Is LCD Market Overcapacity Being Reined In?

The good news is that companies are seeing the light and cutting back on planned capacity expansions.

According to DigiTimes, CMO is to delay equipment installation at its 8G plant. Furthermore, the lower prices are starting to spur some demand. On their recent earnings conference call, tech reseller CDW Corporation (CDWC) said:

Continuing the recent trend, average selling prices of large format LCD monitors have declined significantly year over year. The more affordable prices have driven unit volume.

The bad news is that some manufacturers continue to pour on the capacity. Sharp (SHCAY) will invest 500 billion yen (about US4.26 billion) to build a tenth-generation (10G) TFT LCD plant, with construction to begin in the third quarter of 2007 and volume production to begin in mid-2008, according to the Japanese-language Nihon Keizai Shimbun. The plant will process 2,850×3,050mm glass substrates into eight 57-inch panels or six 65-inch panels.

Prices are now expected to fall a further 25% by year-end for some categories. As DigiTimes reports:

The ASP (average selling price) for a sixth-generation (6G) substrate is expected to drop to 14,000-15,000 yen (US$119-128) by year-end, according to the Chinese-language Economic Daily News (EDN).

First-tier makers are now offering prices for a 6G substrate at 20,000-19,000 yen while prices from second-tier makers are about 22,000-23,000 yen, the paper indicated citing sources as saying.

In the meantime, Samsung Electronics managed to sustain profitability for its LCD division in the second quarter despite weak LCD TV sales, inventory pile-ups and an ASP (average selling price) reduction. LG.Philips LCD (LPL), on the other hand, turned to losses during the period. There are several factors that contributed to Samsung’s success, including an earlier ramp up at its seven-generation (7G) LCD plants and strong support from downstream LCD TV brands.

Taiwan liquid crystal display panel maker AU Optronics Corp. (AUO) said its second quarter net profit dropped nearly two-thirds because of steep price declines.

LCD panel producer 1-yr comparison chart:

Comments

[Simon Lewis:]

William, I've spent a couple of days thinking about your post, and respectfully, I think your take is entirely wrong here.

Overcapacity isn't an industry problem. It's the problem of suppliers who do not have enough customers to consumer their capacity. LPL, AUO and CMO, together with the second tier Taiwanese players, fall into this category. Neither Sharp nor Samsung are suffering from overcapacity. In fact, both are purchasing panels from Taiwan to make up their own shortfalls.

The story that Sharp is planning a Gen 10 plant, starting construction in a year or so, is remarkable because it suggests that not only is LCD going into a size range that seemed closer to impossible than improbable as little as 12 months ago, but that Sharp believes that they can achieve price points that can turn this into a mass market rather than an obscure niche.

Display Search are forecasting about 1.25M LCD TVs greater than 50" in 2009 and 2.6M in 2010. A Sharp Gen 10 fab with a single line with a capacity of just 15,000 substrates/month could supply 110-120% of the forecast 2009 demand and 50% of 2010. DisplaySearch assume an average price in the 55'-59" range of $4,600 in 2009, with $8,830 for the 60"+ class. But if the prices would be $3,000 and $5,000 the demand pciture could change dramatically.

Any industry-wide problem of overcapacity comes from having too much capacity at a particular format. There is no need for 4 players to have Gen 7, Gen 7.5 and Gen 8 plants... that would inevitably lead to overcapacity. But Sharp was the first player with a Gen 6 (and profited enormously from this), is today the first player with Gen 8 and might be planning on becoming the first player with Gen 10. Combined with innovative technology and a vertically integrated supply chain to absorb production, this positions Sharp very well. They may not be the largest player by any of the volume related measurements, but they are and look likely to remain the most profitable company in a highly capital intensive, cyclical and low margin industry.

2006 Aug 03 08:23 AM

[William Trent_:]

The next question, then, is whether you want to bother owning the most profitable company in a highly capital intensive, cyclical and low margin industry (see DELL.)

Your point is well taken that the first to offer a given technology could have advantages. Of course, that assumes that consumers still have money to spend on the highest-end TVs come 2009. If not, rather than making 60" TVs Sharp could use the same 10G plant to make many more 42" TVs - thus further adding to the glut there.

I wholeheartedly disagree, however, with your second paragraph. Overcapacity, anywhere, is <i>always</i&... an industry problem. It may have a greater impact on some players than others, but price wars help no one but consumers.

2006 Aug 03 09:15 AM