia, contributing to the increased use of contract manufacturers in the LCD TV industry.

IHS iSuppli previously estimated that the share of production of outsourced LCD TVs would surge to 35.1 percent in 2010, up from 27.5 percent in 2009. Further research suggests that the percentage of outsourced LCD TVs hit an all-time high in 2010 and reached 36.2 percenta significant increase driven by Sony's divestiture of its manufacturing facilities to Hon Hai, also known as Foxconn.

Many troubled Japanese OEMs, including Sony, Sharp and Panasonic, may further increase their reliance on contract manufacturers in order to remain competitive in the LCD TV market, according to Jeffrey Wu, senior analyst for EMS and ODM at IHS.

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