Simon Lewis

Is LCD Market Overcapacity Being Reined In?

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.