Pacific Media Sees Growth In Spite Of LCD HDTV Slowdown

Demand-side analysis predicted supply-side inventory glut

July 18, 2006

Recent news reports about production slow-downs in the LCD panel industry have led some to wonder if the sky is falling for the flat panel HDTV market. LG.Philips LCD has announced major losses for the second quarter of 2006 and scaled back plans for new production lines. Manufacturers in Taiwan have announced reduced production and worker furloughs. LCD panel inventories are high, and some fear that prices will fall even further as manufacturers try to empty their warehouses. Pacific Media Associates, the global market information experts on large-screen displays, sees positive signs in spite of these problems. “The LCD industry is dealing with the results of exuberance that may have been a bit irrational,” according to Pacific Media Associates vice president Rosemary Abowd. “A number of industry sources have been predicting breathtaking annual growth rates. As a result, manufacturers have embarked on an arms race of expanding production capacity. The attitude seems to be that an oversupply is acceptable so long as it is your company’s panels that are being sold.” For many US households, a television is one of the most expensive purchases made. Most consumers don’t buy a new TV just because new technology is available, no matter how cool it might be. Instead, they wait until the existing set “breaks” (either through failure or unacceptable image quality), or until they remodel their home, or until they move to a new one. “The semiconductor industry has a long history of ignoring consumer demand, with often-disastrous results,” observed William Coggshall, president of Pacific Media Associates. “Some simple reasonableness checks would have kept the LCD fabs out of trouble. In 2005, only about one in six consumers who bought a new TV paid more than $800, which is about the minimum price for a 32-inch LCD TV set today. The Consumer Electronics Association (CEA) estimates that about 32.5 million sets (of all sizes and technologies) were sold in the US during 2005, while PMA estimates that consumers bought about 2.6 million flat panel televisions 30-inches or larger (including both LCD and plasma), plus another 3.0 million rear projection TVs. This total of 5.6 million is 17% of the CEA’s overall total, which means that only about 17% of buyers were willing to spend more than $800 for a new television. “For 2006, we forecast 4.4 million flat panel TVs 30-inches or larger — both plasma and LCD — will be sold. While this is a healthy increase of 69% over our observed 2005 numbers, it is still considerably less than the triple-digit growth forecast by some sources. However, if you add the expected 3.2 million rear projection sets, you get a total of 7.6 million sets in the $800+ range. The CEA's forecast calls for a total of 29.0 million TV sets for 2006, which means that 26% would be have to cost more than $800, up from the 17% for 2005. This seems extremely unlikely, so something has to give. In fact, several factors will likely change substantially — for the worse — during the remainder of 2006.” It will still take some extraordinary changes to reach even this conservative estimate. The average price that US consumers are willing to spend on televisions will have to rise even further. This will have to happen in spite of rising energy and interest costs, which feed the growing consumer uncertainty. LCD TV prices will drop further; the average selling price for a 37-inch LCD display dropped nearly 18% from $2,343 in February 2006 to $1,920 in May 2006 according to Pacific Media’s sell-through tracking of true, transaction-based prices. Now that LCD panel inventories have accumulated, there will certainly be additional downward pressure on prices, even though it means manufacturers will have to sell at less than their production costs. Prices for plasma and rear projection TVs will also have to drop significantly. We have seen significant price drops for rear projection sets in our June Ad Track report. Plasma prices will likely decrease in order to remain competitive with declining LCD TV prices. “Even if all these changes occur, it will be a stretch to sell 7.6 million large screen TVs in 2006,” according to Coggshall. “The limiting factor is not supply, but demand. Lower prices have been proven to increase demand, and it’s a question of how far manufacturers are willing to cut prices in order to keep their factories running.” About Pacific Media Associates Pacific Media specializes in global display market information, covering all large-screen display categories: front projectors, plasma and LCD TVs, and rear-projection displays. Their Large-Screen Displays Industry Service family of publications provides detailed worldwide quarterly updates (sell-in data and forecasts) on large-screen display markets, newsletters on new products and other key industry developments, monthly advertised price tracking, ad hoc analyses, and annual Web surveys of North American end users (including organizations and individual consumers) and both North American and EMEA resellers/retailers. Their Large-Screen Displays Tracking Service family of monthly reports offers timely sell-through data and analysis on unit sales, true volume-weighted street prices, and inventories of large-screen displays sold by leading North American retailers, resellers, and distributors. Pacific Media Associates was established by Dr. William Coggshall, who was previously a co-founder of Dataquest and helped start the syndicated high-tech market information business.

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