The worldwide surplus of large LCDs--screens with at least a 10-inch diagonal, used mainly in laptops and flat-panel desktop monitors--dropped from 16 percent in the second quarter to 8 percent in the third quarter, according to market researcher DisplaySearch's quarterly report. That surplus is expected to drop to just 2 percent this quarter, DisplaySearch predicted.
The glut had caused prices for LCDs to drop 50 percent this year.
"We had expected LCD monitor shipments to be around 14 million this year...and it looks like it's going to be more like 15.5 million," he said. "The market is really responding to more attractive price points."
LCD models will account for 13 percent to 14 percent of desktop monitor sales this year--double their 2000 share of the market. Such growth should continue even as prices stabilize, Young said.
"We think people want LCD monitors. We think the price is right. And we think people will continue to buy them," he said.
LCDs have been one of the most volatile segments of the turbulent market for components in PCs and other high-tech devices. A shortage of LCD glass, partly driven by growing demand for notebooks and handheld devices in the late 1990s, prompted manufacturers to invest in glass plants in Taiwan and Korea in 1998 and 1999. Those factories turned a shortage into a glut in late 2000.
But the slowing economy and weak PC sales later that year exacerbated a serious oversupply, leading some LCD monitor makers to cut their losses by slashing prices. Although that has hurt manufacturers, it's been grand for consumers, who have seen prices drop rapidly on notebooks. Some manufacturers, such as Gateway, have also offered flat panels with desktop computers at low prices.
Young expects LCD makers to react more cautiously to changing demand this time, with spending on capital improvements dropping 22 percent this year and 26 percent in 2002, as screen makers wait for profitability to return before investing in manufacturing capacity. But he doesn't expect a return to the situation of two years ago, when component makers determined the fate of end products.
"We're in a period of very limited expansion," he said. "That's going to cause supplies to be very tight and prices to inch upward. But we don't think they're going to squeeze the markets they sell to. We think they're going to be cautious and not increase prices to the point where it chokes growth."
Near-term capital spending plans are likely to focus on quick-and-dirty projects, such as switching manufacturing lines from low-demand cathode-ray tube monitors to LCDs.
"A lot of the manufacturers have shut down CRT lines, and they're going to try to convert at least some of them to LCDs," Young said. "It doesn't take that much to build an LCD monitor assembly line. You can have one going in 30 to 60 days."