This year, it could be a flat-panel holiday.
Prices on desktop flat-panel monitors are falling fast because of a sudden glut of inventory, which could well make them one of the most attractive high-ticket items this holiday season.
"There are a lot of companies that have a warehouse full of product because of oversupply right now, and they will be dumping it," said Herb Berkwits, senior product manager for Viewsonic.
Flat-panel monitors rely on liquid crystal display (LCD) panels like those used in notebook computers. Prices on these monitors will soon likely drop to the $599 range or lower when coupled with rebates, according to analysts and retailers. That compares with an average price tag of more than $950 just three months ago. Similarly, notebook prices should also drop.
The price plunge can be traced to an increase in manufacturing capacity. A shortage of LCD glass, partly driven by growing demand for notebooks and handheld devices in the late 1990s, prompted makers to invest in glass plants in Taiwan and Korea in 1998 and 1999.
The shortage of LCD glass has kept notebook prices relatively high in comparison with desktops. Supply has now improved and has resulted in a glut, at least for now.
Still, although prices will decline over time, the fire sale atmosphere could be temporary, warned Rhoda Alexander, an analyst with Stanford Resources.
"Prices are going down, but they will go back up again," she said. "It's a little bit like watching the stock market. You have to know when to buy. We have a glut for the moment, but we will go back to the shortage situation when the demand pushes up again."
The market share for LCD monitors is still relatively small compared with cathode ray tube (CRT) models, mainly because of the price barrier. The average price of CRT monitors sold at retail in August was $194, according to market researcher PC Data. Flat-panel monitors, by contrast, sold for a stiffer average of $953.
Sticker shock has definitely hurt flat-panel monitor sales, said PC Data analyst Stephen Baker, who points out that it's tough for many consumers to justify spending as much or more on a display as on a PC.
"People love the way these things look. Computer companies advertise all their stuff with them. But who can justify buying them?" he said. As a result, CRTs still control 94.5 percent of the retail monitor market.
A break in the price barrier, though, has let the appeal seep through. LCD monitor sales rose 133 percent from August 1999 to August 2000, even though the average price dropped only $130 during that period.
In the last six weeks, prices have dropped about $200 on 15-inch displays and as much as $400 on some 18-inch models. Well-known brands such as NEC, Samsung and Viewsonic are selling for as little as $799 for the first time, with some 15-inch flat-panel displays going for less than $699.
Although this is good for consumers, manufacturers are caught between a rock and a hard place. Many manufacturers are stuck with displays that cost them more to make than those hitting the market during the glut. Monitor makers may discount to remain competitive and empty warehouses, but they also will be selling many displays at a loss, Alexander said.
One of the big questions now is: How low will the prices go?
"We've had some recent price action from some of our manufacturers that started us in the right direction to get us to $599 by the Christmas holiday season," said Kim Stevens, head of product management for online retailer PC Connection. "Based on the trend we're seeing, this absolutely is something we might see."
Some of the deepest discounts occurred in October, she said. Stevens said the recent price drops have already had a significant impact on flat-panel display sales. From the second quarter to the third quarter, PC Connection saw LCD monitor sales jump 61 percent compared with a 17 percent increase for CRT models.
PC Connection sells four flat-panel displays for less than $800, such as the KDS Radius S-3F for around $680, the Samsung SyncMaster 570S at $750, and the IBM 9483 for $769. Rival PC Mall already advertises one flat-panel display at $599 but with two caveats: The monitor is refurbished and comes with an $80 mail-in rebate to get the low price.
Al Giazzon, vice president of marketing for NEC-Mitsubishi, seems skeptical about $599 LCD monitors becoming common without mail-in rebates subsidized by the manufacturer and retailer. Nonetheless, cuts are inescapable.
"I think you would see $699 as a very aggressive price point as we approach the holiday season," he said. "Still, we're definitely expecting to see some pickup in the consumer market for the 15-inch LCD."
Even if prices stall at $700, analysts predict aggressive bundling of small PCs and 15-inch flat-panel monitors for around $1,500 or even lower.
"By Christmas time, you're going to see bundles coming out in the $1,500 range. That's with a small form-factor (PC) and small form-factor LCD," Alexander said. "If (retailers) start to get those down to that $1,000 window, they'll really start to attract attention. But I don't think they'll get it down at this time."
Although the sudden price drops may help make the stylish displays more affordable, analysts warn that holiday shoppers will need to watch their purchases carefully.
"It's consumer beware," Alexander said. "There's no question there will be some products out there at $599 on the 15-inch side, but people have to look at viewing angle and some of these other areas like dead pixels on the screen."
More compelling than the lowest-priced flat-panel displays may be price drops on higher-quality models down to the $800 and $900 range. These use better LCD panels and tend to offer other features, such as both analog and digital connectors. Lower-cost models tend to use only analog, which is supported by more graphics cards but doesn't deliver as crisp or clear an image.
Typically flat-panel displays fall into three standard sizes: 14, 15 and 18 inches. Notable exceptions are a 17-inch display from SGI and Apple Computer's 22-inch Cinema Display. The 15-inch LCD model is closest to the 17-inch CRT monitors, which typically have viewable area of 15.9 inches or less.
Even with falling prices, analysts and monitor makers say it will be some time before consumers or businesses widely buy LCD over CRT displays.
Doug Jamison, IBM's worldwide brand manager for monitors, said the industry "is starting to get close" to the price "where flat panels take off. The industry sentiment is if you can get your flat-panel monitor within two times the comparable CRT monitor, you're going to start seeing a big knee in the curve of demand."
For that to happen, flat-panel prices need to hit $499, PC Data's Baker said.
IDC analyst Eric Haruki agreed price is one reason for slower adoption. IDC forecasts that even with phenomenal growth--82.5 percent in unit shipments this year--LCD monitors will constitute only about 18 percent of the worldwide monitor market by 2004.
Besides the increase in the number of manufacturing plants, other factors are expected to drive down the cost of flat-panel displays. Taiwanese and Korean manufacturers are benefiting "from component costs nicely dropping and higher yields, where they don't have to trash as many panels," Haruki said.
LCD suppliers are also focusing more on odd sizes, such as 15.7-inch and 21.3-inch panels, that give better yields from the glass.
"The way I understand it is the companies are optimizing the number of slices they can make from the original mother glass," Berwits said. "That's going to have a more positive effect on the price of LCDs than just bringing more into the market."