Asian LCD makers cut output for first time in 2 years as market uncertainties loom

By Kim Yoo-chul
Staff reporter

Is the global flat-screen industry about to face a downturn?

Asian liquid crystal display (LCD) makers seem to think that this is a possibility, as they rush to cut their panel output to meet with the lower-than-expected demand for televisions in China and the effects from the economic turmoil in southern Europe.

Senior display industry officials are quick to downplay the worries, although the recent actions by their companies are perhaps more telling.

"The plans to cut output don’t mean that LCD makers are foreseeing another downturn. I believe the overall market conditions remain quite healthy," Kwon Young-soo, chief executive of Korea's LG Display, told The Korea Times, last week.

LG Display confirmed its plan to cut its panel output in August, joining the movements by Taiwan's Chimei Innolux and AU Optronics to lower the production.

The adjustments are the first since LCD makers lowered their production in 2008 amid the global recession. The flat-screen makers had enjoyed a lucrative 2009 with the global demand in consumer electronics products recovering.

The LCD business is highly volatile and cyclical, and also heavily affected by economic conditions, as when bad news hits, consumers rein in their budgets for digital gadgets, causing panel prices to skid.

Samsung Electronics, LG Display's domestic rival, is also considering maintaining a 97 percent factory utilization rate at its plants in Tangjeong, South Chungcheong Province, although a Samsung spokesman declined to comment.

Uncertainties loom

Despite the cuts, financial markets expect the LCD industry to be back on track from the latter half of this year, turning to market leaders to normalize in their operations.

"The global LCD industry will enter a strong season soon. Meanwhile, the demand for three dimensional televisions looks solid, while Internet-based interactive TVs will fuel further good momentum for the industry," according to Kwon.

The executive said profit curves of LCD makers will not slide drastically, as the voluntary output cuts by makers are expected to keep panel prices healthy.

Kwon said TV makers are ordering fewer LCD panels as set makers have too large an inventory already on hand as sales of televisions were less than expected in the second quarter.

LG's internal inventories were three or four days higher than usual, according to LG's chief financial officer (CFO) Jeong Ho-young.

LG's Kwon said the cuts will be limited in televisions as the demand for other digital devices such as monitors and mobile phones is still stable.

DisplaySearch, a market research firm, said the television demand in China for the second quarter was 7 million from 9 million in the previous quarter despite Beijing’s massive subsidy plan to the countryside for electronic devices.

In Europe, the TV demand was expected to remain flat during the April-June period compared to a quarter earlier. The world's biggest market, the United States, has seen an increase in television sales to 10 million from 7.3 million during the same period, however, that was below the targets by TV makers.

Referring to the bearish moods, another research firm Displaybank said the panel price for a 42-inch LCD TV was trading below $315 per unit from $340 in March this year.

"TV makers were too ambitious in their sales targets, while the demand failed. LCD production capacity has been raised by 22 percent in 2010 from 2009 because of East Asian companies' competition to boost their production," said a top-ranking industry executive.

"The demand for televisions will revive in the latter half, however, it has gone too far for the supply and demand balance as manufacturers have already spent more," according to the executive, asking not to be identified.