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Electronics Production | June 07, 2006

LCD Price Reductions Bring Pain for Suppliers<br> but Gain for Market, iSuppli Says

Dramatic price reductions in the large-sized LCD panel industry represent a double-edged sword, enlarging the market as a whole-while simultaneously hurting the financial performance of some suppliers, said Sweta Dash, director, LCD and projection research for iSuppli Corp.

Speaking at the Society for Information Display (SID) 2006 Business Conference here today, Dash described price erosion as both an asset and a liability for the LCD business. "Each time the flat-panel market has undergone a reduction in pricing, revenue has dropped, profit margin has dipped and then players have dropped out of the market," Dash said, speaking to an audience of about 600. However, even with the price reductions, the large-sized LCD panel market will nearly double during the next five years, growing from $44 billion in 2005, to above $50 billion in 2006 and then to nearly $85 billion in 2010, Dash noted. Dash said that previous price reductions have had a beneficial impact on growth in the on growth in the desktop-PC monitor LCD panel market. She noted that from the first quarter of 2004 to the fourth quarter of 2005, prices for 17-inch desktop-PC monitor LCD panels fell to $160, down from $300. At the same time, shipments of those panels increased to nearly 19.2 million units in the fourth quarter of 2005, up from about 8.5 million in the first quarter of 2004. "The price point drives the market," Dash said. Some of the most dramatic price declines are coming in 32-inch panels and in the popular LCD TVs they are used in. Prices for 32-inch TFT-LCD panels declined to $600 in the fourth quarter of 2005, down from $1,200 in the first quarter of 2004. Meanwhile, 32-inch LCD panel shipments rose 3 million units, up from 300,000, during the same period-a 10-fold increase in a period of 24 months. "With the right price and the right product, LCDs can gain share in the television market," Dash said. Given these dynamics, Dash predicted that LCD panel suppliers will be under increasing pressure to cut prices in the coming years as competition intensifies in the TV market. Consolidation is an inevitability in the large-sized LCD panel market, Dash said. The top suppliers that entered the market early are likely to thrive, while smaller players may be forced to merge to stay in the market. "First movers always have an advantage," Dash said. "The top-three suppliers of large-sized LCD panels will always manage to be profitable over the long term, while the smaller ones may not. That's why there's so much emphasis on market share in the LCD-panel market." Dash said that price increases can have an inhibiting impact on product sales. For example, during the second quarter of 2004, prices rose for 17-inch panels and monitors, causing system sales to dip in the following quarter. "Anytime prices increase, it can cause a stall in the market," Dash said. Dash warned LCD suppliers that they need to eschew price hikes as much as possible in order to prevent such sales stalls. It will be especially important in the fourth quarter, as monitor and mobile PC panel prices are set to increase due to tight supplies in the large-sized LCD market and also because of LCD component shortages. Some of those panel prices are already less than production costs. With demand for display-oriented products so elastic, changes in pricing can have an immediate impact on demand. For instance, recent price declines for large-sized LCD panels have prompted iSuppli to upgrade its forecast for LCD-TV shipments in 2006 to 38 million units, up from 35.8 million before. iSuppli now predicts LCD shipments will rise to 128 million units in 2010, representing 56 percent of total televisions for the year.
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