LCD | August 20, 2008
Economic uncertainties stimulate LCD-TV Outsourcing
Hard economic times actually may be a boom for contract manufacturers serving the Liquid Crystal Display-Television (LCD-TV) market, as brand names increasingly outsource production to reduce risk, according to iSuppli.
“A recent trip to Asia revealed that a number of Japanese and South Korean LCD-TV OEMs are considering increasing their level of outsourcing to Electronic Manufacturing Service (EMS) providers and Original Design Manufacturers (ODMs),” said Jeffrey Wu, senior analyst, EMS and ODM Services for iSuppli. “The major Asian LCD-TV brands, which traditionally have been loath to outsource LCD-TV production, said the use of contract manufacturing could help them to improve risk mitigation and asset flexibility during a time of economic uncertainty.” In light of this trend, iSuppli predicts that 41.1% of LCD-TVs produced in 2012 will be produced by contract manufacturers, up from 28.2% in 2007. The figures below presents iSuppli's forecast for in-house and outsourced LCD-TV manufacturing for the period of 2007 to 2012. Leading OEMs' change outsourcing strategies With the exception of Philips, all of the other Top-5 LCD-TV OEMs—i.e. Samsung, Sony, Sharp and LG —rely primarily on internal production to fulfill market demand, and make only limited use of contract manufacturers. Sony, for instance, manufactured 91.5% of its LCD-TVs in-house in 2007 and outsourced the remainder to ODMs such as AmTRAN, Qisda, TPV and Wistron. Sharp, Samsung and LG maintained a similar split between in-house and outsourced manufacturing in 2007. However, iSuppli believes that these Japanese and Korean OEMs, which were traditionally inclined to maintain tight control over product design, supply-chain management and manufacturing operations—are looking to gain financial and operational leverage from EMS providers and ODMs. “We plan to increase our TV shipments by more than 80% within the next couple of years and intend to use ODMs to fill the production gap,” commented one Japanese OEM. “We are now reassessing the originally planned, continuous internal capacity expansion, and in the meanwhile conducting discussions with ODMs to understand their capabilities,” said a Korean OEM. Supply chain implications OEMs are concerned that internally managed production facilities might sit on idle capacity if consumer demand fails to catch up. They may be required to alleviate the financial distress associated with heavy capital expenditures. This is forcing these OEMs to reconsider their outsourcing strategies. In other words, EMS providers and ODMs may take advantage of the ambiguous economic environment to win more business, as OEMs take a mild break on their internal expansion programs. However, this scenario hinges on the assumption that consumer demand for LCD-TVs will continue to grow, although at a slower rate. Should demand start to decline, OEMs would take production in-house to ensure higher capacity utilization levels. Alternatively, OEMs may also consider restructuring their production facilities or even offloading them to contract manufacturers.