Falling fortunes for flat-panels

Against the odds, LCD monitors were the success story of 2001. But this year has been marred by supply problems and price hikes, writes Martin Lynch.

The year 2001 will be remembered for many things, sadly most of them bad. From horrific acts of terrorism and a crumbling global economy, to an IT industry peppered with huge losses and redundancies, 2001 was the year that most technology sectors suffered major setbacks. Except one.

Just over a year ago, a ripple began in the flat-panel display market: a niche filled with sexy, but expensive technology. This soon became a tidal wave that carried the market above the economic doom and gloom and into the limelight.

In an incredibly short space of time flat-panel displays have become a mainstream technology, shedding an image which was part expensive fashion accessory, part executive toy.

Huge price cuts created the newest star of the IT sector, but such delirious levels of success are not about to be repeated this year. Prices are on the up, supplies are constrained and it looks as if the death of the cathode ray tube (CRT) monitor is still a few years off.

Ironically, it was the terrible market conditions around the world that created the liquid crystal display (LCD) monitor boom. Thanks to a poor global economy, the Asian panel manufacturers were left with far too many on their shelves.

In order to shift them they made significant cuts to the price of a panel, which allowed the major monitor makers to cut their own prices.

Price wars

Because of the slim chance to finally make a profit during a dismal year, a vicious price war ensued, which saw the average selling price of most LCD monitors plummet by between 25 and 30 per cent in 2001.

According to market watcher DisplaySearch's quarterly report, until the third quarter of last year the market had grown quarter-on-quarter by a staggering 45 per cent.

Rapidly falling prices were cited as the main reason for the boom, but they are now also seen as the reason for the shortages and price hikes which characterise the market today.

Dylan Creaven, director at distributor Silicon Technologies Europe, said: "Before the prices fell, LCD monitors were a niche market, but 2001 was the breakthrough year; the start of the LCD era.

"Last year 13.5 million panels were purchased, more than double the number of those bought in 2000, and this year the figure is expected to be 23 to 24 million. Unfortunately, the growth does not translate into profit.

"With the oversupply and the price wars, panel manufacturers were not making any money. This year there will be higher prices. The prices fell too low too fast, and the demand outgrew the supply."

Peter Wyatt, marketing manager for peripherals at Philips, added: "This is definitely no longer a niche market, especially with more than a million units shipping in the UK alone last year.

"The market is expected to double year-on-year. The demand is still very high but the prices are starting to go back up. The massive price erosion last year created the demand, but the prices went too low and now they have to go up."

Alan Penman, UK sales director at Hansol, agreed. "There was massive price erosion on 15in panels in particular last year which led to a 70 per cent increase in sales worldwide, according to some figures," he explained.

"Unfortunately the bubble is about to burst on the 15in flat panel success. It is very hard to put up the street price but supply shortages mean they will have to go up."

Grant Keenan, product manager for monitors at Computer 2000, said: "The low prices definitely kick-started the LCD monitor marketplace, but we are hitting constraint problems already.

Strong growth

"Growth is still very strong and all the manufacturers are predicting 20 per cent growth for this year, but prices are on the way up every month.

"Corporates know that the price is going up, but where they used to ask about price and availability they only ask about availability now. They just want them."

The questions hanging over the marketplace at the moment are just how long the panel manufacturers will constrain supply to push the prices back up, and just how high those prices will go.

Keenan is optimistic. "I'd say the supply squeeze will last for another three months, which should help stabilise the market," he said. "The price of a 15in LCD monitor fell to about £230 before Christmas last year, but I expect prices this year to stabilise at about the £270 mark."

According to Wyatt, this shortage will continue until the third quarter this year. "Every flat panel display manufacturer is struggling on the supply side now, but the market should still double this year. If not, it will be supply, not demand problems," he explained.

Creaven added: "We are already seeing supply dry up. Order lead times are 60 to 90 days now. We usually have a few thousand pieces in stock at any one time, but we are now at minimum levels. For customers at the moment they face the possibility that between ordering and delivery the price will go up."

Penman is less optimistic than others about a quick end to supply problems. "The panel manufacturers have been taking the brunt of the price erosion, making hardly any money. The level of 15in panel availability will remain the same as it is now or even reduce over 2002," he said.

Penman suggested that the jewel in the LCD crown - the massively successful 15in flat panel displays - are deliberately being hamstrung in favour of more profitable markets.

Although 17in flat panel prices have also fallen over the past year, they are still anything up to £200 more expensive than 15in equivalents.

"Look at it from the panel manufacturers' side of things," said Penman. "On the production side they can get 15 panels which are 15ins in size from a single sheet of glass, but they can get 12 17in panels from the same sheet. The yields and the profit on 17in panels are much higher."

Restricting supply

Keenan argued that panel manufacturers will hold back on 15in supplies only until the price rises. "I think they will just restrict manufacturing numbers for a few months to drive the price up a bit, but they can't afford to be that choosy about which market, 15in or 17in, they make money out of. They would be cutting off a major revenue stream," he said.

