LG Philips (NYSE:LPL) recently reported that the faster than expected ramping of their Gen 7 fab led them to accumulate inventory of 42" panels in Q2. Is this just a faster ramp, or is a market dynamic?
A 65" Sharp Aquos TV - the largest commercially available LCD TV
A recent visit to a Bic Camera flagship store in Tokyo showed that there were no fewer than 17 units of LCD TVs with screen diagonal of 45"-47" on the showroom floor. Of these, there were 9 Sharp Aquos, 6 Sony Bravia and 2 Toshiba. At the 40"/37" size, there were 19 Sharp units, 10 Sony units, and a very few units from all the others. There is a definite connection between what you find in the stores and what you'll see in the sales data. It's not a surprise that Sharp still dominates the Japanese LCD TV market, with Sony a distant second.
Although the market for LCD TVs in Europe is far bigger than that anywhere else in the world, if you look at the larger screen sizes - 37" and above - the gaps between the geographies shrink significantly. North America is at 90% of Europe and Japan at 45% of Europe, as compared to US at 54% of Europe and Japan at 33% for the total LCD TV market. That's really important because the future of the panel manufacturers rests on growth in large screen sizes. A Gen 7 substrate can produce 8 42" TVs or 8 37" TVs so it's clear what LPL and others with Gen 7 plants would rather manufacture. In Europe, at screen sizes 37" and higher, Samsung is #1, Philips #2 and Sony #3, all pretty close to one another. In North America, for the same screen sizes, Sony was the undisputed #1, with Sharp #2 and Samsung #3 trailing some way behind. (Source: Display Search - data for Q1 2006)
Sharp and Samsung/S-LCD supply the large panels to the TV manufacturers that dominate globally; only in Europe does LPL's customer Philips have a strong position in large screen sizes. This does not bode well for LPL or AUO. They cannot recover unless their principal customers succeed in improving their performance in the market. The bottom line is that having an advanced gen fab is no guarantee for the sale of lots of large screen TVs. Especially if you are a Taiwanese manufacturer without a semi-captive major brand with the power to shift 42" and larger TVs.