LCD Panel Manufacturers: Return to Profitability?

graph_upCash Cost According to DisplaySearch, major LCD monitor and LCD TV panel prices are increasing to cash cost levels and above. Demand for LCD TV panel is still strong relative to the supply so prices are increasing. For instance, 32″ 1366 x 768 LCD panel prices increased US$8 in early May. So did 42″ 1080p LCD panels. LCD monitor prices are increasing too: 21.5″ 1080p TN LCD panels gained US$4. This is based on DisplaySearch’s monthly PriceWise report and is free.

Future Prices This means that LCD TV and LCD monitor set prices might not be going down as aggressively in the second half of 2009. There is a chance that they can go up but brands will try to minimize that since an increase in price will doom sales. What this means for you is that the right time to buy might be right now.

A Breath of Fresh Air LCD TV and LCD monitor panel prices breaking the cash cost barrier and getting closer to profitability is like a breath of fresh air for LCD manufacturers. Cash cost is another way of saying marginal cost. So even if LCD manufacturers can get more than their marginal cost of producing a LCD, they still have a ways to go before getting to “total cost” that includes overhead, depreciation, etc. Once that happens the LCD suppliers can bust out the champagne and start celebrating because they will start to actually make a profit. When will that happen? Actually the question should be, “Will that happen?”

Too Excited LCD suppliers have a way of getting too excited too quickly. For instance in my previous post about LCD manufacturers expecting a 37% Q/Q growth in large-sized LCD panel shipments in the second quarter, I point out they might be a bit over-optimistic. Being optimistic isn’t a bad thing but it will lead to LCD suppliers pumping out a lot of LCD panels. If the demand isn’t there to absorb those panels then there will be an oversupply and prices will continue to fall. If prices fall enough the LCD suppliers start to lose massive amounts of money again. Brands will also want price concessions too since they know there will be plenty of LCD panels in the next couple of months. So, LCD suppliers should be at best cautiously optimistic.

Billion Dollar Question The key to understanding demand for LCD TVs and LCD monitors is to understand what is going on in retail. The billion dollar question is: “Are consumers purchasing LCD TVs and LCD monitors? If so, how much and what models and sizes?” Unfortunately major sellers of LCD TVs and LCD monitors in the US such as Best Buy, Walmart and CostCo won’t publically share that information. The next best thing to do is to purchase that information. Once you have that information LCD panel suppliers can then manage their production a bit better and not only return to profitability but maintain profitability.

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