LG has announced that it will be buying millions of its LCD panels from rival company, Sharp. The Korean company said yesterday that it would be buying two million 32-inch LCD panels from Sharp, and an unknown quantity of 52-inch ones too.

LG already buys in a large number of its LCD panels from third parties, but due to a shortage of 32-inch and 52-inch panels, this is the first time LG has gone to one of its biggest rivals.

Sharp has the ability to manufacture more LCD panels than many other companies, which is why it is able to supply LG with these extra products. It also helps that Sharp makes some extremely good LCD panels.

It’s actually not the first time that Sharp has partnered with another TV manufacturer in recent months. It bought a stake in fellow-Japanese company, Pioneer not long ago. Pioneer recently announced its withdrawal from the plasma panel market, and it’s expected that it will start selling LCD TVs using panels made by Sharp before the end of 2008.

What does it all mean?

The implications of these kind of deals are far-reaching, and it’s all to do with economies of scale. The more panels that Sharp can produce and sell on, the lower its manufacturing costs become.

And in the end, this is good for everyone. It’s good for Sharp, because low manufacturing costs mean it can keep its own TV products competitively priced. It's also good for companies like LG, who are able to buy in LCD panels for less. These companies are then able to pass on the low costs to consumers. Everyone saves money, and everyone stays happy.

What's more, the ability to supply these cheaper products will help the likes of Sharp, LG and Samsung fend off the inevitable challenge from Chinese manufacturers, who are able to make really cheap products. Some analysts think that China is destined to become the major player in TV production, which is something the Japanese giants are understandably not keen on at all.

We’ve contacted Sharp for a statement on this matter.