Last week in San Francisco, Sony Electronics president Stan Glasgow met with reporters and whined about the continuing price reductions for LCD-TVs, now predicted to be 25 to 30% over the next year.   That’s 5 to 7 percentage points more than Sony had anticipated, Glasgow said.

Ken Werner
Senior Analyst and Editor

Several things are fueling the price reductions, and a big one is reductions in the manufacturing cost of the LCD panel that is the major component in an LCD-TV.  Buy a name-brand LCD-TV set at a major retailer, and the price of the set will be about three times what the set-maker paid for the panel.  Buy a second-tier brand TV at Costco and the set price may only be a bit more than twice the cost of the panel.

It is no secret that panel production cost goes down when panels are made on larger pieces of mother glass, so more panels can be made at one time.  As more and more Gen 7, Gen 7.5 and Gen 8 plans come on line, manufacturing cost goes down.  This week, Taiwan’s CMO successfully lit up the first 42-inch panel made on its new Gen 7.5 line.

Panel manufacturers are also aggressively reducing the cost of the key components that go into their panels.  The most expensive component is the backlight unit (BLU).  One short-term approach to reducing the manufacturing cost of the BLU is to use external electrode fluorescent lamps (EEFLs) instead of the conventional cold-cathode fluorescent lamps (CCFLs).  The lamps aren’t much cheaper, but they allow the BLU maker to use fewer inverters - the power supplies for the lamps - and that saves money.  Significant EEFL use just started during the past year, and it will be increasing this year.

The matrix color filter (MCF) is another expensive key component.  After years of development, it has now become possible to make MCFs with ink-jet printing instead of photolithographic techniques.  Sharp has just announced a new Full HD, 32-inch LCD TV that uses an ink-jet color filter.  (That’s two new SKUs, depending on whether the speakers are mounted on the bottom or the sides.)  The focus of this set is high resolution (for a 32-inch) and enhanced contrast (2000:1) thanks to the color filter, not lower cost.  But once ink-jet color-filter production ramps up, its cost-reduction potential will surely be seen in reduced panel ASPs.

Of course, low panel cost doesn’t have to mean lower prices: it could mean higher margins.  But the industry is so competitive and the new fabs make it necessary to move so much product, that it would take a lot of courage for any one company to build much more margin into its selling price than its competitors - unless that company has relatively long-term commitments from customers (as Samsung does).

Another reason for keeping margins low is that plasma display technology is - after some startling price cuts - generally a bit cheaper at 42 inches than LCDs and substantially cheaper at 50 inches.  Some plasma executives are hinting at further significant price cuts in 2007.   LCD has to watch its back.

So what does all this mean in terms of current and near-term pricing?  The Chinese-language Commercial Times reported yesterday that LG.Philips LCD (LPL) is currently quoting a price of $500 for its 37-inch LCD panels, with the possibility of further reductions of $10 to $15.   These quotes are designed to clear out excessive inventory, from which LPL is known to be suffering more than its major competitors.

If you want a larger-than 37-inch $500 panel, wait a few months.  Displaybank projected this week that 40-inch panels will drop to that level in 3Q, down from an ASP of about $690 now.  In 3Q’06 manufacturers were actually making profits of $60 or more per panel, thanks to significant reductions in material costs, labor, and depreciation.  That number could drop to $10 in 2007, said Displaybank.

And what will the ASP of a 32-inch panel be in 3Q’07?  It may fall to less that $300, says Displaybank, from about $360 now.  That’s dangerous territory, since manufacturing costs are about $290.

All of this is good for TV set makers and consumers.  As for the panel makers, it’s easy to see why Sony’s Stan Glasgow felt that a little moaning to the press wasn’t out of order.