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LCDs hit high, but head for fall

The second quarter sees record highs in shipments of, and revenue from, large LCD panels, but an inventory glut threatens future totals, according to a new report.

The market for large LCD panels will swing from strength in the second quarter to weakness in the third, according to a report released Tuesday by research firm DisplaySearch.

Shipments of, and revenue from, large liquid crystal displays--those 10 inches and bigger--rose to record highs in the second quarter, DisplaySearch said. The panels are the key component, and the most expensive one, in products such as notebook computers and flat-panel monitors.

Austin, Texas-based DisplaySearch reported that shipments rose 9.5 percent to a record high of 17.6 million units in the second quarter compared with the first quarter. Revenue was also up 24 percent, to a record $5.03 billion, in the second quarter compared with the first.

Driving revenue growth was an increase in efficiency at manufacturing plants, which managed effectively to use 94 percent of their resources. A 13 percent increase in the average selling price of panels compared with the previous quarter also helped. The average selling price of large panels is now $286. As for unit growth, that was helped along by a 25 percent growth in panel shipments for non-PC related products such as flat-screen televisions.

The second-quarter numbers were also a reflection of high levels of demand, which exceeded supply earlier in the year. But the market is expected to begin suffering from a glut.

"The third quarter looks lousy, partly because the second quarter was so strong," said Ross Young, an analyst with DisplaySearch. "It looks like OEMs (original equipment manufacturers) were responding to shortages in the second quarter, so to avoid supply issues and to capture lower prices, OEMs double-booked. Then vendors slowed their orders starting in June, and OEMs were stuck with the panels."

OEMs, such as Quanta or Compal, order panels from Samsung, LG Philips or other manufacturers and then provide near-finished products to vendors such as Dell Computer.

Inventories of panels increased because of a weakness in shipments that started in June. Notebook PC shipments were 7 percent below forecasts, and LCD monitor shipments have also slowed. The glut is expected to slow manufacturing plant utilization to 86 percent in the third quarter.

In the third quarter, DisplaySearch expects large LCD panel shipments to fall 7.8 percent compared with the second quarter, and revenue is to drop 10 percent to $4.55 billion. Average selling prices are expected to drop 2 percent.