Don't Try to Catch Up With Japanese Flat Panel Makers

THE Clinton administration's five-year, $580 million subsidy to the United States flat panel display industry will force policymakers to quickly make some tough choices about which technologies and companies to back.

Flat panel displays, used by the millions in notebook computers, are critical to the future of US high-tech companies. The new screens, which replace bulky cathode ray tubes now used in televisions, will be a core technology in many new information and communication products, from large-screen, high-definition televisions to tiny, head-mounted virtual reality displays.

The National Flat Panel Display Initiative, announced last Thursday at a Pentagon press conference by Deputy Secretary of Defense John Deutsch, will provide matching money to US flat panel producers who invest in commercial-scale plants. Domestic production, now limited to laboratory prototypes or small-scale medical and defense niche markets, accounts for about 3 percent of global output. Global flat panel sales, currently about $5 billion, will double or even quadruple by 2000, according to the Defense Department.

In the 1980s, US producers were virtually shut out of screen production by a coordinated effort by Japanese companies to invest in flat panel technologies. As a result, Japan captured 95 percent of the market in active matrix light crystal diodes, the premier display technology.

The government, through the Defense Department's Advanced Research Projects Agency (ARPA) and other agencies, currently spends about $100 million a year backing flat panel display research and pilot production efforts involving an alphabet soup of technologies.

As administration officials prepare to up the ante, they face tough choices. ``If you dedicate the new money to building only one technology, you better hope it's the right one,'' says Kevin Cornelius, sales and marketing director of Motif Inc., an Oregon flat panel maker. ``But if you divide it up, it won't go very far.''

Government funders will dole out the new money through a series of competitive proposals. ``The plan is open to all and doesn't specify which technology will be developed,'' says Defense Department spokesman Glenn Flood.

US companies may need a technological breakthrough to challenge Japanese producers, who industry observers expect to invest about $1 billion this year to expand and upgrade their manufacturing capacity.

``If you want to catch up with Japan, you don't go the same way; you can't catch up,'' says John Fan, chief executive officer of Kopin Inc. in Taunton, Mass. ``They're already $5 billion into it, 10 years ahead, and they're not ... going to sleep.''

Kopin can produce active matrix displays more cheaply than Japan with its proprietary manufacturing technique, Mr. Fan says. Kopin, he adds, can pack an image equal to the best 10-inch portable computer screen into one-quarter of a square inch of glass. But Kopin, typical of American producers, has yet to bring its promising technology to market. The company is late with its first commercial product, a $2,000 portable projection system called PocketPro. Research contracts, including a $9 million, two-year award from ARPA, last year accounted for about two-thirds of Kopin's annual income.

Active matrix remains the preferred display technology because of its low power consumption, video speed, sharp images, and color capability. But production difficulties, which limit producers' yields of usable, finished screens to between 50 and 70 percent, drive up the cost. Manufacturers pay about $1,000 for a portable color computer screen.

ARPA'S biggest grant so far, $48 million, went to pay half the cost of a new active matrix plant being built in Michigan by OIS Optical Imaging Systems. OIS says it plans to manufacture 50,000 avionics displays each year. The company is working on a five-year, $400 million plan to expand production to the 250,000 to 400,000 annual level that would allow it to begin supplying high-volume users like computermakers, says Peter Young, an OIS executive.

ARPA has also supported companies with so-called leapfrog technologies. Two Texas firms, Microelectronics and Computer Technology Corporation (MCC) and SI Diamond Technology Inc., plan to make screens by coating field emitter displays with diamonds. The new technique has the potential to displace existing screen technologies, says Craig Fields, former CEO of MCC and former head of ARPA.

But leapfrogging is a high-risk strategy, Mr. Fields admits. ``Something has to be five times better or 10 times better than the existing technology,'' he says. David Chaney, executive director of the Optoelectronics Industry Development Association in Washington, cautions: ``Nobody has anything yet that has demonstrated that it can replace active matrix.''

One American company is already a player in the flat panel display game - in Japan. IBM produces active matrix displays for its portable computers in a several hundred million dollar joint venture with Toshiba, says Steve Depp, IBM's director of subsystem technology and applications research.

Investing in Japan gave IBM access to development laboratories, tools, and materials suppliers, and, when the venture was launched in the late 1980s, cheaper capital, he adds. ``It's tougher and riskier to start a bootstrap operation in the US.''

The Clinton administration initiative is intended to induce more American companies to take that risk.