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LCD shortfall pushes up prices

Makers of liquid crystal displays continue to raise prices, a move that is expected ultimately to hike prices on personal computers and other devices.

Makers of liquid crystal displays continue to raise prices, a move that is expected ultimately to hike prices on personal computers and other devices.

A number of Japanese manufacturers including Sharp, NEC, and Toshiba are pushing up liquid crystal display (LCD) prices in the face of a supply shortfall. This is a dramatic reversal of fortunes: LCD makers over the last few years have been in the doldrums and racked by losses because of a seemingly endless glut of displays.

This trend in price hikes was apparent this week when Matsushita Electric Industrial, a relatively small LCD maker, said it intends to raise prices of active-matrix screens by about 10 percent according to a report in the Nihon Keizai Shimbun; a major Japanese business daily.

LCD costs are crucial for determining the price of computers such as notebook PCs since they comprise as much as one-third of the overall cost. These screens are also beginning to influence desktop PC prices since an increasing number of models are being offered with LCD monitors instead of the traditional CRT display.

Price hikes over the last few quarters have been as high as 15 percent. "Prices have been going up since last quarter," said Barry Young, vice president of DisplaySearch, a research firm that covers the display market. He said there is serious mismatch between supply and demand now. "You have capacity at '97 levels and demand at historically high '99 levels."

As previously reported, rising LCD prices may also drive up the cost of notebooks. Barry said the notebook PC manufacturers, for the most part, have been absorbing the costs so far but this may change. Later this quarter, prices on some notebook models from major manufacturers could increase $100 to $150, he said.

Barry said the price reversal was brought on by tepid investment in facilities over the last few years and a surge in demand for the highest quality LCDs, referred to as active matrix. In short, he said, because of the supply glut, prices on active-matrix screens came down to the levels of the less expensive, lower quality passive matrix LCDs. This pumped up demand and eventually led to over-demand--all happening against a backdrop of cutbacks in capital investment.

On top of this, 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 1998, 13.4 million unit market 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.

This is in stark contrast to the dire straits of the last couple of years. "Over the last two years there was enormous over capacity and prices were dropping 50 percent a year," Barrry said. This was devastating to manufacturers.