- Price drop was caused by excessive expansion of production capacity by panel makers and slow demand for LCD TV.
- In 3rd quarter 2004, production capacity of 30% above demand expected.
- December 2004, 17 inch panel price to be $195.
- From August, LCD panel makers expected to begin reducing production.
- Henceforth, edge in price competition will be top management issue.
As of June 2004, the prices of 15 inch, 17 inch, and 19 inch TFT-LCD panels were $225, $280, and $370 respectively. But these prices dropped over 20% from August to $180, $220, and $325 in just 2 months. (Price standard: large set maker supply price. August 2004)
The first cause of this price drop is in the excessive expansion of production capacity by panel makers, who didn't consider the market volume.
A 5% supply shortage is expected in 1st quarter 2004, 6.5% in 2nd, and a 29.4% oversupply capacity in 3rd quarter, and this situation was found to be the direct cause of the drastic reduction in panel prices.
Also, the demand for LCD TV, which was expected to spike this year, was lower than expected, and therefore, demand once forecasted by certain research agencies to be about 10 million units a year will actually remain at 7~8 million units.
Large LCD Supply/Demand Analysis (2004 ~ 2005)
Future Price Estimation
On the third week of August, Displaybank personally visited 4 Taiwanese panel makers and monitor producers to understand the market atmosphere.
AUO, Taiwan's largest LCD producer, decided to reduce production by 10% in August. CMO, HannStar, and CPT externally claim to have no reduced production, mindful of Korea's Samsung and LG Philips LCD, but Displaybank perceives that most companies are going ahead with about a 10% reduction in their production.
But even if all companies reduce production by 10%, if the line expansion and new line construction already announced are implemented as planned, the oversupply situation in 2005 will likely be aggravated.
Large LCD Panel Price Estimation
Panel prices in December this year were estimated at $165 for 15 inch, $195 for 17 inch, and $280 for 19 inch.
Analysis of Price Discount Effect
Domestic LCD panel makers recorded an operating profit rate of 32-33% in the first half of this year, the highest ever. Taiwanese companies also created big profits, but their operating profit rate was 5-12% lower than their Korean counterparts. In light of these results, while oversupply lasts, domestic makers will have a relative edge over the Taiwanese and an opportunity to enlarge their market share.
Future Plans of the Display Industry
A tight supply situation continued for a year and a half, and LCD panel makers raised prices while cost was reduced drastically through improved productivity. Meanwhile, monitor producers with the largest demand for panels suffered in their yields due to expensive panels and low margin.
This reversed market improved the situation of set producers. But since today's lower panel price can actually be applied to set prices only after using up their current inventory, large set producers will only be able to provide consumers with monitors reflecting the actual reduced panel price this October or November.
During the 30% oversupply in the 3rd quarter, most of the companies already began reducing production, and the speed of increasing and expanding existing lines also seems to be controlled. Also, production control range should be well over 10% in order to get the effect of reduction from the market.
Taiwan's HannStar has deferred their entire plan for the new 6th generation line, and QDI is also likely to defer their 6th generation plan.
In the future, in such a competitive environment, the top management issue for panel producers will be to secure an edge over their peers in price competition. To this end, they are expected to pool their efforts in pressure to drop prices on core parts like Glass, CF, BLU, development of new cost saving products, and technology development to improve yield and productivity in the production line.