January 14, 2002 4:00 AM PST

LCD market not so clear

Will there be enough flat-panel monitors to go around in 2002?

Sales of PCs and other tech products have limped along since August 2000. But flat-panel monitors--which are built around LCDs (liquid-crystal displays)--are selling at rates that remind tech product managers of PC sales in the mid-1990s.

Last year, consumers bought 13.5 million flat-panel monitors, more than double the 6.4 million shipped in 2000, said Rhoda Alexander, director of monitor research at Stanford Resources-iSuppli. In 2002, 23.5 million are expected find their way to consumers and businesses, fueled in part by the cool factor and by efforts of Dell Computer, Apple Computer and others to promote the space- and energy-saving screens.

Unfortunately for the industry, growth alone doesn't translate directly to profit. Because of excess factory capacity and price wars in 2001, many manufacturers involved in the industry had to sell their products below cost.

But that scenario is likely to change this year, and for consumers that's not a good thing. Increasing costs of components and rising consumer demand will likely lead to sporadic shortages, fewer discounts and higher prices on select products. Continued heavy demand could lead to profits for manufacturers. Then again, profits could be eroded through intense competition and by increasing factory capacity.

"In the fourth quarter, there were lots of rebates. They will disappear," Alexander said. "We show shortages throughout 2002, particularly in the 15-inch segment."

Bruce Berkoff, executive vice president at LCD maker LG Philips LCD, said that he's been predicting a shortage for some time and sees it as part of a cycle that consists of two-year periods of oversupply and two-year periods of shortage, causing price fluctuations. Berkoff anticipates an industrywide shortage as early as mid-2002 that will last through 2003.

"Monitor prices fell too low, too fast and then demand grew so fast that supply can't keep up," Berkoff said.

The cycles are in two-year intervals mainly because that's how long it takes to build a manufacturing factory, Berkoff said. Newer factories generally equate to higher manufacturing capacities and lower prices in the market, as well as more large monitors.

Berkoff expects prices for 15-inch LCD monitors to increase from around $200 to $300 now to up to--but not over--$500 this year. He also expects 17-inch and 18-inch displays to become more mainstream with prices ranging from $700 to $900.

The flat-panel drama
Although flat-panel displays have been around for years, high prices kept them from the mainstream of the consumer market. A low-end 14-inch flat panel for a desktop computer, for instance, cost about $2,000 in 1997. A shortage of LCD glass, partly driven by growing demand for notebooks and handheld devices in the late 1990s, prompted makers to invest in glass plants in Taiwan and Korea in 1998 and 1999.

A glut followed. And by October 2000, prices were in relative freefall. Prices on 15-inch flat panels dropped $200 in six weeks. Major manufacturers, such as ViewSonic and NEC, were selling them for as low as $699.

The slide continued through 2001. During various times of the year, 15-inch flat panels, the most common size, sold for $250 to $299, including rebates. Excess supplies of glass were forcing manufacturers to sell their products, at times, to monitor makers at $5 to $30 below cost, Alexander said.

The low point came in August 2001. Since then, rising demand has allowed glassmakers to sell their products again at cost or above, Alexander said. Monitor manufacturers have also enjoyed declining prices on other components, which gives them some breathing room.

Declining prices, though, drove sales up. Other factors, of course, also helped. Flat panels take up far less space than standard cathode-ray tube monitors and are aesthetically more appealing. They also consume less energy.

"The California energy crisis, whether real or manufactured, had a tremendous impact on LCDs. I received lots of calls from government agencies asking about them," said Alexander, who added that the energy savings "for a large corporate account makes a significant difference."

Supply or demand
Although supply still outstrips demand, the LCD glut is expected to begin to dry up and prices are likely to rise. Unlike other PC products, which only go down in price, flat panel prices have jumped occasionally in the past. "LCD is one of the few (markets) where things have actually gone up in price," said Bob O'Donnell, an analyst with IDC.

The expected increase in LCD prices isn't likely to affect demand too significantly, according to ViewSonic product manager Seth Ngin.

Corporations tend to be the biggest buyer of LCD panels and price usually isn't the first priority for them, Ngin said.

Driving the demand are notebooks, which are becoming a larger percentage of the overall PC market. Consumer electronics devices that use LCD screens, such as cell phones and handhelds, use small screens and thus haven't affected supply very much.

"We can make up the world's demand for phone screens in our factory in one week," Berkoff said.

Another consumer electronics product category that may affect supply in the future is televisions with LCDs. Berkoff predicts this market will reach seven million units annually by 2005.

Still, the ultimate effect on manufacturers and consumers remains unknown because of a variety of factors.

Supply, for instance, could be fairly tight in the first part of the year, driving prices up and creating shortages. Or an industrial accident at a major Japanese glass manufacturer could crimp supply during the first quarter and thereby drive prices up.

NH Techno Glass, one of the bigger LCD glassmakers in the world, was closed recently because of a boron gas spill and will not be able to supply LCD glass substrate until February or March, according to reports from Asian newspapers and analysts. The company's customers include LCD producers Fujitsu, Samsung Electronics, International Display Technology, Chi Mei Optoeletronics and HannStar Display.

Meanwhile, Taiwanese LCD monitor makers are in the process of lowering shipment targets by 10 percent to 20 percent.

At the same time, other variables exist. An expansion of LCD manufacturing facilities in Korea from Sharp, Samsung and LG Philips means that more supply is on the horizon. And like in 2000, an influx of products could depress prices. (Samsung and other LCD panel manufacturers take glass and other components and manufacture the LCD panel. The panels then get shipped to notebook or monitor makers, which can be sister subsidiaries and which incorporate the LCD panel into monitors).

"They have got a ton of output capacity coming on," O'Donnell said.

LCD manufacturers are working on other types of display technology, such as organic light-emitting diode displays. But it will be at least 10 years before any of them can replace LCDs.

 

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