Penman points to the panel production forecasts from the leading panel manufacturers. "Samsung indicated in January that overall panel production was 350,000 - just 90,000 for 15in and 260,000 for 17in," he stated. "It also indicated that on the 15in side it will be concentrating on panels for notebooks and 17in panels for LCD monitors.

"LG has indicated that it will be focusing on 17in panels and above when its new-generation production process starts in July. Acer has said it will manufacture only 17in TFT panels after July.

"It seems there is a concerted effort to force people up to 17in LCD monitors. It is a very volatile situation and I have no idea what will happen next. It's damaging for manufacturers, resellers and, to some extent, the enduser.

"If there aren't enough 15in LCD monitors people will have to go for 17in, or go without."

Creaven also believes that panel suppliers are pulling the strings. "Panel manufacturers expect to regain profitability by 2002 and, as much as we like to think they don't talk to each other, it would be naive to think they do not co-operate regarding supply," he explained.

"If they can control supply, they can control the market. They will not get caught like last year, which means there will be no over-supply."

Regardless of the supply problems, demand remains higher than ever, and companies are willing to fork out a bit extra than last year just to get flat panels into the workspace. So what now for the CRT - the king of the monitor market?

CRT revenue drop

According to most market researchers the market split in unit terms is roughly 70 per cent CRT and 30 per cent LCD. But the revenue generated by CRTs is definitely on a downward spiral. Stanford Resources predicts that CRT revenue will drop from a high of $19.5bn in 1999 to just over $10bn in 2007.

"The market is changing over from CRT to LCD more quickly than ever now. Unless the PC market makes a huge recovery, CRTs will not retain a huge share of the market," said Wyatt.

Its days might be numbered but not in the short term, as CRTs are still the bread-and-butter products for all monitor suppliers. As long as hard-hit PC vendors struggle to get rid of their stockpiled CRTs, and developing countries go for price over quality, CRTs will still figure prominently.

Until last year's fire sale on LCD monitors, the sales pitch was a lot different and a lot less successful. High prices have always obscured the many benefits that LCD monitors offer over CRTs but, with price no longer the obstacle it was, those benefits are now excellent selling points.

From lower power emissions to space-saving, LCDs offer companies various advantages, such as being able to cram more employees into the same space or cut down on air conditioning bills.

Even the most technically backward companies have been smart enough to jazz up their corporate image by putting some flat-panel displays in receptions and lobbies.

The jury is still out over which is the strongest individual selling point, but to date saving space followed by lower power and emissions is about right.

"We find desk space is the number one consideration," said Keenan. "Even here at Computer 2000 we use panels for the sales staff and call centres because it allows us to fit more people into the same space.

"It is not often that I have people asking about power emissions. It might be important for companies in Sweden, but not here."

Creaven has noticed a mixture of reasons for using LCDs. "There are no flickering screens with LCDs, and less flicker means less eyestrain; we just had too many complaints with CRTs," he said.

"A lot of companies feel that they can get more from their workforce by giving them better equipment, while some of the larger contracts we have done have been sealed on the energy saving argument."

Penman believes that power saving is the strongest argument in favour of LCDs. "If you take a typical legacy PC with CRT monitor and an inkjet printer, the CRT accounts for 45 per cent of the total power consumption," he said.

"Upgrading from a 17in CRT to 15in LCD gives the same viewable screen but more than halves the power consumption during operation."

So whether a company needs more desk space without moving, smaller electricity bills, a trendy image, or a happier, healthier and more productive workforce, LCDs are now within the reach of businesses of all sizes. If they can actually get hold of some, that is.

SUMMARY

• Massive growth in 2001 saw flat panels become a mainstream technology for the first time.
• Rapidly falling prices were the main reason for the surging growth.
• Saving space is seen as the main benefit of LCD monitors, followed by lower electricity costs.
• Prices are being forced up again by panel manufacturers restricting supplies.

LCDs vs CRTs

Putting the price tag aside, LCDs beat CRTs in a number of key areas.

Size matters

The typical 17in CRT weighs about 15kg and takes up about 20 per cent of the room of an average 5ft x 2.5ft desk. A 15in LCD - which has the same viewable screen size as a 17in CRT - weighs about 4kg and takes up about five per cent of the same desk space.

Your flexible friend

Moving an LCD monitor from place to place is a grunt-free process and the slim form factor means they can be wall-mounted to save even more space.

Cool customer

Total cost of ownership is now part of the criteria for most IT purchases, a factor that works in favour of LCDs. Most CRTs still consume a lot of power and release a lot of heat, which in turn pushes up air conditioning bills. A 17in CRT monitor uses 100-120W while a flat panel of equivalent size can do the job for a quarter of the power and emits no heat.

Image conscious

Image has become a concern for many companies but, until recently, doing it with LCD monitors was a bit over the top. Since that is no longer the case, expect to see LCDs popping up everywhere on the High Street.

CONTACTS

Computer 2000 (01256) 463 344 www.c2000.co.uk
Hansol (01252) 360 400 www.hansol-uk.com
Philips (020) 8689 2166 www.www.philips.co.uk
Silicon Technologies Europe (343) 65 682 3408 www.silicon.ie