The shortage of 15-inch LCD panels continues to plague the frustrated monitor market and shows no signs of abating over the next few months. In an effort to minimise loss of business, the industry has found success in driving consumer demand for 17-inch LCDs which are in abundant supply.
The current shortage in 15-inch LCD panels began in July this year when LCD panel manufacturers struggled to meet exponentially increasing demand. Five months on, the manufacturers are still unable to scale up their production capacity in time to meet current demand.
The spike in demand for 15-inch LCDs and subsequent shortage was spurred by the dropping price of 15-inch LCDs which fell steadily between late 2002 and mid-2003. This drop in price made entry-level LCDs within many consumers’ budgets and therefore generated greater demand. There has also been massive demand for 15-inch LCDs from an ever increasing variety of IT vendors which are incorporating LCD screens into their technology. A wide variety of products now feature LCD technology — printers, personal digital assistants (PDAs), LCD TVs, home automation devices and, of course, notebooks.
Product marketing manager for Sony Australia, Nigel Sanft, said the shortage was the result of the industry inaccurately forecasting when the market would make the transition from CRT to LCD monitors.
“I have market research from 2001 that states that CRT will still be the dominant computer monitors’ technology up until 2005, when a surge in LCD sales was expected,” he said. “No manufacturer could have foreseen just how quickly the changeover would happen and how soon it would happen.”
IDC has found the Australian LCD market has grown by 227.1 per cent in units shipped, and 94.6 per cent in revenue from Q3 2002 to Q3 2003. The brand-name market saw LCD (51.5 per cent of unit shipments for Q3 2003) outperform CRT sales (48.5 per cent). However, CRTs still ruled in the OEM space, making up 56 per cent of unit shipments for 3Q 2003.
“IDC has found that migration to LCD displays is being aided by the decreasing cost of the technology, the post-Y2K enterprise PC refresh, and acceptance by key markets such as the demanding gaming segment,” IDC analyst, Michael Sager, said.
“LCD displays are increasingly being sold into the digital home concept and are being used in applications outside of their traditional PC realm.
Branded market vendors have noted this trend and introduced features such as wide screen technology, detachable displays, integrated speakers, TV tuners, and on higher-end models zero pixel policies to meet the demands of the end-user.”
There are mixed feelings in the channel about the benefits of conducting demand forecasting, a practice that is increasingly being encouraged by vendors.
Sanft said Sony and other vendors relied heavily on accurate demand forecasts from their distributors and resellers to maintain a healthy supply chain.
“The days of relying on vendors to have a warehouse full of stock are gone,” he said. “The emphasis for a lot of manufacturers now is to provide sufficient product to meet the demand at any given time. In most situations if it is in the [vendor’s] system as a forecast it will be delivered.”
However providing a 100 per cent accurate forecast in a growing market is impossible and forecasting will not necessarily prevent resellers from experiencing a supply shortage if the rest of the market is short of supply.
“There’s not much you can do to prevent a shortage,” BBF Distribution’s managing director, Michael Muscat, said. “Even if you’ve managed to secure a large quantity, customers shop around, and you’ll end up with sales you didn’t have before.”
One of the problems the vendors encounter when it comes to forecasting is when large tenders are put to market and won. These contracts are often on the market, closed and fulfilled within a short period of time, which puts significant pressure on vendors normal stock supplies.
The other challenge, according to Sanft, relates to reliable forecasting between distributors and dealers.
“The nature of this business demands that dealers are always on the lookout for the best possible deals from distributors,” he said. “This works against accurate forecasting as our distributors can never be sure they will pick up the business.”
The price of 15-inch LCDs dropped steadily from last year until around July/August this year when the shortage hit. At the same time, 17-inch LCDs dropped in price.
In an effort to mitigate the effects of the 15-inch panel shortage on overall LCD sales, last July vendors increased the price of their 15-inch LCDs and dropped the price of the 17-inch LCDs to help push consumer demand away from 15-inch and towards 17-inch.
According to IDC’s findings, the tactic appears to be working.
For the first three quarters of 2003, 15-inch LCDs made up 60.6 per cent of the total LCD market in terms of units shipped; 16/17-inch LCDs represented 32.6 per cent. In 2002, 15-inch LCDs made up 76.5 per cent of total LCD shipments, 16/17-inch represented 17.0 per cent and greater than 17-inch made up 6.4 per cent.
Muscat said 40 per cent of BBF Distribution’s total LCD sales were 15-inch, 40 per cent were 17-inch and the remaining 20 per cent were 19-inch and 20-inch LCDs, and higher spec 17-inch LCDs.
Despite the shortage and the narrowing price delta between 15 and 17-inch LCDs, industry pundits still expect 15-inch LCD monitor sales to exceed 17-inch sales this Christmas. However, 17-inch LCDs look set to replace 15-inch LCDs as the entry-level standard model.
“If you look over the long term prices are coming down — there’s no question — but there will be several more months of pricing instability,” general manager of electronics division at Mitsubishi Electric, Richard Freggi, said. “Next year the 17-inch LCD will become the reference site which gives the best value versus price for the majority of users.”
But it is not just the better value proposition that is drawing consumers towards 17-inch LCDs. Users have realised the limitations of 15-inch screens and CRTs in today’s computing environments — particularly in terms of viewing area and resolution.
“You really need SXGA [super extended graphic array] resolution to take full advantage of a modern computer and the latest applications,” Freggi said. “Ninety-nine per cent of 15-inch LCDs only offer XGA — [extended graphic array] resolution while 99 per cent of 17-inch LCDs have SXGA resolution.”
The increased demand for 15-inch panel coupled with the increased number of LCD panel manufacturers has opened up the market for low grade LCDs.
There is a lack of awareness in the channel about the different grades of LCDs and yet resellers and distributors should be able to identify a low grade LCD from a high-grade monitor.
“The increase in demand coupled with the increase in manufacturers has meant that panel manufacturers have a more ready market for their Type III and Type IV panels [C and D Grade],” Sanft said. “There are several companies that are happy to accept the lower grade panels in lieu of price competitiveness. This has also effectively forced Type I and Type II panel users to realign their pricing to be more competitive.”
Freggi suggested resellers that could not source stock from tier one vendors should be able to identify a low grade panel before sourcing stock from new suppliers that carried obscure brands.
“There are all sorts of factory seconds and essentially panels that do not pass quality inspection at factories,” Freggi said. “Any reputable factory would just throw them away, but in some cases, these panels are resold at a lower price and make their way back on to the market.
Sometimes the operators will inform the customers that it is a low grade monitor, sometimes they will sell them as though they had passed quality inspection — there are all kinds of things happening out there.”
The supplier should be able to offer a strong warranty policy – three-year warranty replacement (including backlight).
Resellers should look at the colour uniformity and the uniformity of the backlight to see if it was brighter in some places and darker in others, Freggi said.
They should also look for the number of dot defects to establish whether it was higher than the ISO standard, ISO13406/2, which quotes the allowable number of defects for LCD panels, based on four classes.
The classes are determined by the number of dots in the screen format of the display – the higher the number of dots, the higher the number of defects allowed.