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Prices climbing for LCD screens

A research firm confirms that the liquid crystal display industry is in the midst of a sharp price rebound, which is good for manufacturers but bad for notebook buyers.

A marketing research firm today confirmed that the liquid crystal display industry is in the midst of a sharp price rebound, which is good for Asia-based electronics manufacturers but not so good for buyers of notebook PCs.

Market researcher Stanford Resources said today that a shortage of high-quality liquid crystal displays (LCDs), which started at the end of 1998, is driving up the price of this critical PC component.

"There was a shortage in TFT-LCD panels at the end of 1998. The increase in desktop monitor [LCD] production will extend this shortage through the fourth quarter of 1999," said Sweta Dash, senior market analyst at Stanford. High-quality LCD screens are referred to as active-matrix or TFT screens.

The net result for Japanese and Korean manufacturers is recovered revenue. "Price increases and a 170 percent growth rate in the liquid crystal display monitor market in 1999 will recover all lost revenue, adding $5 billion in 2000," Dash said. This upturn comes after steep price reductions clobbered display makers in the first half of 1998, which resulted in a $2 billion revenue decline for LCDs used in portable computers, according to Stanford Resources.

For consumers, however, the effect may not be beneficial at all as the shortages could drive up computer prices. LCD costs are crucial for determining the price of computers such as notebook PCs, because they comprise as much as one-third of the overall cost. Price hikes over the last few quarters have been as high as 15 percent, according to DisplaySearch, a research firm that covers the display market.

Last month, DisplaySearch said that notebook PC manufacturers, for the most part, have been absorbing the costs. But this may change, and prices on some notebook models from major manufacturers could begin to increase this quarter by $100 to $150.

Stanford, however, sees the supply constraints easing next year. "The supply crunch will be eased, though, beginning in 2000, with the addition of capacity in Korea and Taiwan," the report said. "This is good news for the notebook-computer and LCD-monitor sellers who have worried about rising prices since late 1998. There is enough capacity to serve the mainstream 12- to 15-inch-diagonal sizes, but it will require very skillful coordination of factory capacity to avoid shortfalls in the third and fourth quarters of 1999," said David Mentley, vice president of Stanford Resources.

The study comes after a number of Japanese manufacturers including Sharp, NEC, and Toshiba started pushing up LCD prices earlier this year in the face of a supply shortfall. In April, Matsushita Electric Industrial, a relatively small LCD maker, said it would raise prices of active-matrix screens by about 10 percent, according to Japan-based reports.

For Japanese makers, this has been a dramatic reversal of fortunes: Japanese makers over the last few years have been in the doldrums and wracked by losses because of a seemingly endless glut of displays.

DisplaySearch and others have said the price reversal was brought on by tepid investment in facilities over the last few years and a surge in demand for active-matrix LCDs. Because of the supply glut of past years, prices on active-matrix screens came down to the levels of the less expensive, lower-quality passive matrix LCDs. This price parity suddenly triggered demand for the higher-quality active matrix screens. This eventually led to over-demand.

On top of this, both Stanford and DisplaySearch say manufacturers are now supplying active-matrix screens to the desktop PC market. This new market is increasing in size quickly--it jumped from only a few hundred thousand screens in 1997 to 1 million in 1998 and is projected to reach 3 million this year, according to DisplaySearch.

Also, the demand for notebook PC screens continues unabated, at growth rates of about 14 percent. The 13.4-million-unit market in 1998 is projected to increase to near 16 million in 1999, DisplaySearch said.

Japanese makers have been calling for price hikes as high as 20 percent in order to recoup losses, and prices for certain screen sizes have jumped as much as 40 percent from the rock-bottom lows of last year due to market conditions, according to Japanese reports.