By Lisa Johnston
New products on display at the American International Toy Fair, held in N
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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