As we all experienced late last year, there was a dramatic drop in the street prices for both plasma and LCD flat panel displays in the United States. Manufacturers responded to pent up demand and savings in manufacturing costs to fuel this trend. The domino effect created a pricing structure on flat panel displays that was heretofore unimaginable. Lest we get too complacent in the current status of the pricing wars, the battle is not over by a long shot. Events on the other side of the world will have a "ripple effect" on products and prices in the United States and throughout the world.

Alan Brawn
Insight Media Consultant

We have a tendency to think of Asia as a single unit combining Korea, Japan, and China into one "lump sum." The fact is that by studying the ebb and flow of individual economies in all these countries, with Taiwan thrown in for good measure, we can gain some insight into what will happen in our domestic markets in the not too distant future. I will use China and LCD flat panels as an example.

China has become the fastest growing economy in the world uot;enjoying" at times double-digit economic growth over the last few years. A huge population that is yearning to shed the shackles of the third-world aura that has plagued them for so many years fuels the economic engine. Couple this to a regime in Beijing that has embraced capitalism as a "means" to a communist end and you have the makings for a very interesting economic climate. In the end, the demand is there in huge numbers and now it is time to supply that demand.

If we look at the automobile industry, the largest companies (GM, Ford, Daimler-Chrysler, Toyota, etc.) are building or have built plants in mainland China. In this realm, if you are not already in China, you have lost out, big time. If we look at cell phones, both on a per capita and total industry basis, the Chinese population has more cell phones than anyone else. The same story is true about everything from home appliances to growth in road building equipment. China has eclipsed the USA and Europe as the fastest growing economy with the most potential in the decades ahead. The extreme growth in the Asian markets, especially China will have a "ripple effect" on this side of the pond and in display technologies in particular.

The current manufacturing leaders of LCD flat panels are Samsung and LPL, based in Korea. According to recent data from DisplaySearch, Samsung Electronics is the world’s largest LCD panel producer with 19.6% of the global market, followed by LG.Philips LCD (LPL) with 19.3%, in the category of over 10-inch LCDs.

According to the news wires, both Samsung and LG.Philips LCD are building new LCD plants in China to serve the country’s rapidly growing demand for TVs and monitors. Samsung opened its second plant in China a few weeks ago, at a cost of around $1.26B, and hopes to double the number of LCDs it produces in the country.

LG.Philips LCD plans to build a second plant in China. Their current Nanjing LCD plant produces 3.6M LCDs, ranging from various sized computer monitors to TV screens, but the second plant will focus on panels for large LCD-TV screens, LPL officials said. "We have received construction approval for the second plant from the Chinese government but specific timing and size are not decided yet."

China’s LCD-TV market generated sales of $4.7B in 2006 up 189% from the previous year, according to figures from Korea-based display market analyst firm Displaybank. Market research firm GfK Asia reported that Chinese retailers sold more than 3.8M LCD televisions in 2006, and predicts sales to double this year. Their 2006 sales were double those of 2005.

Although the overall market is growing fast, local competition is also on the rise in China. Domestic output of large-sized LCD panels/screens grew almost 250% last year, according to Displaybank. While foreign manufacturers have a significant technological lead, local factories with relatively advanced fifth-generation production lines churned out a record 3.5M LCD panels in the fourth quarter of 2006 alone. China’s LCD-TV production is expected to grow to 7M units this year, according to data collected by China Video Industry Association. As a comparison, Samsung’s two factories will be able to make about 5M panels a year, once the new factory is at full capacity, while LPL’s existing factory makes 3.6M panels a year.

It is a significant point of interest that China’s top three LCD panel makers have formed a joint venture and they are going to float shares overseas to raise capital for expansion, which will help them fight against foreign rivals such as Samsung, LG, and Sharp, said Gu Peizhu, SVA Group’s president recently. He further stated, "The cooperation will lift our market positions and help us cut costs as a join venture." Expected monthly production capacity at the JV will reach 280K units, according to Gu. The JV’s capacity ranks No. 6 in the world, according to Zhang Xingang, FP Display Times’ editor-in-chief and an industry observer. Gu said the three partners will invest heavily to build more advanced LCD panel lines, probably the sixth-generation line.

One reason for the increased activity in the Chinese market is the upcoming Beijing Olympic Games slated for next year which will drive LCD-TV demand as Chinese will want more a more vivid picture of the world’s biggest sport event. While this may appear at first to be temporary spike in LCD demand, think of it in terms of the population of China and filling this pent up demand. This increased volume encourages investment in new LCD plants and lowers manufacturing costs and the "ripple effect" has begun again.

Not everyone agrees with this hypothesis that we will experience a continuing "extreme" decline in LCD panel prices in excess of 30%. Japanese electronics company, Sharp Corp. expects price declines for LCD, televisions to slow in 2007, according to Hans Kleis, chief executive of Sharp’s European unit. "I hope it will be less rough than last year," Kleis said, adding that he expects continued steep price declines in the range of 30% to 40% for smaller LCD-TV sizes of 32 inches and smaller, but slower price declines for the large-screen segment of around 20%.

The bottom line from this analyst’s perspective is that LCD flat panel prices will continue a rapid if not extreme decline in no small part due to what is taking place in China as we speak. We will also experience the plasma manufacturer’s response to the declining prices of LCD. Our expectations are that we will continue to see a disparity in pricing at 50" flat panel prices with LCD continuing to be at a higher price than plasma at that size and above for some time. That being said, with competition becoming more severe, nothing would surprise this observer.