Companies looking to purchase LCD flat panel displays in volume this year could face sudden price increases or a lack of product availability due to an impending LCD shortage, according to industry vendors.
LCD makers Philips Consumers Electronics, ViewSonic, Samsung Electronics America, and NEC-Mitsubishi Display of America this week each expressed concern that the LCD market could be stricken by a product shortage.
These concerns were warranted by a number of factors including increased interest in buying LCDs, a less-than-adequate supply of the "motherglass" used to produce LCD screens, and a recognised market cycle for LCDs that contributed to a similar LCD shortage in 1999.
IDC analyst Alan Promisel confirmed the likeliness of an impending LCD shortage and said that even though it was an expected supply and demand cycle, the looming LCD shortage was "catching the manufacturers off guard."
"It could be severe in the fourth quarter [of 2002]," said Marc McConnaughey, the senior vice president of Advanced Technologies for ViewSonic.
According to McConnaughey, prices will increase if the shortage gets severe enough and companies buying LCD products will be unevenly effected. Companies with long-standing relationships and more clout on the size of their orders will likely fair better when demand outstrips supply, he said.
"But, if it becomes a strong shortage, everyone can be affected and production could be disrupted," added McConnaughey.
The cost of making LCDs is already beginning to increase for manufactures like Philips, according to John Parisi, the marketing manager with Philips.
"Prices are starting to increase, and this tells us there will be a shortage at the latter part of Q3  and Q4, especially on 15-inch sizes," Parisi said.
For company's buying LCDs, the current US$30 to $40 increase in the manufacturing cost of LCDs will mean an extra $55 to $60 on the price tag of every new LCD, Parisi said.
Philips' fifth-generation motherglass plant, that makes the base component of LCD screens, is just now coming online. But when asked if the new motherglass plant would meet the demand being created by the expanding LCD market, Parisi said "no way."
A new motherglass plant from Samsung is also expected to be in production by the end of this quarter, according to Ian Miller, director of technology for displays at Samsung, in Irvine, Calif., and Rey Roque, vice president of marketing for Samsung.
"It takes a few months to be fully operational and to get your ultimate product yields" when opening a new motherglass plant, added Miller.
Roque said LCD shortages will probably occur before the fourth quarter of 2002, with spot shortages already beginning to occur.
While it is hard to say what products will be impacted, the Samsung executives said motherglass manufacturers have better margins on flat panels than in notebooks and therefore a shortage might incline manufacturers to produce more for the display industry than for the notebook OEMs.
But few in the industry expected such a dramatic uptick in LCD sales. While notebook computers that use LCDs experienced a less-than-record year in sales during 2001, flat panel displays were quite a different story, said Roque.
"We are looking at 50 per cent to 70 per cent larger growth this year over last year in flat panels," said Roque.
"And that's in the United States alone," added Miller.
Research by DisplaySearch confirms a sharp increase in LCD sales. According to DisplaySearch, worldwide LCD monitor shipments increased 143 per cent from the third quarter of 2000 to the same time in 2001.
Both Miller and Roque were reluctant to predict the result of the huge increase in sales but they did say prices will either remain stable -- rather than decrease as they did last year -- or buyers may actually see a price increase in flat panels.
Todd Fender, the LCD product manager for NEC-Mitsubishi, said NEC will attempt to weather the upcoming LCD shortage without raising prices. But NEC does not manufacture its own motherglass, and Fender said he has already begun to see price increases from NEC's motherglass providers, a troubling sign.
"If the cost [of making LCDs] gets out of line for us, we may be forced to raise prices. But our business strategy doesn't have a price increase in the forecast," Fender said.
IDC's Promisel said the impending LCD shortage is a common supply-and-demand trend for LCD products, and that the industry "went from a dramatic shortage a few years back to a glut, and the demand is rising increasingly now, sort of catching manufacturers off guard."