El Segundo, Calif. - Despite the prodigious growth of the global
in recent years, panel suppliers are struggling to maintain profitability, forcing them to cut materials and component costs, according to iSuppli.
From the fourth quarter of 2008 through the second quarter of 2009, suppliers took losses on the most popular varieties of large-sized LCD panels used in televisions, notebook PCs and monitors. Losses were particularly acute during the dismal first quarter of 2009, when suppliers took an average loss of 31 percent on 32-inch high-definition television panels, a 29 percent shortfall on 15.4-inch notebook panels and a 28 percent loss on 19-inch monitor panels.
"Suppliers of large-sized LCD panels are facing profitability challenges due to the cyclical and volatile nature of the consumer markets they are serving," said Sweta Dash, LCD research senior director for iSuppli.
"As applications have shifted from a corporate to a consumer focus, conditions in the large-sized LCD market increasingly are dictated by seasonal factors, with slow demand in the first half of the year, followed by strong sales during the last six months of the year. Profitability also is oscillating roughly according to these seasonal trends, compelling panel suppliers to seek ways to reduce costs."
One major focus of these efforts is material and component costs in panels and in panel modules, iSuppli said.
Material and component expenses are accounting for an increasing portion of total panel costs, especially for LED-backlit panels. Generally speaking, panel material and module components can account for 75 percent or more of total panel costs, depending on various factors.
Because of this, panel suppliers must concentrate on these areas to keep expenses under control. Unfortunately, many panel components, such as glass, color filters and LED chips, have been facing somewhat tight supply in recent quarters, limiting opportunities to reduce costs, the research firm noted.
To counter such availability and pricing challenges, panel makers are bringing the production of some of these devices - most notably LED chips - in-house, because reductions in the backlight cost provide more opportunity to lower cost and improve profitability.
Generally speaking, LED-based panels generate higher profitability, prompting suppliers to introduce new models and to reduce LED backlight costs. However, during periods of oversupply, LCD panel suppliers also can lose money on sales of LED backlit panels.
LED supply tightness and fragmentation of the entire LED supply chain has also made it difficult for panel suppliers to control costs. In response, top panel suppliers are developing their own internal sources for LED supply that can allow them to slash costs, control supply and improve profitability. In addition, suppliers also are developing new backlight designs to cut the number of LEDs that are used while keeping performance at the same or higher level - steps that can reduce costs as well as lower the thickness of the television modules.
At the same time, television brands and television contract manufacturers also are striving to bring down the costs of LED-based panels by buying only the cell without the backlight and developing their own backlight. Branded television manufacturers, for instance, are engaging in partnerships with contract manufacturers or even panel suppliers to develop their own backlight and module assembly facilities, iSuppli said.
For their part, some panel suppliers are focusing on selling cells, while others are developing more complete in-house solutions. Although this has created some tightness in the market because module production lags behind cell production, it also is making the supply chain more flexible and capable of reacting faster to changes in the market.
Overall, fixed or capital costs account for only 15 percent to 25 percent of the total panel cost, depending on the panel size, application market and fab depreciation rates.
In 2010, the top three notebook display suppliers - Samsung, LG Displays and AUO - will attain a cost advantage over their competitors because their fabs serving this market will be fully depreciated, with the cost to construct the facilities and obtain equipment fully recouped.
This will make it difficult for other notebook panel suppliers, such as CMO and some Chinese firms, to compete in the market. In the same way, LG Display's 7.5-generation and Samsung LCD's seventh-generation fabs, which are mostly producing TV panels, will be fully depreciated this year, allowing both suppliers able to lower pricing, expand market share and attain strong profitability.
To learn more about the LCD market with Dash's LCD market tracker, see