What Should the U.S. Do About Displays?

The Chairman of the House of Representatives Select Committee on the Chinese Communist Party sent a letter to Defense Secretary Lloyd Austin this week about “the U.S. national security risk posed by the People’s Republic of China’s (PRC) growing domination of the global display industry.” The letter states: “While commonly associated with civilian applications such as televisions, displays are increasingly playing a role in many of our advanced weapon systems, from Javelin missiles to drones. If the United States was to find trade with the PRC disrupted, production of many of these systems would halt.”

While the current context of U.S.-China tensions (which have been informed as well as inflamed by the Select Committee’s work) is very different, this statement echoes arguments from 30 years ago, when the country of concern was Japan.

Déjà vu All Over Again

In a 1994 report describing its National Flat Panel Display Initiative, the DoD noted “Although FPD applications are being driven by the commercial market, FPDs are becoming increasingly important for meeting military requirements.” For example, “FPDs…are important for a wide range of military applications, including the cockpits of such aircraft as the AWACS and JSTARS, main battle tank fire control and situational displays, command and control centers, and mobile troop operations”?

The 1994 report stated that “ambiguities in Japanese export control policies have indirectly reinforced a Japanese industry "allergy" toward working with Defense customers that is prevalent in Japan...,” noting that then-leader Sharp would not work directly with the U.S. military, concluding “the availability of leading edge Japanese display products for export and use in future U.S. defense applications remains subject to a significant element of uncertainty."

The Select Committee letter notes that “In LCD, the industry’s legacy technology, the PRC’s share of global production capacity has grown from 0% in 2004 to 72% today.” The 1994 report noted “In LCDs…a handful of Japanese firms account for about 95 percent of the world market…” at a time when LCD was just beginning to replace CRTs.

The Select Committee states that leading Chinese display makers BOE and Tianma “enjoy subsidies that grant land and capital to cover 50-70% of their investment costs, zero or below-market interest government loans, R&D subsidies, reduced corporate taxes, and purchase subsidies of up to 20% paid to domestic buyers of their products. BOE’s subsidies alone equaled $283 million in 2019. Moreover, they may have benefitted from intellectual property theft to spur their rise…”

The 1994 report included the argument that “the favorable business environment provided by the Japanese government, including the low cost of capital, has been an essential ingredient of Sharp's success.” Further, it alleged “Several Japanese distributors have attempted to leverage their position by requiring access to U.S. vendors source code or manufacturing processes. Several U.S. equipment companies have had to contend with attempted takeovers of their technology by their Japanese partners.”

The Big Difference Between Then and Now

The ultimate intent of the letter is to have BOE and Tianma added to the DoD’s Chinese Military Companies List (Section 1260H of the National Defense Authorization Act for Fiscal Year 2021 directs DoD to identify "Chinese military companies" operating directly or indirectly in the U.S.), arguing that the companies have numerous ties to China’s People’s Liberation Army and its Military-Civil Fusion program. This represents a critical difference with the situation 30 years ago, in which Japan was not an adversary, but was pushing back on U.S. military and economic dominance by potentially limiting supply of critical technologies.

Despite this crucial difference, the policy issue is the same: is it a problem for the U.S. military that there is no domestic production of displays, and if so, what is the solution?

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The Challenge: Military Demand is a Rounding Error in the Display Market ?

The Select Committee letter states that the DoD “needs a plan to quickly reduce reliance on the PRC in display technology.” The same urgency was expressed 30 years ago. The problem in 1994 was that military displays represented a miniscule share of the global display market – the report estimated the annual military display demand was 15,000 units, at a time when the total market had already exceeded a billion units. Today, military demand is even smaller as a share of the total market (for example, in 2022, the annual demand for the Javelins mentioned by the Select Committee was estimated to be 1,000, with a maximum annual production capacity of less than 6,500).?

The DoD policy in 1994 was an attempt to split the difference between two approaches. One approach was (and is) for the military to specify its display needs to defense contractors, who purchase standard displays on the open market and then customize them. The other would be for the government to build a dedicated facility to manufacture military displays. As my former colleague David Mentley argued at the time “The solution is to face the reality that the true cost of advanced cockpit-display technology must be paid by the customer [the government]. For some reason, the U.S. government does not want to pay the real price for the most important electronic system in the airplane—the cockpit display.”

The National Flat Panel Display Initiative ended up funding a company called OIS Optical Imaging Systems to produce LCDs in Michigan. A few years later, OIS went out of business; according to a later report “Several major U.S. defense industry players were hindered [when OIS] suddenly closed down shop.” The failure of this policy was the notion that a business could successfully operate as a ‘dual-use’ supplier, with the assumption that a single factory could be big enough to compete on the commercial market, yet also be available to produce custom-designed displays for the military.

Meanwhile, military contractors continued to source displays from Japan, and later Taiwan and Korea. In the 1990s and early 2000s, companies in those two countries took market share from Sharp and other Japanese companies. A 1995 analysis of the DoD plan produced by the now-shuttered Congressional Office of Technology Assessment pointed out that many new suppliers outside of Japan were coming into the market. More recently, Chinese companies have taken market share from Korean and Taiwanese companies. It is an open question as to whether companies in other countries, for example India, will enter the display market.

Aside from the shambolic 2017 agreement between Foxconn (Hon Hai) and the state of Wisconsin to build an LCD plant in Mount Pleasant, there have been no efforts to build domestic display production in decades. Unlike the CHIPS program for semiconductors, there are no initiatives incentivizing domestic display production. Absent any changes, the U.S. military will be increasingly dependent on Chinese producers for displays. The Select Committee letter does not indicate where the DoD should be sourcing its displays.

Is China Moving from a Follower to a Leader in Displays?

In addition to taking over the LCD market, Chinese companies have been increasing their share in OLED displays. Citing Omdia, the Select Committee letter notes that BOE and Tianma have increased their share of OLED smartphone displays from 11% to 28% over the past two years. Chinese companies have also been investing in large OLED displays, as well as new technologies such as micro LEDs. The Select Committee letter makes an allegation that “90% of global capital expenditures in micro-display technology are being made by PRC companies and the PRC government.” There is no evidence presented for this claim, nor any mention of the investments by numerous companies outside of China. Setting aside the validity of this claim, microdisplays and other components of AR/VR/XR technologies has not settled on a dominant design, and companies are pursuing different markets, some attempting to make consumer products, while others focus on niche needs in industry and military markets. To the extent that the military sees these technologies as critical, it would be reasonable to focus on such emerging areas, as they are far from a standard commodity as most LCD and OLED panels are, and are difficult to design for military needs merely by using standard products.

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