Striding in “PDP Club”- The Forming of Changhong Technical Territory2008-07-04

Speaking with what eyes saw --- under the design of some national enterprises, although the propaganda about liquid crystal “better” than plasma is jangling on our ears, the word of mouth between customers is “rectifying” the situation gradually during the using. The production of PDP panel by Changhong breaks the suspense from the market.

However, since the foundation of Sichuang Century Shuanghong by Changhong Group and IRICO at July of last year, its technical strength is being in question. In the world today, there are only 4 enterprises who own volume production technology for plasma panel – Panasonic, Pioneer, LG and Samsung, and there are all Japanese and Korean enterprises. IRICO is the national leader in conventional CRT production, but if it has technical strength to support this PDP project?

At December last year, Century Shuanghong purchased a Netherlands investment company Sterope with USD 99.9 million and held 75% shares of Korean plasma manufacturer ORION indirectly. The history of ORION was dig out by media swiftly --- although it is the originator of Korea PDP research and development, it has no experience on large scale volume production. Does Changhong can realize PDP mass production smoothly?

Internal secret: Investment of MP provides “double insurance”

22 December 2006 was a secret but critical day in the complete “PDP production” plan of Changhong. At this day, Changhong and MP had completed the share transfer and transaction of Sterope and joint venture agreement was signed by the parties at the same time, which marked the completion of the formal configuration of the technical territory of Changhong’s “PDP production”.

The indirect ownership of the shares of ORION through Netherlands company is due to the disapproval voice from Korean enterprises. Yonhap News Agency and The Chosun Ilbo reported for many times that after the news about the cooperation of ORION and Chinese Changhong and IRICO and foundation of large PDP display device factory in China coming out last August, alerts and arguments arose in Korean electronic industry. Someone thought that this would cause the flow-out of Korea’s top technology.

The PDP capacity of Samsung, LG, Panasonic, FHP and Pioneer takes more than 90% of the world total capacity. Korean enterprises and media thought that if the core technology flew out to China, the PDP market territory might change from battle between Koran and Japan to battle between China, Japan and Korea. A representative word said by a principal from Samsung Group is that “The global kinescope enterprises suffer violent impact after Chinese enterprises marched into kinescope market. If Chinese enterprises use Korean technology to launch into PDP market in a short time, we will face to impact again.

However, ORION, which had once been a subsidiary under DEAWOOD, had been purchased by Netherlands company long times before. Implementing the transaction through Netherlands is irreproachable in all aspects. Therefore, ORION is now changed to be a “Chinese Company” --- a subsidiary under Century Shuanghong.

News was coming near the New Year's Day. On 29 December 2006, Sichuan Changhong released a bulletin, saying that Sichuan Changhong, Sichuan Century Shuanghong Display Devices Co., Ltd and Investment Fund MatlinPattersonGlobalOpportunitiesPartnersII of America (hereinafter MP) had founded together Sichuan COC Display Devices Co., Ltd (hereinafter COC) with USD225 million registered capital, in which Century Shuanghong holds 42% shares of COC, the listed company Sichuan Changhong holds 40% and MP 18%.

However, the outside world knows little about MP. The unified statement from Changhong to the outside is that it is a professional investment company of America, which contributes to the development of many enterprises in the world and specializes in investment on chemical, energy, steels, communication and so on. Until several days ago, general manager Tian Xiaohong of Century Shuanghong revealed that MP was actual the parent company of Netherlands Sterope purchased by Century Shuanghong before.

This word pointed out the critical cause why MP participated in Changhong’s Plan: Century Shuanghong made agreement with MP when purchasing Sterope Netherlands, saying that MP agreed to invest COC. And Mr. Tian Xiaohong proved this opinion by the word “The joining of MP is not only a “double insurance” for the whole project, but also an evidence to prove that MP is sure to have confidence in Changhong’s PDP project.”

Changhong-IRICO-ORION: To establish the most advanced production line

Changhong-IRICO-ORION: the first China-made PDP production line and the PDP supplementary industrial chain will be driven by them.

At this time, the general manager Tian Xiaohong of Century Shuanghong held by Changhong Group comes from IRICO, so dose the vice general manager Mr. Jia Yuntao who takes in charge of technology field. From this, it is showed that IRICO takes absolutely important part in technology field of the project.

From where IRICO gets production technology for PDP panel? Mr. Tian Xiaohong uncovered it one by one for us. As the first and biggest color kinescope manufacturer in China, IRICO paid attention to the development potential of new type display devices in 1996. Through communication of Xi’an Jiaotong University, IRICO cooperated with National Gas Discharge Device Research Institute of Russia, to launch into PDP research field initially. In 1997, IRICO founded PDP R&D Center in Beijing. It is the only professional PDP R&D organization in China, which has more than 100 professional technical R&D employees of Master or above and more than 130 PDP patented technology.

