LCD sourcing policy backfires on Pentagon
By David Lieberman and Robert Ristelhueber
EE Times
(03/24/00, 4:31 p.m. EDT)
BOSTON ? A policy of relying on domestic sources of flat-panel displays backfired on the U.S.
military recently when Planar Systems Inc. threatened to halt shipments of active-matrix (AM) LCD
head assemblies to a defense subcontractor unless their price was nearly quadrupled, EE Times has
learned.
According to a Department of Defense point paper, "In January 2000 Planar informed Honeywell that it
need[ed] to increase prices for AM LCD display head assemblies from $12,000 each to $43,000 each
and threatened to cease production February 11. Planar is losing money on its DOD combat cockpit
AM LCD work and needs to increase prices to cover the costs.
"If Planar ceases production of AM LCD display head assemblies, several major weapon system
production programs, including AH-64D [helicopter], F/A-18E/F [strike attack aircraft] and F-22
[figher jet], will be brought to a halt," the point paper said, recommending that the Departments of
Commerce and Defense accept the price hikes.
The paper, entitled "Cease Production Threat from Planar," was obtained by EE Times from a source
who asked to remain anonymous. The paper was written by Darrel Hopper, the DOD's
displays-reliance chairman and the Air Force's point man on displays at the Cockpit Avionics Office
(Wright Patterson Air Force Base, Ohio).
Reached this past week, Jack Raiton, vice president and chief financial officer of Planar Systems, said,
"We're not going to discuss our price negotiations with any customer publicly." He added, however, that
"there has been no material interruption in our relationships, and we're continuing to ship." Honeywell is
a major customer because of the Apache helicopter program, Raiton said.
The Air Force's Hopper recommended in his paper that the Pentagon continue to use only U.S.
suppliers for LCDs, but with better oversight. He also called for stepped-up funding for the U.S.
flat-panel industry.
"DOD should work with Boeing to provide immediate cost relief to Honeywell, and thence to Planar,
for an increase . . . to cover Planar production costs," Hopper wrote, adding that "Planar is a well-run
company that has served DOD in an extraordinary fashion for many years [and] has a track record of
fair pricing for military displays." Even at the higher prices Planar is demanding, Hopper said, "AM
LCDs are a bargain" compared with CRTs, which run about $200,000 each for the B-2.
Hopper further recommended that the DOD "should work with Planar to develop and follow a cost
reduction plan with constant DOD monitoring of all Planar AM LCD products." He also urged that the
Commerce Department "should, if necessary, use its power to order Planar to continue production."
Beyond the immediate crisis, Hopper made a pitch for increased government funding for cockpit
displays. He urged that the Pentagon ask Congress for $50 million over four to five years, beginning in
fiscal 2001, for "AM LCDs for cockpits and other military purposes."
But the incident adds fuel to the fire for critics of government funding of a domestic display industry.
They point to the demise of military-LCD makers Optical Imaging Systems and ImageQuest, as well as
the near-death experience of dpiX, as reasons the government should investigate other sources of
supply.
Old-fashioned approach
According to the anonymous source of the document, the recommendations in the point paper
"represent the old-fashioned, noncompetitive approach to military acquisition. There are now several
vendors capable of ruggedizing Asian glass at much lower cost, and this approach will not require the
U.S. taxpayer to invest in anybody's plant, just to see the investment thrown away." That was what
happened in the case of Optical Imaging Systems, the source said.
The LCD assemblies at issue are manufactured at the Planar Advance Division (Beaverton, Ore.) using
active-matrix plates made at dpiX LLC (Palo Alto, Calif.) and assembled into displays at the Planar
Standish Division (Lake Mills, Wis.). Xerox Corp. sold dpiX to Planar and two other customers last
summer in a sell-or-close scenario. The other partners, which use the AM plates in medical sensors, are
Varian Medical Systems and Trixell, a joint venture of Philips Medical Systems, Siemens Medical
Engineering and Thompson CSF.
The Planar assemblies in turn are put together into so-called line-replaceable units by military integrators
such as Kaiser (San Jose, Calif.) and Honeywell (Albuquerque, N.M.), and shipped to Boeing or
Lockheed-Martin for installation in aircraft cockpits.
According to the point paper, subcontractor Honeywell requested pricing relief from prime contractor
Boeing, "but was refused. Boeing stated that it would provide no relief to Honeywell unless it got relief,
in turn, from the government." Honeywell then contacted the Pentagon and Commerce, kicking off an
investigation.
Hopper's paper cited several causes for the cost problems at Planar. First, "Combat cockpit displays
cost 50-100X [the price] of a mass market consumer application due to military requirements, which
have no parallel in any civil product."
Second, Hopper said, "Planar Advance is on a learning curve for critical finishing manufacturing steps
such as the application of optical lamination layers in a manner such that they do not fail in bubble
canopy fighter cockpit use. The yields are lower for these steps than Planar had expected, but should
improve as production proceeds."
Further, said Hopper, "ongoing engineering costs to solve these problems are not covered in present
pricing. Planar orders for other military programs have been slowed by DOD cutbacks; Planar had
planned to use other such income to offset combat AM LCD startup costs."
Finally, according to Hopper, dpiX is hurting because its medical business is not taking off as quickly as
expected. The annual cost of operating the dpiX clean room fabrication facility is $25 million, he said,
and just $11 million to $12 million of that is covered by AM-LCD work for Planar.
"The dpiX LLC medical instrumentation business has raised sufficient operating capital to cover the
shortfall through [calendar year] 2000," he said, "at which time it is projected that orders for digital
radiography units may create a revenue stream at dpiX LLC for active-matrix plates sufficient to cover
the continuing shortfall in fab operating costs."
Hopper admitted that the expected revenue stream is anything but certain. "The timing of the
'hockey-stick' upturn in orders for digital radiography units is highly uncertain ? in late 1999 the upturn
year was moved from 2000 to 2001," he reported. "The only thing that is relatively certain is that digital
radiography will take off by 2010." |
