TOKYO -- Japan's Nitto Denko will supply technology for making a key component for LCD televisions to companies in China, looking to gain a foothold in the market amid growing demand for its high-quality products.
The electronic parts maker will sign a five-year deal starting this month to provide polarizer-related technology to China's Hangzhou Jinjiang Group and affiliates based in Taiwan and mainland China. Nitto Denko will collect around 7 billion yen to 8 billion yen ($61.4 million to $70.2 million) in royalties from the agreement this fiscal year, with additional revenue to be generated based on progress down the road. The company expects to earn a total of about 15 billion yen from the deal over the five years.
Polarizers control the passage of light through LCD panels, helping to ensure a bright display. Nitto Denko's roughly 20-30% share of the global market puts it among the top three suppliers, alongside Sumitomo Chemical of Japan and South Korea's LG Chem.
Hangzhou Jinjiang is a resource company, with mainstay operations centering on mining and electricity generation. The company is expanding into manufacturing TV polarizers as part of an effort to diversify. It will use Nitto Denko's technology to make large polarizers at new plants in the cities of Kunshan and Shenzhen, targeting a majority share of the Chinese market. The Japanese company may also supply necessary materials such as films.
Nitto Denko has thus far focused on making polarizers for high-end TVs in South Korea, Taiwan and Japan. It largely steered clear of China, where production centers more on mass-market panels and profit margins are slim.
But China became the world's largest producer of LCD panels for TVs in 2015. The country is expected to account for more than half of global output next year and, by some estimates, around 80% in a decade. The TV market is expanding, and demand for even high-resolution 4K models is expected to grow.
Nitto Denko thus anticipates a greater need for the pricier products it specializes in. The company sees technology sharing as a less-risky option than expanding into China on its own or through joint ventures with local partners.