Is it possible to make money in the LCD panel market?

However, there's another side to the large-sized LCD panel market that most companies would rather not talk about: how difficult it is to cut a profit in this business. Indeed, shrinking margins due to declining prices for large-sized Liquid Crystal Displays (LCDs) has been putting the squeeze on panel makers, which are feeling increasing pressure with each and every panel they manufacture, according to iSuppli Corp. iSuppli defines large-sized LCD panels as those with diagonal dimensions of 10-inches and larger. “Although demand for LCDs has remained at a fever pitch, Average Selling Prices (ASPs) until the start of the second quarter were continuing to decline and profit margins were shrinking as well," noted Sweta Dash, director for LCD and projection research at iSuppli. This caused the large-sized LCD market to shift into tight supply and prompted panel prices to increase in the second quarter—providing temporary respite for suppliers. Samsung Electronics Co. Ltd. continued to be the leader in terms of revenue in the fourth quarter of 2006 as well as for the entire year. The company did this by focusing on large-sized panels for the television and the monitor markets. Through its joint venture with Sony Corp. and its early ramp up of a seventh-generation LCD fab, Samsung was able to increase its shipments of 40-inch panels, giving the company a first-mover cost advantage. LG.Philips came in at the No. 2 position because it also focused on large-size panels for televisions and monitors. No. 3 was AU Optronics Corp., which gained the unit shipment leadership position but focused more on 32-inch and smaller-sized panels due to its higher capacity at its sixth-generation fabs. In the first quarter, Samsung continued to maintain its revenue leadership followed by LG.Philips and AU Optronics. With accelerating strength, the LCD-TV market has become the main growth driver for panel suppliers as consumers switch from traditional CRT sets to sleek, higher-resolution LCD models. Because the television market is quite different from the monitor and notebook segments, it is becoming essential for panel makers to form strong partnerships with those that are prevailing in the television marketplace. While the LCD panel market has shifted its major growth driver to television panels, this doesn't mean that making LCD-TV panels is always profitable. In fact, some suppliers— such as Chunghwa Picture Tubes Ltd. (CPT)—have decided to produce more monitor panels in favor of TV panels in their sixth-generation fabs in order to maximize their profits. Profitability in LCD-TV panels depends upon when a company entered the market, how efficient they are at producing certain sizes of panels and at what prices LCD-TVs were selling for at the time. Samsung serves as an example of a company that entered the market at the right place and at the right time. Television generally is considered to be a highly profitable market, despite the severe competition and price pressures. However, the 32-inch TV panel price declined to the production cost level in the beginning of the second quarter, according to iSuppli. In the fourth quarter of 2006, the average cost for the 32-inch WXGA television panel was estimated to be $335. This gave suppliers an average profit of about 6 percent. This same panel dropped to $305 in the first quarter of 2007, with profit margins declining sharply to 1 percent due to the drastic price reduction. By March of 2007, the average 32-inch TV panel price was $302, and the low-end price declined to less than $300, leading to losses for many suppliers and forcing them to cut production volumes or shift manufacturing to more profitable panels. Large-sized LCD panel market revenue is expected to increase at a Compound Annual Growth Rate (CAGR) of 12 percent to reach $96.2 billion in 2011, up from $53.5 billion in 2006, driven by major growth in th television market. In spite of this rosy outlook for the LCD panel market, some suppliers may find profitability still elusive due to the very nature of the business, which is highly price competitive but also extremely capital intensive.