When demand soars and sales figures for a product start going through the roof you can usually expect prices to start coming down rapidly as manufacturers ramp up production and the manufacturing cost per unit diminishes. But there is one notable exception — LCD panels.
Two years ago there was a glut of 15-inch panels and prices fell as manufacturers were accused of pre-empting the market and attempting to create demand. Since then demand has soared as the notebook market has boomed, corporate demand for LCD computer monitors has surged, and there has been growing interest in the new LCD TV market.
As a result there has been a shortage of panels for more than a year, prices have risen steadily and third-party vendors and distributors are beginning to question whether the panel makers are holding the industry to ransom.
Luckily in Australia the strengthening dollar has off-set many of the price rises and most major vendors now report adequate supplies although some distributors report delays in deliveries of notebooks caused by the panel shortage. While Australia has fared reasonably well in terms of price rises compared with some countries, it hasn’t been totally insulated. IBM, Dell, Samsung and Panasonic all increased prices last month.
Reports out of Taiwan, where the majority of panels are manufactured, suggest the shortage will not show any sign of easing until the second half of this year and there will be no easing of prices before then.
The good news is that Japanese giant, Sharp, is tripling its LCD manufacturing capacity at a new factory, Matsushita Electric is pumping $US1.2 billion into components for LCDs and in Singapore the Toshiba-Matsushita joint venture is ramping up production capacity at its LCD facility.
But Kenneth Wang, vice-president of the electronics division at Taiwanese LCD manufacturer, Yieh Corporation, warns that while the LCD panel shortage situation will improve in the second quarter and the situation may go from shortage to oversupply, it will only be a temporary relief.
He said the growing demand for LCD TV, which was potentially a much larger market than LCD monitors, would create a new shortage.
According to analyst estimates, the overall market for LCDs was worth about $US45 billion worldwide in 2003 and should rise to more than $US60 billion this year.
In Australia, there is general agreement that there is pent up demand waiting to explode once the normal cycle of increased production and lower prices comes into play. That is already showing in the continued demand for 15-inch screens — which are in short supply.
Analysts had predicted that by January 2003 the 17-inch screen would be king, instead the 15-inch remains as popular as ever and in some cases, to the surprise of vendors, buyers — particularly big corporates — are by-passing the 17-inch and opting for 19-inch and 20-inch models.
As a result some vendors report they are outselling the 17-inch or at least keeping pace with them.
In the meantime, the shortage of panels has resulted in a spike in cathode ray tube (CRT) television sales at a time when the old-fashioned TV was generally regarded by many analysts as being on its last legs.
However, general manager of Mitsubishi Electric’s digital electronics group, Richard Freggi, said that was not a prediction major vendors would have made.
Freggi, who from 1996 to 1999 was deputy general manager in charge of Philip’s consumer electronic business flat panel monitors division in Taiwan, said that in 1996 vendors predicted that by 2010 LCDs would have about 20 per cent to 30 per cent of the monitor market.
“Nobody had any clue that by 2004 we would be looking at almost half of the monitor market moving to LCD,” he said. “Growth has been explosive over the last eight years and it is continuing for the same reasons that brought it up to where it is today — ergonomics, fairly competitive price and excellent picture quality for the business and home use it is designed for.”
Freggi said while the top end CRT had advantages in terms of refresh rate and colour fidelity he expected the gap to be closed within two years. Although the 17-inch LCD market was growing quite rapidly, Mitsubishi had seen a dramatic increase in the 19-inch and 20-inch market where the unit price was much higher.
“I don’t think 15-inch has much life left for the simple reason that the having XGA resolution is not really adequate for the power of the current computers,” he said. “You really need Super XGA resolution to have multiple windows open and for high resolution graphics.
“Even the lowest form of monitors, which are those used in notebooks, have already gone beyond XGA in their mid-range. So the issue is not really with size it is with resolution, and there are very few 15-inch monitors that are good at Super XGA because everything has to be squeezed up too much. You are much better off having a 17-inch.”
Freggi said the panel makers were aware of the limitations of the 15-inch and decided to take the initiative themselves and cut production. This wasn’t very smart.
“Now they, the industry and the users, are paying the price for their foresight,” Freggi said. “They tried to lead the market rather than following it closely.”
He said despite that, 17-inch was the right way to go and offered resellers the best opportunities because it was superior to the 15-inch in every way including value.
Philips’ Sarah Coggan said the idea that 17-inch would be the next big thing was driven by the panel manufacturers, including the LG/Philips joint venture which was one of the world largest panel makers.
“The shortage of 15-inch panels was designed by the manufacturers to push the market,” she said. “We expected that as a result of that push the prices of
17-inch panels would come down, but that never eventuated because at the same time the consumer TV market began moving towards LCD and pushed up the demand for the larger panels. So now OEMs are competing for panels against both notebooks and LCD TV.
“That stacks the odds very much in favour of the panel manufacturers and they are exercising a fair amount of market power at the moment.”
She said the shortage of 15-inch panels came as quite a shock to Philips but the company had now learned to live with it.
Despite being a panel manufacturer Philips was not always guaranteed supply, Coggan said.
“A panel manufacturer can sell a 15-inch panel to a notebook manufacturer and make an awful lot more money out of it than from a third-party branded monitor manufacturer,” she said.
The bad news for the channel and consumers this year was that there was not likely to be much price relief, although there might be a slight reduction in the second quarter, Coggan said.
In the long term, she said the growth in the LCD TV market would have an impact on the monitor retail market as LCD TVs and monitors would become more versatile by being able to display either data or TV.
“We’ve been working closely with our distributors and key resellers to ensure they are fully aware of what is going on with supply,” Coggan said. “There is a lot of extra work being done to ensure we can secure stock. The more consistent resellers can be with their sales and planning the better off they are going to be in this sort of situation.”
Product manager for distributor, ASI Solutions, Craig Quinn, said the panel manufacturers were in the box seat.
“We are not being offered the deals, progressive pricing or forward pricing we would normally and we haven’t been for seven or eight months,” he said. “We are still working today on the same US dollar prices we were 10 months ago.”
Quinn said that while the 17-inch LCD was strong in the corporate sector where productivity was important, the CRT remained a strong seller where cost was the main factor. While he expected prices to remain stable for at least the next quarter and was not predicting a price cut until later in the year, he expected the LCD portion of ASI’s business to double in 2004.
BenQ general manager, Phil Newton, said the current shortage was being exacerbated by massive increases in bundling rates from major multinational PC vendors and huge increases in demand across every category of LCD panel.
He said that while the 15-inch panel shortage was very real it was not the case for every category, particularly in the LCD TV market. This was the case with 4:3 aspect LCD TVs, especially 15-inch and 17-inch models. The panel shortage was affecting availability and prices, but that wasn’t the case with the larger 16:9 LCD TVs.
Newton said it was clear that current vendors of 26-inch and larger LCD TVs were attempting to protect their existing CRT and Plasma business by keeping prices high.
He said BenQ would announce a 26-inch LCD TV in March or April with a targeted price point of $2999. Its nearest competitor’s offerings started at $6999, he claimed.