The Wall Street Journal-20080123-LCD Makers See a Boom- Rush to Boost Capacity
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LCD Makers See a Boom, Rush to Boost Capacity
HONG KONG -- The supply shortages in the liquid-crystal-display market may well last throughout the remainder of this year, forcing some of Asia's biggest panel manufacturers to fast forward their capital-spending plans to meet demand, analysts say.
LCD makers are reaping their best profits since 2004 after capital- spending cuts since 2006 brought about industry shortages. Companies from South Korea's Samsung Electronics Co. to Japan's Sharp Corp. are investing heavily this year to add LCD capacity, anticipating a boom in demand for flat-screen televisions and other consumer electronics ahead of the Beijing Summer Olympic Games.
The "dynamics of reduced investment and healthy panel-maker earnings, coupled with continued strong demand, are now setting 2008 up to be a bumper year for almost all segments of the LCD industry and a reversal of fortune for equipment companies," Texas-based market- research firm DisplaySearch said in a recent report.
California-based market-research firm iSuppli forecasts revenue in the LCD industry to rise 14% this year to reach $82.1 billion, driven by strong TV-replacement demand in the U.S. market from the switch to digital broadcasting, the Beijing Summer Olympic Games, as well as growth in the notebook segment.
The latest earnings reports from the world's top two LCD makers last week reaffirmed those bullish views. LG.Philips LCD Co. said its fourth-quarter net profit of 760 billion won ($796 million) was its best quarterly result ever and reversed from a net loss of 174 billion won a year earlier. Samsung said operating profit from its LCD business nearly tripled to 920 billion won from 310 billion won a year earlier.
Samsung expects global demand for large-size LCD panels to rise 20% this year to reach 465 million units.
"Strong demand will likely lead to a supply shortage in 2008," LG.Philips LCD Chief Executive Young Soo Kwon said.
Taiwan's AU Optronics Corp. and its smaller rival Chi Mei Optoelectronics Corp. are expected to post record quarterly results when they release earnings this month, according to analysts.
"With market conditions so good, there's definitely the possibility that LCD makers may decide to push more aggressively to boost their capacity," said Song Myung-Sup, an analyst at Seoul-based CJ Securities. "I expect the shortages to last until the third quarter of this year."
Samsung and LG.Philips LCD have already announced significant increases in their capital-spending budgets for this year. Analysts predict similar announcements from rivals in the coming months.
LG.Philips LCD is planning to triple its capital-spending budget this year to three trillion won. Samsung plans to more than double its spending on LCDs to 3.7 trillion won this year.
Osaka-based Sharp plans to spend 197 billion yen ($1.85 billion) for its LCD business this fiscal year ending March 2008, similar to the level it spent the previous year.
Taipei-based market-research firm WitsView forecasts combined capital spending by LCD firms to surge 76% this year to $15.1 billion from $8.6 billion in 2007.
But some analysts warned that if suppliers expand more aggressively this year and also bring forward their capacity-expansion plans for 2009 in 2008, the risk of an oversupply in the market could come as early as late in the fourth quarter.
"Currently, I'm expecting an oversupply in 2009, but it could come earlier," said WitsView's general manager Henry Wang.
Peter Yu, an analyst at BNP Paribas, said: "Now that everyone is aggressive in their capital spending, it looks like an oversupply is unavoidable in 2009."
An oversupply in the market would hurt LCD makers as it could push panel prices down, eating into companies' profitability. The average price of a 32-inch LCD panel was stable at $330 early this month, according to WitsView, while the price of a 19-inch monitor LCD fetched $148, down from $153 in late December.
Another big risk for LCD makers this year will be how much demand for LCD TV products shapes up amid looming concerns about a potential U.S. economic recession.
