Liquid crystal display tags fall as demand weakens
James Carbone -- Purchasing, 9/16/2004 2:00:00 AM
Prices for liquid crystal displays (LCDs) have plunged as demand has weakened. The good news for electronics purchasers is that the buyers' market will continue at least through the year as more capacity comes online.
It has been a reversal of fortune for LCD makers. For the past six quarters, demand was strong and prices increased, but that started to change in June, according to Sweta Dash, an LCD analyst for market researcher iSuppli.
"In the first two quarters of the year there was tight supply for LCD panels and there were panel price increases," she says. "But in June there was a slowdown in demand. In July, inventories started to build especially in the monitor market so panel demand for monitors started to go down."
As demand fell so did prices. For instance the average price of a 17-inch LCD panel for a desktop computer monitor fell from $290 in January to $265 in August.
Prices are also falling for 14- and 15-inch LCD panels used in notebook computers as well as for 30-inch displays used in digital televisions. In fact, price drops for the 30-inch LCD panels for TVs is greater than for other size panels. In January a 30-inch panel cost about $1,200. By July the price had fallen to $949.
"We expect price reduction into October and maybe November. After that prices should stabilize," says Dash.
Despite price erosion, the long-term outlook for the LCD market is healthy. The market will grow from about $23.3 billion in 2003 to $60.6 billion in 2008, according to iSuppli.
However, the change in current LCD market conditions has panel manufacturers scratching their heads wondering what happened. Throughout 2003, there was tight supply of LCD panels and prices increased. Computers sales were strong, driving sales of LCDs. In addition, TV manufacturers started shipping TVs equipped with 30-inch panels.
Computer demand eased in the first and second quarters of 2004 and demand for LCD-TVs turned out not to be as strong as some market researchers predicted.
While prices are falling, buyers may have some trouble buying smaller panels. "Right now 15-inch LCD is the most widely used panel," says Dash. "It used to be 14-inch." She says corporate notebook users were satisfied with 14-inch displays. "But, in the LCD market, changes occur because of supply push rather than demand pull. The growth of the 15-inch panel market is due to supply push," she says.
LCD buyers who purchase 14-, 15- or 17-inch panels should keep a close eye on the 30-inch display market. Last year, in anticipation of expected growth, manufacturers boosted capacity for 30-inch panels although that segment of the LCD market was smallest.
"Manufacturers were making the bigger size panels and fewer 17-inch displays for computers and 15- and 14-inch panels for notebook computers," says Dash. Margins were higher for the 30-inch panels. The same scenario could recur if LCD TV demand takes off.
However, manufacturers are adding capacity and new suppliers are jumping into the LCD market. Capacity will increase for all size panels. Despite that increase, the LCD supply scenario will be clouded for the next six months to a year.
As LCD prices fall, system manufactures will reduce prices of desktop and notebook computers and LCD-TVs in time for the holiday selling season. The price drops will likely spur greater demand. At the same time, some LCD suppliers have said they will cut their factory utilization rates from 100% to 85%-90%. Some suppliers also have said they plan to delay plant expansion plans. If all this happens there could be price increases later in the year. At the very least, prices should stabilize.
However, consumer demand for equipment that uses LCDs is a wild card. While demand for electronics equipment is typically high in the fourth quarter, this year could be different as high oil prices could trigger an overall economic slowdown or recession. That would mean less consumer spending. Lower consumer spending would result in less demand for electronics equipment including LCDs.
Longer term, the supply scenario for LCDs should favor buyers. Reason: More capacity will come online later in 2005 and new suppliers will enter the market.
China will become a source of LCD panels. "China is going to come up in 2005 and that makes some people think at that time price reduction will be strong," says Dash. Hon-Hai will begin LCD production in China beginning later this year and joint ventures between BOE/Hydis and STD/NEC will also produce LCD panels.
Another company, Innolux, will start production in Taiwan later this year and ramp up to full capacity in 2005.
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