Electronics Production | August 23, 2006

Price Shift Signals Recovery in Large-Sized LCD Panels

A pricing rebound for a key type of panel indicates that the conditions in the large-sized LCD business have shifted back in favor of suppliers for the first time this year, according to iSuppli Corp.
Beginning in the second half of July, pricing for 17-inch LCD panels for desktop PC monitors started to increase. Prices are expected to continue to rise in August, marking the first monthly increase after three quarters of declines for 17-inch panels, the most popular size used in PC monitors.

Increases for 17-inch monitor panel prices are expected to continue throughout the second half of 2006. The average price of 17-inch monitor panels will increase by 19 percent in the second half, rising to $123 in December, compared to $102 in July, iSuppli predicts.

The figure below and attached shows pricing developments for 17-inch desktop PC monitor panels.

The rise in prices brings an end to weak market conditions that had plagued the large-sized LCD panel since fall of 2005. iSuppli defines large-sized panels as those 10-inches or larger.

Prices for 17-inch monitor panels had been on the decline since October of 2005 due to four major factors: lower-than-expected demand in the first half, increased panel inventory in the PC distribution channel, rising capacity at the newer-generation LCD fabs and brand manufacturers' efforts to reduce inventory in order to mitigate risk. Collectively, these factors increased LCD panel availability and spurred drastic price reductions.

But by July of 2006, most of the monitor suppliers started to report normal levels for panel inventories, as price reductions spurred demand and helped clear out stockpiles.

However, by the second half of the second quarter of this year, most LCD panel suppliers already started cutting utilization rates to the 85 to 90 percent range, down from as high as 95 percent at the end of 2005. They also began reducing capital expenditures. Many panel suppliers are
announcing cuts in their 2006 and 2007 capital expenditure plans and are delaying expansions or construction of 7.5- and eighth-generation fabs.

"Reductions in LCD panel utilization and capital spending are partly the result of disappointing sales and negative profit margins in the second quarter," said Sweta Dash, director, LCD and projection research for iSuppli. "The large-sized LCD panel market decelerated considerably in the second quarter as demand failed to match suppliers' expectations for sales related to World Cup soccer.

"The market was further depressed by slowing sales to the monitor and mobile-PC businesses due to the extensive inventory build up and weak seasonal demand," Dash added. "Now the PC market is showing signs of life, due to new product introductions and some aggressive price reductions in the mobile-PC microprocessor business."

The decision by panel suppliers to cut their capital spending in 2006 and 2007 will tighten supply. It will impact prices by slowing down LCD-TV panel price reductions in the second half of the year. It could even lead to price stabilization toward the end of the year, when demand is expected to be strong due to the holiday season.

Furthermore, less expansion of higher-generation fabs will mean that when television demand is strong, the supply of monitor and notebook panels will be squeezed, leading to panel price hikes.

Thus, just as demand rebounded, supply has begun to lag behind, resulting in panel price increases.

"Moves to cut capital spending and to reduce utilization indicate that the LCD panel makers' strategy of supply expansion, price reduction and demand creation fails in the television market unless they or a partner has the market presence and price structure to create end user demand," Dash said.

Many panel makers also see no immediate need to build eighth-generation fabs, which are most efficient for making 50-inch TV panels, due to limited demand for that size. However, suppliers such as Sharp and Samsung, which have been successful in creating larger-size LCD-TV demand, still want to establish eighth-generation fabs in order to benefit from first-mover advantage to capture sales from early adopters.

Now that the large-sized LCD panel industry is shifting away from its strategy of frenzied expansion and toward a more rational customer-driven approach to increasing production, the market will be on the path of recovery, iSuppli believes.
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