In the last three weeks, the public announcements of most LCD panel makers have morphed from grudging acknowledgment that there might be some trouble with inventory to open acceptance of a significant problem. That was made dramatically clear today when DisplayBank predicted LCD panel prices would rebound in September as a result of inventory reductions - and many panel makers expressed doubt it would happen.

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

According to DisplayBank, and as reported by DigiTimes, the inventory of large LCD panels has increased dramatically since 4Q’05 because of excess production capacity, and this has caused prices to plunge. The industry is adjusting plant utilization and, in some cases, scaling back expansion plans to stabilize the market. AUO has already reduced production goals set in May by 10%. CMO, after denying there was a problem, is now considering a production cut starting in July, said Displaybank.

(Data: Displaybank; Chart: DigiTimes, June 2006)

LG.Philips LCD (LPL), which is believed to be carrying six weeks of inventory for all products, seems to have given its customers a bad case of indigestion by producing 200,000 42-inch panels, mostly from its new Gen 7 line at Paju, according to Displaybank. LPL plans to reduce plant utilization at Paju starting in July, and to use part of the plant’s capacity for small and medium-size panels up to 20 inches.

DisplayBank is predicting that panel prices will hit bottom between August and September as July’s production cuts take hold and the seasonal demand increase for TVs, PCs and monitor products kicks in. But DisplayBank emphasized that these predictions assume the production reductions will be maintained for at least for three months and will cause the industry-wide inventory level to drop below three weeks.

So, is the industry leaping on this somewhat optimistic projection, cautious as it is, with cheers of triumph and sighs of relief? In a word, no. According to a DigiTimes story this morning, panel-makers are saying it will be difficult to make the forecast come true because Samsung Electronics - which has the best inventory position in the industry - has said it will not cut production. With only LPL, AUO, CMO and some of the second-tier Taiwanese panel-makers cutting production, supply will not be affected sufficiently enough to make panel prices rebound, the panel-makers say.

The question is whether prices will even stabilize. There seems to be fairly broad agreement that prices for 32-inch TV panels will continue to fall throughout the year, but only within a limited range because prices are already approaching the cost of production. PC panels are so close to - or, for some sizes, less than - the cost of production that they will stabilize in August as the seasonal PC upswing occurs, and may even increase slightly. Sweta Dash of iSuppli feels the price of 17- and 19-inch monitor panels may rise by as much as a dollar or two.

So, we seem to be at the end of faith-based production planning. Denial is out of fashion, and gimlet-eyed realism is once again in style - at least for this cycle.