Chi Mei Optoelectronics (CMO) and LG.Philips LCD (LPL) are delaying the roll-out next-gen LCD manufacturing facilities, says a story in the Chinese- language Commercial Times that was translated in DigiTimes today. CMO has reportedly informed several equipment makers it will delay the second-stage expansion of its Gen 7.5 fab, with equipment installation to be pushed out by six months and production start-up not to begin before 2008. And LPL may delay production start-up at its new Gen 5.5 plant by one quarter from the original start date of June 2007. LPL’s Investment plans for an 8G plant have also postponed, the story said. The companies either declined to

Ken Werner
Senior Analyst and Editor
of HDTV Retailer &
Mobile Display Report

Assuming the Commercial Times story is accurate, it represents a substantially increased recognition of the extent to which LCD panel demand, although expanding, is failing to meet expectations. Until now, news of inventory build-ups at most suppliers and ASPs falling significantly faster than anticipated have been greeted with an interesting mixture of denial (from most Taiwanese manufacturers), recognition (at AUO, LPL and, more recently, at CMO), and cocky but probably accurate assurances (from Samsung and Sharp) that guaranteed customer orders are providing insulation from the worst of the tempest.

But even the most realistic suppliers were, publicly at least, adjusting plant utilization - that is, reducing production - while still moving ahead vigorously with next-gen plant construction. That combination of actions is rational only if you believe that the current inventory build-up is a short-term problem requiring only short-term corrections, while the longer-term demand ramp-up will remain essentially unaffected. But now we’re seeing some projections that overcapacity will be a larger and longer-term problem than originally thought, and that makes it harder to build new fabs with abandon.

Of course, that does stuff LCD makers firmly between a rock and a hard place, as Jamie Townsend at Insight Media’s financial partner Townhall Proprietary Research, observed this morning. If they don’t delay next-gen fab ramp-up, panel makers will be stuck with crippling overcapacity If they do delay Gen 7 and Gen 8 ramp-ups, they deprive themselves of the large-panel cost reductions that are needed to compete with PDP as the price of 50-inch HD PDP modules heads for less-than-$1000 levels by this December.

Making LCD panels is not an easy business. It never has been.