LCD Screen Glut Coming

Major LCD manufacturers like LG.Philips, Samsung Electronics and a host of Taiwanese manufacturers may face a greater-than-expected glut of screens in the second half, according to US market researcher iSuppli.

 Third-quarter supply of LCDs measuring at least 10in diagonally will exceed demand by 5 per cent, compared with an earlier forecast of a 3.8 per cent glut, according to a statement issued by iSuppli. Consumers are not buying as many large-screen LCD televisions as expected and there is an inventory build-up of panels used in computer monitors, it says.

iSuppli joins other analysts, including those at Macquarie Securities and CJ Investment and Securities, in saying producers in the $US35 billion ($46 billion) industry may have overestimated demand as higher oil prices threaten to keep consumers from buying televisions and computers.

The International Monetary Fund has cut its estimate for global economic growth and says risks are currently “slanted to the downside”. “There’s definitely an oversupply and intense competition,” says Nicholas Yeo, an investment manager at Singapore’s Aberdeen Asset Management, which manages $US12 billion including Samsung shares.

“LCD makers are seeing one of the shortest recoveries in the industry.” Higher oil prices, lower consumer confidence and slower economic growth may prevent second-half LCD sales from meeting earlier expectations, according to the research company.

Macquarie analyst Michael Bang has cut his stock recommendations on LCD makers including South Korea’s LG.Philips LCD and Hsinchu and Taiwan’s AU Optronics, the industry’s third-largest producer. Macquarie recommends investors switch to memory chip-makers such as Hynix Semiconductor, according to the market-research report.

Seoul’s CJ Investment cut its target price on LG.Philips LCD’s stock earlier this month, citing concern that panel prices may fall as demand growth slows. iSuppli also raised its oversupply projection for the fourth quarter to 6.2 per cent from an earlier 4.2 per cent estimate.

Shares of the world’s top-six LCD makers, all based in Asia, fell. Not all analysts agree with iSuppli and Macquarie’s view. “Inventory levels remain stable and LCD TV demand could emerge sooner than expected,” Citigroup’s Taipei-based analyst George Chang says in a report issued last week.

“We expect their shipments to continue to grow, driven by seasonal strength in the near term.”

Chang maintained his “buy” rating on panel makers. Samsung, Asia’s largest electronics maker by market value, has become more optimistic on the LCD business.
The company raised its shipment forecasts for the industry by 6.7 per cent, citing higher-than-expected demand for panels used in televisions and computers, Samsung’s head of investor relations Chu Woo Sik says. Samsung expects global shipments of LCD panels measuring at least 10 inches diagonally to rise 46 per cent to 191 million units this year from 131 million last year, Chu says.  Shipments for 2006 are expected to increase 24 per cent to 236 million units, he says.