Selected Excerpts from the December Issue of Projection Monthly

LCD Watch

Does the World Need Chinese LCDs?

Whether it makes any sense or not, building TFT-LCD fabs is a growth industry in mainland China. Despite the predictions of LCD supply gluts, Chinese companies are moving ahead – with the blessing of the government. Why? Apparently, these companies and the government view LCDs as a strategically important industry – and playing is the important thing, not profits. Plus, the prospects for growth in the Chinese domestic market may mean it can absorb huge volumes of LCDs.

In terms of LCD panel production, Gen 5 lines operated by BOE Optoelectronics Technology in Beijing and SVA-NEC in Shanghai are currently in volume production, but that’s just the start. IVO is planning to build a 5G line in the Kunshan Development Zone, 60 km from Shanghai Harbor, and Tianma Microelectronics of Shenzhen – China’s largest producer of small STN-LCDs – plans to finalize construction of a 4.5G line by the end of 2006. The Dongying Economic Development Zone in Shandong Province announced in June that Hong Da Optoelectronics had broken ground for a 6G plant in the zone, and that Hong Da, along with its partner the Shengli Oilfield, plans to invest $3B. And that doesn’t cover the new lines and capacity expansion plans of BOE and SVA-NEC.

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If all current plans are realized, today’s two 5G lines will grown to four 5G or better lines in 2006, to six or seven in 2007, and to 10 or 11 in 2010. In an era when capacity is already projected to exceed demand, can this expansion possibly make sense?

Let’s look at some of the better-formulated plans in more detail (and at what may be the dark secret of existing Chinese fabs), and see if we can obtain some understanding of what appears, on the surface, to be an irrational expansion. Full story in Projection Monthly

Key LCD Insights as Third “Crystal Cycle” Ends

The LCD panel industry is plagued by the so-called “crystal cycle.” As the industry end the third cycle and enters the fourth one, which players are best positioned to survive and invest in the next round? Where are the growth engines in the current LCD market and what does it take to survive? These are the key questions we will seek to address in this analysis.

First, let’s start with the crystal cycle. During the boom times of the crystal cycle, LCD panel makers add too much capacity, leading to oversupply, dramatic price declines, and losses for the industry. This reins in capital spending, reducing the pace of capacity increases, and brings supply and demand back in balance, stabilizing prices and providing for industry profitability. This same cycle also operates in semiconductors. If companies fail to invest in boom times, they risk losing market share. This drives the “crystal cycle” dynamics.
The LCD industry has experienced three crystal cycles in the last eight years, and at some point during the third crystal cycle, significant display improvements enabling fast motion video, led to the advent of LCD-TVs, which became part of the confluence of the so-called DTV revolution. Full story in Projection Monthly

32-inch LCD Short Supply to Extend into 2006

With the LCD-TV market growing rapidly, 32-inch panels, as the hottest segment, have been in short supply. Small to midsize LCD-TV manufacturers are having trouble obtaining LCD panels, according to a DigiTimes report. Even larger vendors, such as Samsung, Sharp, Sony and Toshiba, have considered or acted on plans to diversify their supply with Taiwanese panel producers, such as AU Optronics (AUO), Chi Mei Optoelectronics (CMO) and Chunghwa Picture Tubes (CPT). During the recent FPD International 2005 show in Yokohama, Japan, many international buyers placed orders with Taiwan panel suppliers due to projected strong demand in the fourth quarter, a peak sales period for TVs.

Industry sources said that 32-inch LCD-TVs are the most popular size in the Japanese market, although 37-inch models see stronger demand in Europe. However, the supply shortage of LCD panels is expected to last only until additional manufacturing capacity comes online in early 2006. But that will not be in time for the important global year-end holiday selling season, which could see some sales lose out to PDP.

