The good news for LCD makers is that global demand in most categories is going up, and it looks like it will continue to go up for some time to come. The bad news is that growing volume doesn’t always imply growing profits.

In recent weeks for example, the average selling price of 17-inch monitor panels has dropped below the manufacturing cost, at least for second-tier suppliers. On the television side, 32-inch panels are in high demand, but with set prices of $1000 or less becoming common from second-tier makers, there is very little margin in these panels. Indeed, the first-tier TV set makers are rushing to source these panels from Taiwanese manufacturers so they can devote their own fabs to larger panel sizes with fatter margins.

Ken Werner
Senior Analyst and Editor
of MDTV Retailer

But even in larger sizes, LCD manufacturing is no business for the fat and lazy - selling prices are projected to drop 20% or more this year.

A somewhat easier way to make a living in the LCD business, at least for now, is to supply the panel-makers with their essential core components: backlight units (BLUs), color filters, polarizers, and glass substrates. You don’t believe me? Let’s look at recent announcements from two major Taiwanese BLU suppliers to make the point.

Coretronic, the worlds largest BLU maker, reported today that its 1Q revenues were up 42% on year, according to DigiTimes. The company will continue to focus on its BLU and projector business, but will be moving all projector manufacturing to China this year. (The company will be phasing out much of its FPTV, RPTV and LCD monitor business.)

Coretronic shipped 10.16M BLUs in the first quarter, down 7.5% from 10.99M units in the 4Q’05 - the result of weak demand in the LCD monitor segment. But shipments of TV BLUs totaled 1.43M, up 30% on quarter, and shipments of high-luminance BLUs for notebook applications also rose nearly 30% sequentially. With a new Chinese production line coming on line in 2Q, Coretronic should be able to reach a combined monthly capacity of 6M units by the end of this year, up from 4.1M units currently.

Also today, number 3 BLU manufacturer, Forhouse, said it too expects its TV BLU business to grow significantly in 2006, with TV applications accounting for 30% of its overall BLU shipments this year. Company chairman Francis Pan said revenues from LCD-TV BLUs will account for more than 40% of total sales this year, up from 15.6% in 2005, and noted that LCD-monitor applications accounted for 68% of sales last year.

The company started shipping 37-inch TV BLUs in February, while shipments of 42-inch TV BLUs started recently. In addition, Forhouse sent TV-application samples to Korea-based panel makers, and the company expects shipments to kick in during 2H’06. A mid-March report in the Chinese-language Commercial Times indicated Forhouse’s LCD- TV BLU shipments were expected to jump 50% sequentially in March to 100,000 units, as AUO continued pushing 32-inch LCD-TV panels. (Forhouse plans to list on the Taiwan Stock Exchange (TSE) this year, the Commercial Times reported.)

Manufacturers of color filters, polarizers and glass substrates are also scrambling to meet demand, while instituting design and fabrication changes to reduce cost. Despite constant pressures to reduce their own costs, makers of LCD core components seem to be living in a somewhat more stable business environment than their customers. At least the component-makers can ride the rising tide of increasing volume with delivery contracts that assure them of some positive margin on each unit they sell.

But all may change as growth continues and larger-sized LCD-TVs increase in volume. Based upon recent analysis completed in Insight Media’s "2006 LCD-TV Backlight Report - Opportunity Analysis of CCFL and Alternative Technologies", we foresee the possibility of a shortage in CCFLs (cold cathode fluorescent lamps) to support aggressive LCD-TV growth plans. The key to CCFL supply shortage could be backlights powered by LEDs.

In this new report, we have taken a very contrarian view that LEDs will gain rapid market share in large-screen LCD-TV backlights faster than the industry anticipates. If this scenario rolls out, then demand for CCFL backlight units (BLUs) will be lessened and there will be no shortage. If the penetration of LEDs is not as great as forecast, supply pressures for CCFL BLUs could emerge.

One thing is for sure - the display industry is never boring!