A Time of Turbulence in the Panel Market

Natural disasters, a credit crisis and commercial cycles are sending confusing signals as we approach a peak in the crystal cycle. Fasten your seatbelts; it looks like 2008 will be a rough ride.

As the year began, TFT LCD suppliers predicted tight supply. They looked forward to strong demand in Asia during the Lunar New Year holiday and even more demand leading up to the 2008 Olympics. Mother Nature brought them a horrible storm and earthquake instead.

As the year progressed, TFT LCD suppliers expected consumer demand for ever larger LCD TV sets would absorb the capacity they were bringing on-line. Falling employment and rising energy prices in North America, the richest consumer market, brought cautious spending and increasing interest in smaller, value-priced LCD TV sets.

As we near mid-year results, we note that the new “Mini-Note” market segment now seems firmly established. Demand for more portable, lower-cost notebooks is increasing supplier interest in adding Gen 6 capacity. We note that LG Display has announced a new Gen 6 project and we hear rumors of similar moves by other suppliers. Overall, demand for portable computing devices remains strong. Portable demand is replacing desktop demand, which grew weaker in 1H’08 in line with longer term trends. Confusion arises because demand for portable computers remains inelastic while demand for desktop monitors remains barely elastic. The area-price for portable PC displays depends on many more factors than the area-price for monitor displays does.

Now that we can see some LCD TV pricing strategy for year-end, relatively small TVs in the 19” to 39” range are being promoted aggressively. Many panel suppliers have diverted monitor panel capacity from desktop monitor assemblers to TV assemblers as desktop demand continues to weaken on trend. In addition, Samsung and Sony have decided to fight upstart brands like Vizio in the mainstream 32” TV category. With more 42” capacity coming on-line later in the year, such price competition will move up-market.

As a result, we perceive panel suppliers understating their real shipment goals while IT brands understate their demand. Panel suppliers hope to create a perception of scarce supply while their customers hope to create a perception of scarce demand. As more supply is brought to market in 2008, panel customers may gain the advantage. In the meantime, the market is experiencing turbulence.