After growing by 16 percent in 2002, revenues generated by the electronic display market once again are set to rise by more than 10 percent in 2003. ISuppli/Stanford Resources expects total revenue for display components, both CRTs and flat panels, to reach nearly $60 billion this year. With worldwide economies experiencing little growth or outright recession, and with sales of PCs, mobile phones and other electronic equipment stagnant over this period, what's spurring such growth?
First, price declines and expanded production of display components have created the conditions for the adoption of flat-panel displays in applications previously served by CRT displays. Furthermore, those same factors are promoting the use of larger, higher-performance color displays in applications that once used low-performance monochrome screens. Since the more advanced displays have higher prices, revenues have increased even as total units have grown only slowly.
Also driving demand for flat-panel displays is the widespread adoption of imaging and video technologies, such as digital still cameras, cameras embedded in mobile phones and DVD players. Furthermore, the rollout of multimedia services by wireless carriers and the offering of digital video content by cable and satellite TV service providers have spurred interest in display performance, although these factors vary greatly across different geographic regions.
These trends are most evident in the growth of liquid-crystal display panels used in computer monitors, televisions and mobile phones. The value of LCD panels used in desktop computer monitors will grow to $10.6 billion this year, up from $4.9 billion in 2001. The value of LCD panels used in televisions will grow to $2.2 billion in 2003, up from less than $500,000 in 2001. And the shift to color will enable LCD value in mobile handsets to grow to $4.1 billion in 2003, from $3.5 billion in 2001.
With LCD technologies increasingly dominating the electronic display market, the LCD market is growing at a compound annual growth rate of 20 percent. This CAGR will lead to a market value of $55 billion in 2005, twice its value in 2002.
LCDs last year surpassed the milestone of 50 percent market share of all electronic displays and are likely to reach 60 percent next year. Large panels for desktop monitors and portable computers account for more than half of the LCD market. These panels are greater than 10 inches in size diagonally and all use thin-film-transistor (TFT) or active-matrix technology.
While the market for large panels in televisions will be the fastest-growing segment, PC applications will continue to dominate LCD value for the next several years. TV is not yet a large source of demand, but the market is potentially huge, with more than 150 million sets expected to be manufactured this year. Since television screens tend to be significantly larger than desktop monitors, TV is a rapidly growing market segment in terms of area demand.
Area is a crucial metric for flat-panel production because it is the key determinant of factory utilization. Since high-volume displays tend to become commodities over time, and since for the most part it is impossible to use large-scale integration to increase revenue per unit area, increasing area demand and factory utilization are key to profitable manufacturing.
This dynamic is causing all of the leading TFT-LCD manufacturers to make plans for producing TV panels. To a large extent, all of the next-generation TFT-LCD factories are being conceived with that purpose in mind. Sharp, the leading producer of LCD televisions, will begin production at the first such "sixth generation" factory in 2004. LG Philips LCD and Samsung Electronics, the leading producers of TFT LCDs for all applications, will follow soon after with even larger plants.
While the growth in TFT-LCD production shows no signs of slowing, it is difficult for manufacturers to maintain profitability, for three main reasons:
- The capital investment required to build a state-of-the-art factory is more than $1 billion.
- TFT-LCD manufacturing is technically challenging, with the costs extremely sensitive to the production yield rate. While yield rates for any given panel size follow learning-curve economics, the yield rate declines each time production is shifted to larger screen sizes or increased pixel density.
- The large number of suppliers and the relatively small number of customers lead to significant price declines. This reinforces the dynamic that allows profitability for only the most productive manufacturers.
The tough profitability situation is not deterring new investment, but so far only by the leading producers. Nonetheless, two factories are planned for China, and Sony-not a leading TFT-LCD producer-recently announced it is considering building a new plant to supply panels for its television sets.
The display industry continues to be a source of innovation, but the increasing dominance of TFT LCDs is making it difficult for new technologies to move to mass production. Developers of organic light-emitting diode (OLED) displays face stiff competition from LCDs in all applications. Mobile-phone handsets are a source of great experimentation for display technologies, and the lack of standardization opens a window of opportunity for OLEDs. But the highest-value segments of the market remain controlled by LCDs.
At the other end of the size spectrum, companies are increasing production of plasma display panels and rear-projection systems for large-screen TV sets. But TFT-LCD manufacturers have demonstrated panels as large as 54 inches; and if the manufacturers can improve yields, such panels will become formidable competition for other large-screen technologies.
The challenge for the flat-panel display industry will be to maintain profitability as it invests for the emerging television market. If TV panel pricing undergoes the same drastic declines as in the PC markets, this will be a large challenge indeed.
Paul Semenza is executive vice president at iSuppli/Stanford Resources in Santa Clara, Calif.