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We have written numerous times that the makers of LCD televisions and the panels to make them are building too much capacity. While the market is growing for large, flat-panel televisions, the excess capacity is resulting in profitless prosperity - strong sales but no profits - for these companies. The incessant push for new capacity has led to some dramatic shifts in market share, as Business Front Line Reports:

Aiming to become more competitive internationally in its liquid crystal display [LCD] television business, Sharp Corp. (OTCPK:SHCAY) has opened a new plant capable of producing the world’s largest LCD panels and began selling LCD televisions with 42-inch screens and larger in Japan, the United States and Europe earlier this month. Katsuhiko Machida, the firm’s president, said: “With our new plant, we can improve our global strategy. No other company can produce 52-inch full-spec high-definition [HD] LCD televisions as efficiently as we can. This is our strength on which we can compete with our rivals in the global market.”

Thanks to its strong LCD business, Sharp has thrived in recent years. The firm’s consolidated sales in fiscal 2005 were 2.8 trillion yen, a 10.1 percent increase from the previous year. Its operating profits also increased by 8.4 percent to 163.7 billion yen.

According to a survey by GfK Marketing Services Japan Ltd., Sharp accounted for the largest share of the domestic market in 2005 in terms of units sold, at 40.7 percent.

However, Sharp’s global share in LCD television sales has decreased because its production capacity had reached its limit, and the firm could not supply enough LCD television sets to meet demand. In 2004, the firm had the largest share in value, about 25 percent, according to a survey by DisplaySearch. But it was overtaken by Sony Corp. (SNE) and Samsung Electronics Co.

Sharp’s share in the second quarter of 2006 was only 10.8 percent, fourth after Sony, Samsung and Philips Electronics (LPL).

Adding capacity will help Sharp regain some of its lost market share, but will do little for industry profitability. Right now all of the firms are jockeying for position hoping to be the share leader when the market matures. The article continues:

But the competition has not been idle. A joint company of Sony and Samsung will open a new plant to produce LCD panels next autumn, with the same capacity as Sharp’s Kameyama Plant No. 2. Machida, however, does not see the moves of Sharp’s rivals as an imminent threat.

The problem is, if they all continue to add capacity at faster rates than the market is able to grow, they will end up with a mature industry that still has too much capacity. And that could truly be a recipe for disaster.

SHCAY 1-yr chart:

SHCAY 1-yr chart

Source: LCD Producers Continue To Add Too Much Capacity As They Battle for Market Share