Trouble Looms For Makers Of LCD Panels For PCs - InformationWeek

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Trouble Looms For Makers Of LCD Panels For PCs

LCD panel manufacturers are threatened by increasing inventories of finished monitors and a potential slowdown in sales due to high prices, says iSuppli.

Makers of LCD panels used in desktop PC monitors are heading for trouble, as changing market conditions are likely to cause a downturn in the record-level profit margins the manufacturers have enjoyed due to six months of price increases, a market research firm said Friday.

Flush with success in the second and third quarters, panel manufacturers, which supply their panels to monitor makers, are pushing to increase prices further in October, iSuppli said. But what they don't see are increasing inventories of finished monitors, and a potential market slowdown that could follow if retailers are forced to pass along rising panel costs to consumers. "The pileup is starting at the end [of the supply chain], and you have to pay attention to it to avoid congestion in the manufacturing level," iSuppli analyst Rhoda Alexander, told InformationWeek.

Because many monitor makers have chosen not to raise prices in order to grab market share, consumers have benefited by getting more value for their money. "The good news for the consumer is they've seen very little of the price increase so far, and the value of the product is tremendous compared to what it was a year ago, particularly in the larger sizes," Alexander said.

If panel makers continue to boost prices, monitor makers that use the panels will be forced to do the same to raise their own profit margins, but that's unlikely to happen until after the holiday season. Therefore, 2008 could be a tough year, if prices rise and consumers buy fewer monitors. ISuppli predicts there could be a "long period of adjustment during which panel pricing drops and overpriced inventories clear." During this period, panel makers' profit margins are likely to take a hit.

At the heart of the imbalance between rising panel prices and under-priced LCD monitors is the market-share battle among four major PC manufacturers: Hewlett-Packard, Dell, Lenovo, and Acer, iSuppli said. The four companies account for nearly 40% of today's LCD monitor sales, and are at the center of the factory push for LCD panels.

With each of the PC makers determined to expand market share, all of them loaded up on LCD monitors in the second and third quarter in preparation for a major battle for end-of-year sales, which led to panel prices rising, iSuppli said. The difficulty, however, with market share battles, is that at least one of the vendors stocking up to be the winner is going to lose, and become a major contributor to an oversupply of monitors at the end of the year.

There are already signs of trouble in the standalone monitor market. For a growing number of vendors, product arrivals are starting to outpace sales, so inventories are increasing too rapidly, iSuppli said. The situation is particularly acute in North America, where sales are lagging behind vendors' initial projections.

Consumers could feel the impact of the behind-the-scenes turmoil when looking for a 22-inch monitor, which is the most popular size, Alexander said. Demand could outpace supply on the product beyond the fourth quarter, so consumers could see a price jump. "But the price on that product right now is phenomenal compared to the price of production," Alexander said. "It's a definite bargain for the end user."

Overall, however, the consumer should look beyond price when buying a monitor, since most of the pricing is competitive. "What the consumer needs to do is shut their eyes to the price, and look to honest product evaluation -- not only at the specifications, but the front-of-screen performance. How does the screen look to them." Alexander said.

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