One of the few bright spots in the electronics industry in 2002 has been the liquid-crystal display (LCD) market, which has enjoyed soaring sales and rising average selling prices (ASPs) during the first half of the year. However, the first signs are appearing that the price ASP run-up for large-sized thin-film transistor (TFT) LCDs is coming to an end, marking the beginning of a new period of price stability. Despite that, we foresee no end to LCD sales growth in 2002, and no resumption of the severe price erosion that stung suppliers in 2001.

The roots of the price plunge of 2001 can be traced back to 1999 and 2000, when six new Taiwanese LCD suppliers entered the market, challenging the established Japanese and South Korean players. Meanwhile, the notebook PC market decelerated in 2000, in the aftermath of overspending in 1999. Overproduction and a glut of suppliers, combined with reduced demand, resulted in major price declines. Large-sized TFT LCD panels went into oversupply at the start of 2000, and prices fell every month until October 2001.

However, the panel price decrease in the first half of 2001 helped to reduce 15-inch monitor average selling prices to less than $500, spurring consumer demand in the second half of 2001. By the fourth quarter of 2001, demand began to exceed supply, as previous cutbacks in capital spending among LCD suppliers began to impact availability.

This resulted in LCD prices taking a U-turn, rising in October 2001 and continuing through the first half of 2002. The ASP plunge for large-sized TFT-LCDs dramatically impacted the global LCD market. Sales of all LCDs in 2001 reached $21.7 billion, down 3 percent from 2000. Revenue fell in 2001, despite a 2.6 percent increase in unit shipments to 2.3 billion, up from 2.25 billion in 2000.

However, June brought another change in the LCD pricing climate, as ASPs began to stabilize — especially for desktop monitors — reflecting a slowdown in sales growth. The slowdown was especially pronounced because it came on the heels of unprecedented strong sales in the first quarter. This was due to a drop in consumer demand, continuing slowness in the corporate market, and the fact that back-to-school demand had not yet materialized.

iSuppli/Stanford Resources detected a rise in LCD inventory levels in distribution channels for desktop monitors and for some notebook PC displays, which also contributed to slower growth and the flattening price trend at the end of the second quarter.

The recent LCD price run-up had a dramatic effect on global LCD revenue in the first half of 2002. Sales in the first quarter of 2002 were $5.99 billion, almost perfectly flat compared with $6 billion in the fourth quarter of 2001. This was a remarkable performance, given that first-quarter LCD revenue typically was down considerably compared with the fourth, following historical seasonal PC sales patterns.

In the second quarter, LCD sales will rise to $6.9 billion, driven by continuing sales increases for desktop PC monitors and notebook computers. For all of 2002, revenue is expected to rise more nearly 35 percent to reach $29 billion, due to price increases and the recovery in demand for large TFT-LCD panels.

Application outlook

Desktop PC monitors and notebook computers are the major drivers of demand that are keeping LCD sales humming in 2002. Total shipments of desktop monitor panels in the first quarter reached 6.5 million units, with an estimated value of $1.9 billion. This represented a 26 percent increase in units and a 36 percent rise in revenue compared with the fourth quarter of 2001.

Although there are some signs of slowing demand growth for LCD monitors, we believe second- quarter panel demand on a unit basis increased about 9 percent compared with the first quarter and revenue rose by 167 percent.

For all of 2002, the desktop, flat-panel PC monitor market is forecast to grow 93 percent, to reach $9.4 billion. Shipments will rise to an estimated 29.5 million units, up more than 95 percent from 2001, driven mostly by the replacement of CRT monitors with LCDs and the increased bundling of LCD monitors with desktop PCs by computer OEMs. The corporate market also is slowly picking up, and we expect it to boost demand during the second half.

Capacity increases at fifth-generation LCD fabs, as well as demand adjustments, will result in an excess supply situation in 2003, leading to substantial price reductions. For this reason, panel prices may begin declining starting in the first quarter of 2003.

The excess supply situation will worsen in the second half of 2003, when many suppliers will be operating fifth-generation fabs at full capacity, thus leading to stronger price declines.

TFT-LCD Panel Prices Stabilize After Monthly Drops