“IRICO has passed middle adjustment long time before. We can produce PDP TV independently.” Said by Mr. Jia Yuntao. He also said that the experimental line used in middle adjustment were all advanced volume production equipments, it even could be a simple volume production line after being rebuilt; and now IRICO had developed 42″, 50″ and 60″ products from standard high definition to high definition (HD). There samples are now displayed in Beijing PDP R&D Center (BPC) of Century Shuanghong. BPC now has become a very important R&D platform for Century Shuanghong, even for China. In his way, the PDP technology chain led by Changhong is generally formed: Century Shuanghong acts as production base of PDP, ORION as R&D and volume production design center and BPC as testing and adjustment base for solutions from Korea.

About the volume production of PDP panel, Mr. Jia Yuntao said frankly, there were several obstacles in it. First, the investment for one PDP production line is about RMB 6 billion, so IRICO can hardly complete such huge investment independently; second, core patents owned by some Japanese and Korean enterprises are used in technology of IRICO, if these patents can not be solved, troubles such as high patent fee could happen in the future.

While the technology storage of ORION makes up it perfectly at this time. ORION has strong originator. It was used to be a subsidiary under DEAWOOD, which is the first enterprise who owns PDP basic core patent in Korea. ORION has proposed 956 patent applications in all, and it has 353 valid patents and patent application in law, in which 12 of them belong to PDP core patent. Any enterprises which produce PDP panel can hardly avoid these patents.

According to general international practice, enterprises which own core patent of certain product form a “patent club”. They make an association to charge patent fee from other enterprises and implement “patent cross-licensing” between each other and charge nothing. After purchasing ORION, Century Shuanghong actually joins in the PDP patent “club”, avoiding the future patent risk.

Furthermore, ORION itself has considerable development character and wins profit. The sale income of ORION this year can reach USD 80 million and profit can reach USD 10 million. ORION possesses the only one M-PDP (infinite expanding PDP display wall) patent technology in the world, which achieves less than 3mm seam between junction of PDP panels and takes center stage in world market.

Having the association of the biggest color TV production enterprises in China, the only PDP professional R&D institute in the country and the earliest PDP R&D enterprise in the world, the president of Changhong Mr. Zhao Yong hence is confident of victory and makes decision to establish the most advanced production line in the world --- 42″×8 production line resolutely.

Strong and strong association To ensure PDP volume production in scale

The 42″×8 production line refers to that one PDP panel produced can be cut into eight 42″ PDP panel. Besides, there are 50″×4 and 50″×6 production line in the world. However, from the view of investment efficiency (10,000 piece/USD hundreds million) at present, calculating as 42″, the 42″×8 has the highest investment efficiency.

Why Changhong invests so much to establish 42″×8 production line? “We had discussed, analyzed and researched in internal for thousands of times about which scale of production line shall be established.” said by Mr. Tian Xiaohong. According to the prospect of PDP market, 42″ and above panel will take overwhelming advantage in the market, and cutting panels as many as possible in one panel is key issue. Through careful analysis, 50″×6 is not applicable for the maximizing cutting principle for 42″ panel and above, so only 50″×4 or 42″×8 is left for choosing.

“If president Zhao is a factory director, he will choose 50″×4, because it has few difficulties; but if he is an enterpriser, he will choose 42″×8, because it can optimize the cost of enterprise!” Recalling the moment that president Zhao Yong made the decision, Mr. Tian Xiaohong is still very exciting, “In our conclusion after analyzing, the selection of 42″×8 can form advantage cost and competitiveness in the world.”

Under the situation of bright market prospect and strong technical strength, the real worrying point in Changhong’s PDP project is volume production capacity, because ORION has only one 50″×1 production line and IRICO has no experience on PDP volume production.

Through careful analysis and evaluation, Changhong got conclusion of “risk exists but can be accepted”. The risk does not exist on if Changhong can establish the production line, because only several enterprises provide the equipments in the world and key equipments in LG and Samsung production line are basically provided by these enterprises, so from technology, it has no problem on production of panels. Actual risk in volume production is “yield rate climbing period”. In the first half year of next year, Changhong’s PDP panel will achieve volume production. This requires Changhong increase its yield rate to 85% with the shortest time. This risk lies mainly in the experience of operator and control of quality.

Considering about this, the cooperators of Changhong PDP project are increasing. Various home and abroad research institutes and enterprises have taken part in the construction of PDP industrial chain. Wherein, Southeast University wins support from 863 plan of China in research of PDP display technology; Sevenstar, the biggest micro-electronics equipment manufacturer in China, is also a cooperation partner in plan; and Changhong has a series of strategic cooperation with Xidian University, Southeast University and corresponding IC manufacturers now, to develop PDP critical IC—drive IC independently. Chinese Academy of Sciences and Xi’an Jiaotong University has accumulated many academic achievements in relating fields.

“It is predicted that to 2008, our panels will be out off production line continuously.” The general manager of Century Shuanghong Mr. Tian Xiaohong expresses “We can use our Chinese panel to watch Beijing Olympic Games.”