Falling LCD TV Prices Hurt Japanese Panel Makers

Continuing price reductions for flat-panel TVs are good news for consumers but are forcing a big shake-up among Japanese display makers.

The latest sign of strain in the industry came yesterday when Fujitsu said it was selling its LCD (liquid crystal display) panel-making operations to Sharp, which is already one of the world's biggest manufacturers of LCD TVs and panels. That same day, Hitachi and Matsushita Electric Industrial (Panasonic) said they plan to work together on research and development of plasma TVs. Last week, Fujitsu announced plans to sell more than half its stake in its PDP (plasma display panel) joint venture to its partner, Hitachi.

While panel prices decline, both LCD and plasma TV sales are soaring, and will continue to rise.

Worldwide demand for LCD TVs with screen sizes over 10 inches should grow about 50 percent per year between 2004 and 2009, from 8 million last year to 59 million units in 2009, according to the Japan Electronics and Information Technology Association (JEITA). Plasma TV demand should grow from 2.3 million units last year to 11.6 million units in 2009, according to JEITA.

In the United States, LCD TV sales doubled in 2004 to reach more than 2.5 million units, and should reach nearly 4 million sets this year, according to estimates from the Consumer Electronics Association (CEA). Plasma TV sales should nearly double to nearly 1.5 million sets this year compared to 2004, the CEA believes.

It's the Panel Price, Stupid

Plunging panel prices caused by competition play a big part in such sales growth, said Junzo Masuda, an analyst at Kyoto-based market research company ISuppli Japan. That's because panels are the most expensive part of LCD and plasma TV sets.

In 2003, the average price for a plasma panel measuring 42 inches across the diagonal--a popular size for use in TVs--was about $1841. Last year, this had fallen to about $1378. The price could reach about $1100 by the end of this year, Masuda said. Similarly, the average selling price for a LCD panel measuring 32 inches diagonal was about $772 last October and could reach about $669 by June, he said.

There's a price war, and the panel industry has entered a vicious cycle, Masuda said.

Until a few years ago, panels were considered high technology and were mainly used for PCs. Now they are becoming mass-market items and retailers such as Costco and Circuit City demand the lowest prices to pass on to consumers, who shop around, forcing prices down further, Masuda said.

Makers either have to withdraw, like Fujitsu, or find ways to compete, he said.

Fujitsu is one example of a company with good technologies that has nowhere to go, Masuda said. It spent heavily in both PDP and LCD research in the 1990s but doesn't have a strong brand name or major TV sales outside Japan, so has been forced out of the market. NEC, which sold its PDP business to Pioneer a year ago, is another example, he said.

Makers who choose to stay must spend billions of dollars to invest in the most efficient factories to lessen production costs. For example, Hitachi last year teamed with Matsushita Electric Industrial and Toshiba to spend about $1 billion to build a LCD factory.

Yet even that isn't enough. Companies that just make panels or don't have large TV sales must sell to set makers who, in turn, demand the lowest prices. Those companies with strong brands can sell their sets at a small premium, said Masuda.

Monday's deal between Hitachi, which doesn't have a strong TV brand outside Japan, and Matsushita to collaborate on the research, development, and marketing of plasma TVs is one such example, he said.