Low-End LCD Suppliers and the Death of Plasma

Here are my thoughts on low-end LCD suppliers and how LCD is killing the plasma screen:

LCD Suppliers

I've lost track of how many companies were showing LCD’s at CES 2007. A lot of no-name Chinese companies have jumped into the fray, with their only differentiator being price. Sure, Sony (SNE) and others have the highest quality panels, but a large part of the growth in panels will be at the low-end of the pricing range. The result is that the LCD Supply Chain gains importance as the product is commoditized.

This opens up the game for multiple component suppliers to provide the guts for what are essentially white-box assemblers. Everyone is familiar with Chi Mei as an LCD supplier, but it’s clear to me that more independent channel suppliers will support the majority of growth at the low end.

One booth exhibitor told me that while Sony/Samsung and Sharp (SHCAY.PK) may sell their panels to third parties, only the manufacturers themselves knew the secrets to make their glass perform at the high quality associated with their brands. This creates the classic technology case in which third party independent suppliers provide reference designs that allow low-value add hardware assemblers to make devices that nearly match the quality of the marquee names.

The result is that superior suppliers into the commodity LCD business extract non-commodity margins. Identify those superior suppliers and you have a good investment opportunity, as they should see not just revenue growth but margin expansion over the coming years.

Expect to see some silicon or panel company become the “Intel Inside” of the commodity LCD display.

Plasma Versus LCD

Anyone walking around the floor of CES 2007 could clearly see that LCD has won, and Plasma Displays are dead. The plasma guys like Panasonic (MC) are fighting a rear guard action to extract returns on their sunk Plasma investment costs. Plasma will will ship fewer incremental panels as demand for large flat panels explode, and absolute market share for Plasma will plunge. I don’t expect to see any additional investment by manufacturers in Plasma.

What few plasmas were on display all trumpeted support for 1080p, a tacit admission that the marketing war waged by Sony and Sharp to make this a consumer requirement has been successful.

The death of plasma is not a surprise. But I suspect the DLP, the brainchild of Texas Instruments (TXN), will meet the same fate as large screen LCD pricing continues to drop and quality improves. Sharp had outstanding quality 46″ panels that are below $2,500 today.

The biggest impact this trend towards LCD has is virtually all large displays sold one year from now will support 1920×1080 pixels, perfect for high resolution computing applications. This new display interface in the living room is just begging to be put to use, and I suspect that CES 2008 and CES 2009 will showcase new companies that do exactly that.

Disclosure: Author owns shares in Sony