LCD demand set for upturn on school, holiday sales

LCD panel and components makers were hit by low demand and overproduction problems in the 1H of 2006, but a market research analyst says back to school sales, anticipation of the winter holiday season…

LCD panel and components makers were hit by low demand and overproduction problems in the 1H of 2006, but a market research analyst says back to school sales, anticipation of the winter holiday season, low prices and inventory control is reactivating demand. “We are in a transition time”, said Sweta Dash, director of LCD and projection research for market research firm iSuppli Corp. The 2Q is the slowest for the industry, but was made worse in 2006 after manufacturers overproduced LCD televisions in anticipation of increased demand before the World Cup. When the high sales failed to materialize, many manufacturers were left with surplus stock. In May 2006, Corning Inc., the world“s largest maker of LCD glass, cut its sales forecast for LCD panels, predicting inventory buildups would lead to flat or lower demand. However, UBS analyst Nikos Theodosopoulos said in a client note that the company is now benefiting from growth in demand for LCDs. Sales of panels for personal computer desktops and laptop monitors were slow in the 1H of 2006, partly because panel makers overproduced at the end of 2005 after erroneously expecting a strong upswing in demand. Nevertheless, Ms. Dash believes the tide is turning. “We think that the 3Q will be the transition time when demand will just start to pick up”, the analyst said. “We think the 4Q will be a good quarter for most of the panel suppliers as well as the component suppliers”. Typically, the industry operates on the understanding that an oversupply will create demand by reducing prices, which causes demand highs-and-lows, she said. Panel prices went down in the 2Q 2006, sometimes even below cost for some computer monitors. But that prompted manufacturers to adjust by cutting back on production. Since July 2006, the desktop monitor market has begun to recover, after manufacturers and panel sellers cut back on inventories, she said. In fact, some companies are raising prices to make up for the last quarter“s cuts. “That is the first sign of demand drifting back”, said Ms. Dash. “They controlled production, and market demand is shifting”. As students return to their studies, and with the holiday season starting at the end of November, low prices should drive demand for notebooks, said Ms. Dash. And the flat-panel television market is “just starting to pick up”, Ms. Dash says. She expects most companies“ inventories to be near their normal levels by the end of September, while others might still have large stocks. But holiday demand should be robust, she said.