Samsung said its internal capacity will only meet half of the company’s demand for 32-inch LCD-TV panels. Woosik Chu, senior vice president of Samsung’s investor relations, said at the Korea Electronics Show that Samsung may shift part of its TFT-LCD panel capacity from LCD monitors to LCD-TVs to help meet seasonal demand. In July, EDN reported that Samsung is being supplied by panel makers AUO and CMO with 32-inch and smaller LCD-TV panels. Full story in Projection Monthly

3Q'05 Large LCD Panel Analysis and Forecasts

Analysis firm Displaybank (Seoul, Korea) (www.displaybank.com) reported that large TFT-LCD panel shipments were up 12.3% quarter on quarter and 61.6% year on year, at 54.3M units, for the high-demand season in 3Q’05, thanks to the stabilized yields and increased capacity of Korean, Taiwanese and Chinese production lines, which came online at the end of last year and early this year.

LCD-TV panel shipments reached 7.2M units, up 33.4% from 2Q, and notebook panel shipments grew by 14.3% to 16.4M units. The increase in monitor panels stayed at 6.3% for 29.2M units during the same period. By nation, Korea shipped 44.8% of the worldwide market, rising roughly 0.6% from a quarter ago, followed by Taiwan with 43.7%. Full story in Projection Monthly

LCD-TV Mainstream Moves to the 30-inch Size

Increased availability and plummeting prices have finally pushed larger LCD-TVs into the mainstream, according to Quixel Research (Portland, OR) (www.quixelresearch.com). Quixel’s LCD-TV Market Review for 3Q’05, which covers the US market, reveals that the 30 to 32-inch screen size segment topped all other segments for the first time, accounting for almost 21% of the market.

After years of 15 to 20-inch products owning the LCD-TV category, larger screen sizes are now having an impact, commented Tamaryn Pratt, a Quixel principal. Full story in Projection Monthly

Samsung Expects Few LCD Survivors

Samsung Electronics (Suwon, Korea) (www.samsung.com) said it expects cutthroat competition in the flat-screen market to intensify in the coming years, with only top-flight producers surviving, as reported in Agence France-Presse English Wire.

“The sector has enjoyed a 10-year boom thanks to high growth. However, it will face a different environment in the next phase (of development),” Souk Jun-Hyung, an executive vice president, told an analyst meeting. The LCD industry requires technical innovation and huge capital to survive, he said.

“Only those with huge funds will be able to increase production,” he said, adding Samsung Electronics would step up cost-cutting efforts to beat its competitors. “The industry is under enormous pressure to reduce cost.” Full story in Projection Monthly

Taiwan’s Panel Makers to Consolidate?

As the LCD panel industry moves into an upswing this year, the gap between Taiwan’s first- and second-tier makers is widening. While first-tier panel makers have begun to profit by reducing costs, providing a good mix of product and benefiting from economies of scale, the second tier is lagging further behind.

With many competitors in the region’s panel-making industry, capital investment has been unfocused, and second-tier manufacturers are having problems.

Recently both Chunghwa Picture Tubes (CPT) and HannStar Display withdrew plans to issue a $6B ECB (euro convertible bond). They both claimed this will not affect their operations, but DigiTimes’ sources indicate they may be finding it difficult to raise enough capital. Taiwan's Industrial Economics and Knowledge Center (IEK) has forecast that there will be mergers or management reshuffles among Taiwan-based panel makers next quarter. FFull story in Projection Monthly

Taiwan LCD Makers Ship Fewer Monitors

Taiwan-based LCD monitor makers have posted mixed results in recent months, with most manufacturers, including BenQ and Lite-On Technology, experiencing a drop in LCD monitor shipments, according to DigiTimes.com. Industry sources indicated that LCD monitor makers are facing increased competitive pressure from Innolux Display, which began shipping LCD monitors in February, with monthly shipments exceeding 1M units.

Lite-on Technology reported flat sales in August, with 733K shipments, down 6.9% sequentially, for its TFT-LCD unit, which includes LCD monitors and LCD-TVs. The company estimated that its TFT display business would account for 40-41% of its total sales in the third quarter. Full story in Projection Monthly

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