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iSuppli: More LCD TV Production Being Outsourced

7/17/2009 05:41:57 PM Eastern

El Segundo, Calif.
- A new study from TV display market research firm iSuppli has found that
somewhat weaker demand for LCD TV products resulting from the struggling
economy is causing contract manufacturing of sets to fall short of
expectations.

iSuppli previously had projected that 35.2
percent of LCD TVs would be outsourced to contract manufacturers in 2008, when,
in fact, only 28.7 percent were out sourced.

The trend is
expected to continue in 2009, with outsourcing lagging previous expectations by
5.6 percentage points.

In 2010, 2011 and
2012, outsourcing will fall short of the previous forecast by 4.8, 3.2 and 2.6
points, iSuppli predicted.

"The primary
reason for this shortfall compared to expectations is weakened demand due to the
recession," stated Jeffrey Wu, iSuppli electronic manufacturing services (EMS)
and original design manufacturing (ODM) senior analyst. "Japanese and Korean
OEMs needed to retain enough production in-house in order to rationalize their
cost structures and to optimize their internal capacity utilization rates."

While the LCD TV
market will continue to grow robustly during the downturn in 2009, the
operational and financial challenges caused by the recession are forcing many
OEMs to reconsider their internal expansion plans and outsourcing strategies,
as well as to initiate changes that are having an immediate impact on the
supply chain, iSuppli observed.

LCD-TV OEMs and ODMs
reported operational losses in 2008, including a $311 million operational loss for
Samsung, and a $2.4 billion operational loss — the largest in its history — for
Sony in the year ending March 2009. Sharp saw a net loss of $1.3 billion in
fiscal 2008, ended March 2008, following "stagnant consumption, fierce
competition and a surging Japanese yen," iSuppli said.

"The struggle for
growth during the economic downturn forced these OEMs to reduce their prices in
order to increase sales and to maintain their market share," Wu said.
"Consequently, contract manufacturers' growth potential and profitability were
squeezed by their OEM customers."

TPV Technology, which
is the largest LCD-TV ODM, saw a net loss of $31 million in the fourth quarter
of 2008 after shipping 6 million LCD TVs. The company had forecasted it would
ship 7.5 million LCD TVs in the period.

The company's
full-year net profit for 2008 was $97.2 million, down 46 percent from 2007,
iSuppli said.

The report
observes that LCD TV OEMs now are looking to contract manufacturers for
cost-reduction opportunities.

As examples, the
report cites Hitachi's recent decision to shift internal production to contract
manufacturers to cut production costs.

Earlier in the
year, Sony launched a restructuring plan that includes closing 14 percent of
its 57 manufacturing sites, with the goal of reducing operational costs by $3.2
billion this year.

iSuppli said the
decision is forcing Sony to come up with new outsourcing strategies for LCD TV
manufacturing that will leverage more contract manufacturers.

Besides
established ODMs, such as TPV and Proview, a handful of Tier-2 ODMs and EMS
providers have made inroads into LCD-TV manufacturing, leveraging their
existing technology and relationships with their clientele. To name a few, Hon
Hai, Innolux and Wistron are such contract manufacturers that are capitalizing
on this growing outsourcing trend.

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