Short-Term LCD Panel Shortage Looms
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You might want to hold off on any major LCD panel purchases for the next few months, whether it's a notebook, desktop monitor or big-screen TV -- a shortage is threatening to keep prices high and cut into coming seasonal discounts.
The shortage won't be long; market research firm iSuppli said the crunch should ease up by the third quarter and supply will be plentiful by the fourth quarter, just in time for Christmas. But in the meantime, the shortage in LCD panels is poised to play havoc with prices.
The culprit? A shutdown in production, caused by LCD glass makers' worries last year about the economy.
Glass makers "all cut down production because they did not see a big opportunity in 2009," Sweta Dash, senior director of LCD research at iSuppli, told InternetNews.com. "By the beginning of 2009, what happened was the inventory all got cleared up because some brand manufacturers were selling at a clearance rate. They wanted to get rid of it."
By first quarter, inventories started to clear up and product began to move, so demand began to increase.
But the makers faced a problem.
Forced to cut production drastically to control inventories, many had reduced their production to less than 50 percent of capacity, while some went as low as under 30 percent capacity. In some cases they just shut down completely, according to Dash. And it takes time to get back up to speed.
In many ways, the problem mirrors what chip makers went through earlier this year. When the economy crashed in the fourth quarter of 2008 and sales came to a screeching halt, all of the raw materials manufacturers also hit the brakes.
That list includes major vendors that make the glass in flat-screen products.
Firing back up
An American firm, Corning (NYSE: GLW), is the dominant player in the glass panel market, with more than 60 percent of the space. Japan's Asahi Glass and Nippon Electric Glass (NEG) are also in the glass panel business.
Not only did these companies stop production, they shut down the furnaces used to make the glass -- and that's the real delay. These things don't just fire up like the oven in your kitchen.
Dash said there are two ways to park a furnace: a hot mode and a cold mode. Cold mode means companies totally shut their furnaces down, while hot mode means a furnace remains partially running. In hot mode, the vendor can get back in operation in one to three months, while a cold start requires three to six months to get going.
"Corning has already started relighting its furnaces and thinking about pulling in some of the plan to start later, so that they will start increasing production earlier than planned," Dash said. "Asahi is also starting. I heard that NEG had some issues because they went into cold mode."
LCD bargains ahead?
The concern now is that if there is a shortage of glass in second and third quarters, it will keep costs in the panel market high -- and impact TV set, notebook and monitor price reductions for the holiday season or the back-to-school season.
"I would say don't overstock," Dash said. "Watch the market carefully and do the right ordering rather than too much overstocking in the fear the market will be tight throughout the year because the market can change."
Plus, demand just might get a kick in the pants from the October 22 release of Windows. But Dash said supply should be resolved by September.
"The market will ease up in Q3 and prices will go down in Q4, but it is cutting it close," she said. "Right now, the notebook panel prices will go up," and this is the time for notebook makers to be making notebooks that will ship with Windows 7 in October.
If all goes as iSuppli predicts and inventory begins a recovery by third quarter (which starts in a week), then we are in for some big holiday season bargains.
The company predicts that pricing for 32-inch 720p progressive scan LCD TVs could drop from an average of $634 in June to $480 by November, with Black Friday specials possibly as low as $299. A 42-inch full High-Definition (HD) set could be $628, with Black Friday specials as low as $499, it said.