Large LCD television sales surge
But small panel makers are struggling and will probably fold or be absorbed by bigger players
Strong first-quarter demand for large-screen liquid crystal display (LCD) televisions worldwide has given a much-needed boost to the industry, but consolidation still looms for panel makers, industry experts said.
LCD television sales rose 114 per cent year-on-year in the first quarter to US$8.8billion, as 32 per cent of revenue was generated by 37-inch and larger models, market research firm DisplaySearch said.
The volume of shipments jumped 135 per cent year-on-year to 7.4 million units, with 14 per cent of the total consisting of large-format LCD TVs.
All geographical regions enjoyed at least 116 per cent year-on-year growth except Japan, which increased just 35 per cent. China and Europe continued to outpace North America and Japan.
For panel makers, hurt by a supply glut in their industry, the value of large LCD TVs was up 58per cent from a year ago to the year prior, thanks to hefty demand.
By revenue, the top five LCD TV brands worldwide were Sony, Samsung Electronics, Sharp, Philips/Magnavox and LG Electronics. These firms accounted for 54 per cent of total sales in the first quarter. In terms of unit shipments, the top five brands controlled 50 per cent of the market.
Tracking new data, DisplaySearch vice-president Yoshio Tamura said: 'In the second quarter, margins on 37-inch TVs are the highest at 7 per cent, followed by 40-inch models at 4 per cent and 32-inch at 3 per cent.'
Despite those rosy prospects, small panel makers are struggling to keep up and are likely to fold or be absorbed by bigger players.
Citigroup analyst Sam Nguyen said the larger players could still afford to invest in next-generation fabrication facilities, or fabs, and supply panels needed for larger and larger LCD TVs.
'There will always be oversupply in this industry ... but lower profits will limit ramp up,' Mr Nguyen said.
'It's not about operations, it's about mergers and acquisitions. You can't underestimate the importance of M&A strategy in this sector. There is no upcycle anymore, where even the smaller players can make money.'
Major panel makers such as Samsung Electronics, LG.Philips LCD, AU Optronics and Chi Mei Optoelectronics have been aggressively building production lines that can make larger and larger glass panels. These panels are sliced up to form the screen for LCD TVs. A Generation 7 fab can produce eight 40-inch screens per glass sheet, compared to just two with small Generation 5 fabs.
Building a Generation 7 fab will cost a panel maker around US$3.5billion, which is about two years of cash flow for AU Optronics or LG.Philips LCD. For a small player such as Taiwan-based Hannstar, that investment would be equivalent to its cash flow for the next 28 years.
Mr Nguyen predicted the field would probably narrow down to five players, with the top three ending up profitable.
Fusao Ishii, executive adviser at Sony, said: 'The basic principle of the display industry is that those who don't [continue to] invest are guaranteed to lose, but those who do are not guaranteed to win.'