The LCD industry is in a state of flux right now. With increasing inventory for LCD panels, shifting demand for smaller LCD TVs, LCD panel prices nosediving, LCD manufacturers throttling utilization rates, it isn’t an easy time for anyone involved in the LCD supply chain. But AU Optronics (AUO) and Chi Mei Optoelectronics (CMO) are reportedly moving forward as planned for the construction of their G8.5 LCD fabrication plants. It seems like a courageous move based on strong forecasts for a brighter future for larger LCD TV demand. But it is not.
If you look closely at what DigiTimes has reported the main reason for AUO and CMO to continue as planned is because they don’t want to lose out to foreign competitors, namely LG Display, Samsung and Sharp, in the race to next-generation production. And because of this, the companies need their G8.5 TFT LCD fabs to ramp production as scheduled. This is precisely the reason why the LCD industry has experienced what is called the Crystal Cycle for over a decade. The main cause of the Crystal Cycle is pretty simple: overbuild capacity, prices tank, demand for cheap LCD goods increase, demand outstrips supply, LCD prices rise, profits rise, build more capacity and then go back to step one.
Competition is not based on who has the biggest fab; it should be about sustained and growing profits. As far as I know, LCD TV panel as well as LCD TV set production do not yield a lot of profits. So it is unwise for these two LCD manufacturers to race to build even larger fabs to manufacture even larger LCD TV panels, panels that not a whole lot of consumers want due to macro economic factors such as inflation, difficulty in accessing credit, shrinking disposable income, etc. in full force today. Are things going to get better? Nobody knows for sure, but it will get worse in 2009 when everyone in the LCD industry is forecasting a severe oversupply of LCDs.
[tags]AUO, CMO, AU Optronics, Chi Mei Optoelectronics, G8.5, G8.5 LCD Fab, Display Manufacturer, LCD Manufacturer[/tags]