Shortages of LCD panel materials could mean higher LCD prices

El Segundo (CA) - Market research firm iSuppli reports that materials and components used for the manufacturing of large-sized LCD panels are likely to enter a state of shortage in the second half of 2005 and result in price increases for computer monitors.

According to the report released this week, supply of glass substrates for large-sized TFT-LCD panels with sizes of 10 inches and more is expected to fall 8 to 10 percent short of demand in the second half of the year. In addition to that, color filters used for fifth- and sixth-generation LCD fabs are forecasted to experience shortages of 7 to 12 percent in the fourth quarter. Further shortages are predicted for polarizers, TAC film and lamps.

iSuppli believes the upcoming shortages can be explained with the industry downturn in the third quarter of 2004 as shipments of panels for desktop PC monitors declined and demand for displays for mobile computers grew only marginally. As a result, materials used in the production of large-sized panels went into a state of oversupply late last year.

According to the market research firm, material suppliers presently are limiting production increases as a reaction to conditions in 2004. Because of this, it is likely that materials production will not keep pace with panel manufacturing in the second half of 2005, iSuppli predicts. Materials suppliers typically require one quarter to respond to shifts in LCD shipment levels.

Product shortages typically have an immediate effect on market prices of products. iSuppli agreed that it is likely that price increases are likely during this year, but was careful to say how dramatic the effect will be.

"We believe the glass shortage will have some impact on the supply/demand situation for LCD panels in 2005. It will definitely impact the capability of LCD panel suppliers to fulfill their manufacturing expansion plans for 2005," said Sweta Dash, Director, LCD and Projection Research at iSuppli.

"We are already seeing a shortage situation for 17" desktop PC monitor panels and panel pricing has begun to increase, starting at the end of February. Price reductions for notebook and TV panels also have slowed down in the first quarter. We think the impact of the shortage will fall more on the monitor market than on the TV market," he said.

Considering the price erosion of LCD panels in the past few years, the shortage of materials is not just negative for the industry, but could provide a tool to stabilize or even increase pricing levels. LG already had complained at CeBit about "artificially" low prices in the LCD market and announced intentions to increase prices this year by about five percent. Looking at iSuppli's forecast, these price increases may not be too hard to justify after all.