Large-LCD panel makers face double whammy: profitability issues, LED shortages

El Segundo, Calif. — As large LCD panel suppliers continue to struggle to maintain profitability, many are forced to cut materials and components costs despite high growth in this market over the past few years, reports iSuppli Corp. Adding to the challenge is a global shortage of LEDs, primarily impacting large-screen LCD TVs, which may continue throughout the year unless production capacity is increased, according to the market researcher.

iSuppli’s report, “Large-LCD Market Bounces Back with Unit and Revenue Growth,” indicates that suppliers have posted losses for the most popular large-sized LCD panels used in televisions, notebook PCs and monitors since the fourth quarter of 2008 through to the second quarter of 2009. As an example, suppliers took a 31 percent hit on 32-inch high-definition (HD) television panels, a 29 percent loss on 15.4-inch notebook panels and a 28-percent loss on 19-inch monitors in the first quarter of 2009.

“Suppliers of large-sized LCD panels are facing profitability challenges due to the cyclical and volatile nature of the consumer markets they are serving,” said Sweta Dash, senior director of LCD research for iSuppli, in a statement. “As applications have shifted from a corporate to a consumer focus, conditions in the large-sized LCD market increasingly are dictated by seasonal factors, with slow demand in the first half of the year, followed by strong sales during the last six months of the year. Profitability also is oscillating roughly according to these seasonal trends, compelling panel suppliers to seek ways to reduce costs.”

One major focus of these efforts is material and component costs in panels and in panel modules, which accounts for an increasing portion of the total panel costs, up to 75 percent or more, particularly for LED-backlit panels, says iSuppli.

However, many panel components, such as glass, color filters and LED chips, have been facing tight supply in recent quarters, limiting opportunities to reduce costs, says iSuppli.

As a result, panel makers are starting to bring the production of some of these devices, in particular LED chips, in-house because reductions in the backlight cost provide more opportunity to lower cost and improve profitability, according to iSuppli. They are also developing new backlight designs that use fewer LEDs while maintaining or improving performance, says the market researcher.

Television brands and television contract manufacturers also are striving to bring down the costs of LED-based panels by buying only the cell without the backlight and developing their own backlight. Branded television manufacturers are also partnering with contract manufacturers or panel suppliers to develop their own backlight and module assembly facilities.

iSuppli cites a couple of examples: Samsung Electronics is partnering with affiliate Samsung Electro-Mechanics in a joint venture, while LG Display has aligned itself with LG Innotek. CMO and AUO, two other major LED panel suppliers, also are developing their own internal LED sourcing to ensure continued supply of the devices, says iSuppli.

Overall, fixed or capital costs account for only 15 percent to 25 percent of the total panel cost, depending on the panel size, application market and fab depreciation rates, says iSuppli.

In 2010, the Top-3 notebook display suppliers — Samsung, LG Displays and AUO — will have a cost advantage over their competitors because their fabs serving this market will be fully depreciated, making it difficult for other notebook panel suppliers, such as CMO and some Chinese firms, to compete in the market, says iSuppli.

LED shortages impact large-screen LCDs

LED supply tightness and fragmentation of the entire LED supply chain has also made it difficult for panel suppliers to control costs, says iSuppli.

iSuppli’s report, “Solid State Lighting: Backlighting of LCD-TVs and General Illumination Drive a Bright Market for LEDs,” reveals that total LED consumption reached 63 billion units in 2009, up from 57 billion in 2008, which is approaching the industry’s total capacity of 75 billion units. Upshot: LED manufacturers are operating at nearly 100 percent capacity.

“It is clear that demand is outstripping supply,” said Jagdish Rebello, senior director and principal analyst for wireless research at iSuppli, in a statement. “With LED market growth forecasted to rise by double-digit percentages for at least the next three years — including 2010 — a drastic undersupply situation could occur this year unless additional capacity is brought online to meet the increased demand.”

“The shortage predicted in 2010 applies to LEDs used for the backlighting of large-screen LCD-TVs,” said Dash.

Unlike notebooks, which typically use 50 LEDs, or monitors that consume about 100 LEDs, LCD-TVs on average consume anywhere from 300 to 500 LEDs per panel, and with LEDs used for backlighting of LCD-TVs demanding a high level of uniformity, any LED shortages in the industry mainly will impact TV panels, Dash said.

LEDs are also used in cell phones, portable navigation devices, digital photo frames, digital cameras and keypads and are finding homes in the general illumination market for residential, commercial and industrial lighting applications.

The LED industry’s two principal players, Aixtron of Germany and Veeco Instruments of the United States, are planning to double their production capacity by the fourth quarter of 2010 compared to the end of 2009, according to iSuppli.

iSuppli believes the LED industry is taking steps to significantly ramp up production capacity in all areas including raw materials, wafer and die production, packaging, and testing.

This entry was posted on Monday, March 8th, 2010 at 2:39 pm and is filed under Manufacturing Trends, Supply Chain. You can follow any responses to this entry through the RSS 2.0 feed.