While consumer upgrades are likely to keep fuelling the demand for LCD monitors, some manufacturers could be caught off-guard.
Increased demand for larger LCD display screens is at the heart of a looming shortage that crosses all sizes of the product category, according to Larry Wei, president of CTX International.
CTX is a major monitor manufacturer and a subsidiary of Asia's Chuntex Electronics, one of the Top 10 display providers in the world.
Wei said demand for larger LCD screens beyond the 15-inch range is causing manufacturers of LCD motherglass - the base material for LCD screens - to carve the motherglass into fewer pieces, ultimately yielding fewer units, thus driving an impending shortage. Wei added that margins for motherglass makers were better on motherglass cuts for larger LCD screens.
Research by DisplaySearch shows an increased appetite for larger LCD screens, with 17, 18, and 20-inch LCDs beginning to catch up with 15-inch LCDs, which still account for the majority of LCD units shipped. LCD screens larger than 15 inches now make up nearly 20 per cent of the almost 4.13 million LCD units shipped over the last year, according to DisplaySearch.
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 display shortage.
LCD display makers Philips Electronics NV, ViewSonic, Samsung Electronics and NEC-Mitsubishi Electronics Display of America each expressed concern recently that the LCD display market could be stricken by a product shortage.
These concerns were warranted by a number of factors including increased interest in buying LCD displays, a less-than-adequate supply of the motherglass used to produce LCD screens, and a recognised market cycle for LCD displays that contributed to a similar LCD shortage in 1999.
Alan Promisel, an IDC analyst, confirmed the likeliness of an impending LCD display 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 affected. 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," McConnaughey said.
The cost of making LCD displays is already beginning to increase for manufactures like Philips, according to John Parisi, the marketing manager for the Philips Consumer Electronics Division in Atlanta.
"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 companies buying LCD displays, the current $US30 to $40 increase in the manufacturing cost of LCDs will mean an extra $55 to $60 on the price tag of every new LCD display, Parisi said.
Philips' fifth-generation motherglass plant is just now coming on line. But when asked if the new motherglass plant would meet the demand being created by the expanding LCD display market, Parisi said, "No way."
A new motherglass plant from Samsung is also expected to be in production by the end of this quarter, said Ian Miller, director of technology for displays at Samsung Electronics America, 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, Miller added.
Roque said LCD display 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.
However, few in the industry expected such a dramatic increase in LCD display sales. While notebook computers that use LCD displays experienced a less-than-record year in sales during 2001, flat-panel displays were quite a different story, Roque said.
"We are looking at 50 per cent to 70 per cent larger growth this year over last year in flat panels," Roque said.
"And that's in the United States alone," Miller added.
Research by DisplaySearch confirms a sharp increase in LCD display 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, 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 LCD displays] 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. 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," he said.
What it means locally
In times of shortage, the pressure is on the channel partners to make sure supply continues to flow.
"All you can do is get reliable forecasting from your distribution channel," said Jason Su, project manager for displays at Benq, formally AcerCM. "That is crucial when there is a shortage. We then speak to the factories who are allocating supply and plead our case."
Although LCD prices have been dropping steadily over the past 12 months, shortages traditionally spell the end to price decreases. However, Su said prices are likely to even out in the near future.
"The trend is for the price to stabilise," he said. "There may be instances where the price increases, but I don't think it will be huge. As manufacturers, we have the capability to be more flexible so I don't think we will feel a huge effect."
According to Benq marketing and communications manager Kamil Gurgen, vendors that also manufacture their products will have the advantage.
"We've got the strength of manufacture so we can alleviate the impact because the prices of LCDs have been dropping consistently and the products haven't been warehoused," he said. "So when a shortage happens, everyone is affected. But we control the process all the way through, so all that is taken care of. The advantage is customers deal with the one company all the way through."