Larger Screens May Lead to LCD Shortage

Increased demand for larger LCD display screens is at the heart of a looming shortage that spans all sizes of the product category, according to Larry Wei, president of CTX International.

CTX is a major monitor manufacturer based in The City of Industry, California, and a subsidiary of Asia's Chuntex Electronics, one of the top ten display providers in the world.

Wei says demand for larger LCD screens beyond the 15-inch range is causing manufacturers of LCD motherglass--the base material for LCD screens--to carve the motherglass into fewer pieces, ultimately yielding fewer units, thus driving an impending shortage. Wei adds that margins for motherglass makers are better on motherglass cuts for larger LCD screens.

Research by Austin, Texas-based DisplaySearch shows an increased appetite for larger LCD screens, with 17-, 18-, and 20-inch LCDs beginning to catch up with 15-inch LCDs, which still account for a majority of LCD units shipped. LCD screens larger than 15 inches now make up nearly 20 percent of the almost 4.13 million LCD units shipped over the last year, according to DisplaySearch.

Companies planning to purchase LCD flat-panel displays in volume this year could face sudden price increases or a lack of product availability due to an impending LCD display shortage.

LCD display makers Philips Electronics, ViewSonic, Samsung Electronics, and NEC-Mitsubishi Electronics Display of America this week each expressed concern that the LCD display market could be stricken by a product shortage.

Increased Interest

These concerns were warranted by a number of factors, including increased interest in buying LCD displays, a less-than-adequate supply of the motherglass used to produce LCD screens, and a recognized market cycle for LCD displays that contributed to a similar LCD shortage in 1999.

Alan Promisel, an IDC analyst in Framingham, Massachusetts, confirms the likeliness of an impending LCD display shortage and says that even though it was an expected supply and demand cycle, the looming LCD shortage was "catching the manufacturers off guard."

"It could be severe in the fourth quarter [of 2002]," says Marc McConnaughey, the senior vice president of advanced technologies for ViewSonic, based in Walnut, California.

According to McConnaughey, prices will increase if the shortage gets severe enough, and companies buying LCD products will be unevenly affected. Companies with long-standing relationships and more clout based on the size of their orders will likely fare better when demand outstrips supply, he says.

"But, if it becomes a strong shortage, everyone can be affected and production could be disrupted," McConnaughey says.

Rising Costs

The cost of making LCD displays is already beginning to increase for manufactures like Philips, according to John Parisi, the marketing manager for the Philips Consumer Electronics Division in Atlanta.

"Prices are starting to increase, and this tells us there will be a shortage at the latter part of Q3 [2002] and Q4, especially on 15-inch sizes," Parisi says.

For companies buying LCD displays, the current $30 to $40 increase in the manufacturing cost of LCDs will mean an extra $55 to $60 on the price tag of every new LCD display, Parisi says.

Philips' fifth-generation motherglass plant is just now coming on line. But when asked if the new motherglass plant would meet the demand being created by the expanding LCD display market, Parisi says, "No way."

A new motherglass plant from Samsung is also expected to be in production by the end of this quarter, say Ian Miller, director of technology for displays at Samsung Electronics America in Irvine, California, and Rey Roque, vice president of marketing for Samsung.

"It takes a few months to be fully operational and to get your ultimate product yields," when opening a new motherglass plant, Miller adds.

Roque says LCD display shortages will probably occur before the fourth quarter of 2002, with spot shortages already beginning to occur.

Notebooks Take Note

While it is hard to say what products will be affected, the Samsung executives say motherglass manufacturers have better margins on flat panels than on notebooks, and therefore a shortage might incline manufacturers to produce more for the display industry than for the notebook OEMs.

However, few in the industry expected such a dramatic increase in LCD display sales. While notebook computers that use LCD displays experienced a less-than-record sales year during 2001, flat-panel displays were quite a different story, Roque says.

"We are looking at 50 percent to 70 percent larger growth this year over last year in flat panels," Roque says.

"And that's in the United States alone," Miller adds.

Research by DisplaySearch confirms a sharp increase in LCD display sales. According to DisplaySearch, worldwide LCD monitor shipments increased 143 percent from the third quarter of 2000 to the same time in 2001.

Both Miller and Roque were reluctant to predict the result of the huge increase in sales, but they did say prices will either remain stable--rather than decrease as they did last year--or buyers may actually see a price increase in flat panels.

Todd Fender, LCD product manager for NEC-Mitsubishi, says NEC will attempt to weather the upcoming LCD shortage without raising prices. But NEC does not manufacture its own motherglass, and Fender says he has already begun to see price increases from NEC's motherglass providers, a troubling sign.

"If the cost [of making LCD displays] gets out of line for us, we may be forced to raise prices. But our business strategy doesn't have a price increase in the forecast," Fender says.

IDC's Promisel says the impending LCD shortage is a common supply-and-demand trend for LCD products. The industry "went from a dramatic shortage a few years back to a glut, and the demand is rising increasingly now, sort of catching manufacturers off guard," he says.