Posted: 9:00 p.m., EST, 4/29/98

BOSTON — The bottom's falling out of LCD prices again, this time for 14-inch active-matrix (AM) LCDs for the desktop-monitor market. Pushed by an oversupply of notebook screens and an aggressive Korean strategy reminiscent of DRAM price drops, LCD players are moving to the monitor market earlier than expected and dropping prices more rapidly than anticipated. In turn, they've had to cut costs and postpone all new fab development indefinitely.

Six months ago, these screens were going fo r about $1,500. Prices have hit the $600 to $800 range today, and Samsung Semiconductor Inc. (San Jose, Calif.) is reportedly quoting price tags as low as $450 for the latter half of this year. That would mean a lower price for a 14-inch monitor display than for a 14-inch notebook display, and it's causing Japanese vendors to rethink their recent strategy in this high-stakes poker game where most of the players are losing money. (Samsung executives did not return calls for comment.)

The upshot will be a slew of sub-$1,000 LCD monitors arriving in the coming months. "There will be significant penetration this summer of LCD monitors," said Dale Maunu, senior product marketing manager for flat-panel displays at the Electronic Device Group of Mitsubishi Electronics America Inc. (Sunnyvale, Calif.). "The price point to end users is going to be very aggressive-well under 2X the equivalent CRT, even given CRT price erosion and all the channel markups But I don't see how anybody's going to make any money at i t."

Analysts warn that the price drop may be temporary, the latest incarnation of the surplus-shortage-surplus cycle seen with 10.4- and 12.1-inch panels. Indeed, any number of events could stop the free-fall in prices. For one, a rebound in notebook computers would cause LCD makers to switch attention back to that segment, leading to fewer monitor displays being manufactured and a subsequent rise in prices. Likewise, if the LCD-monitor business takes off, supply will get short and prices will rise.

In any event, cash-starved Korean manufacturers have started low-balling monitor-display prices even as they and the Japanese manufacturers pin their hopes on these monitors as an answer to flagging sales of notebook displays (see related story, page 31).

'Significant oversupply'
The plunge in prices "has a lot of us scratching our heads," Maunu said. "You have to look at the hundreds of millions of dollars you've invested in fabs and equipment and decide either to give up what y ou've already spent or to continue to invest to buy market share and keep the fab running, and hope that when supply tightens up, you have enough design wins to start turning a profit."

For the moment, he said, it appears that the Japanese vendors will hold 'em, rather than fold 'em. "There's significant oversupply in the market and everybody's hustling to get those elusive design wins," he said.

"It's very cyclical, we've gotten used to it and we'll just ride the wave for now," said Omid Milani, product marketing manager at NEC Electronics Inc. (Santa Clara, Calif.). Being an incumbent comes in handy in tough times, he added. "If you have customers, it'll be costly to keep them, but you can keep them. If you come from the outside, the only way to win business is by price alone."

NEC is taking a strategy of differentiation for its monitor displays, Milani said, charging a premium for its wide viewing angle and a CRT-compatible analog interface. Shipments have reached 4,000 to 5,000 mon itors per month, with Japan remaining a better market than the price-sensitive United States, he said.

Other companies are likewise unfazed by the price declines. "This is a short-term bubble, not a sustainable thing," said Joe Virginia, display marketer at Fujitsu Microelectronics Inc. (San Jose). "Most big Japanese manufacturers are ignoring these [$450] prices and kicking back and waiting. No one can produce a product and make money at these prices, but the Koreans are probably cash poor right now."

Koreans up ante
Many analysts see the LCD price downturn as a Korean attempt to export their way out of economic woes, mirroring the strategy that made Samsung, LG Semicon and Hyundai into DRAM leaders. "They tanked the price [of DRAMs], grabbed huge market share at every big PC company," Maunu charged. "Then, once they got the share they wanted, they jacked the price up again and there wasn't much anyone could do because they owned such a large portion of the market."

"We'll be very interested to see if they continue this selling-under-cost thing," said Stewart Hough, marketer at Candescent Technologies Inc. (San Jose), a manufacturer of field-emission displays it calls Thin CRTs. "Obviously, pushing pricing down affects your ability to grab market share."

Ironically, despite coming late to a market developed by the Japanese, the Koreans have an edge for manufacturing larger panels more cost-effectively, said Tom Streigler, an independent San Jose-based consultant who gained unique insight on the Koreans while working with Samsung's LCD operation. "The Koreans, particularly LG and Samsung, had already sunk a lot of money into new Gen-3.5 lines and installed the equipment before the crunch hit," Streigler said. "So they continued debugging [their process] and can now get six 14.1-inch displays" from one substrate.

Streigler does see DRAM déjý vu in the Korean LCD moves, but he doesn't see it reflecting a national imperative to export. "This is a result of th e highly personal view of guys who have put their heads on the block to get a new billion-dollar factory built," he said. "They've got to make a business of it and they've got to do it now."

The pricing drop comes at a particularly sensitive time of oversupply, when most Asian LCD manufacturers have halted new investments in plants. "All Gen-4 fabs are postponed indefinitely," Maunu said. Moreover, most companies have even delayed equipment installations for Generation 3 and 3.X lines that have already been built.

David Mentley, vice president of display-industry research at Stanford Resources Inc. (San Jose), noted that the equipment for Hyundai's AM LCD fab is "still sitting on the dock. They're delaying like everybody else." It's been widely rumored lately that Hyundai is, in fact, going to fold its LCD hand, but Rob Harrison, general manager at Hyundai Electronics America (San Jose), denies this.

The company has two lines up and running, Harrison said, with a relatively small yield ed output of 45,000 12.1-inch equivalent displays a month. "We were going to put in a new Gen-3.35 line," he said, "but the market has gone into the dumper. We've built the buildings but have the machines just sitting because there's no use putting them in."

Even Japan's Sharp, world leader in LCD capacity, is slowing down. "We had announced we'd make another whole module, which means a couple more lines, in our Mia site," said Joel Pollack, LCD marketer at Sharp Electronics Corp. (Camas, Wash). "We're still proceeding on the building but have temporarily put on hold populating that building with equipment until we see where things settle out later in the year." More than a few companies, he said, "are in that coasting realm to see where demand shakes out."

Reasonable price
As for the rumored $450 price tag on Samsung monitor displays for the end of the year, "I think that is a reasonable Q3 or Q4 price for 14 inches," Harrison said, "not that we're touting it. A heck of a lot of in ventory has to be cleared away and price points have to be brought down quickly."

For the growing LCD monitor business to reach the mass market, prices must drop "close to the $500 mark," Harrison added. Stanford Resources' research agrees: A report the firm published last month noted, "History has shown that the $500 price point triggers high-volume sales." Fifteen-inch CRT monitors passed that milestone two years ago, and Stanford Resources expects the 17-inch monitors are expected to hit the $500 mark soon.

Within the past few months, pricing on LCD monitors has already started to become more aggressive. On April 1, ViewSonic Corp. (Walnut, Calif.) announced a 34 percent price cut on its entire LCD monitor lines, bringing its 13.8-inch model down to $995 from $1,366, for example. Consultant Streigler further cited a 14-inch LCD monitor from a Korean company being advertised in Japan for $865.

"TFT [thin-film transistor] LCD monitors are finally moving into the era where we see the p rices dropping below $1,000," said Mikel Estrin, vice president, sales, for Portrait Displays Inc. (Pleasanton, Calif.), which makes software for pivoting images on flat-panel monitors.

But most observers believe 14-inch display prices will bounce back, as happened with previous screen sizes.

"Here we go again with the next cycle," said Chuck McLaughlin, analyst at McLaughlin & Associates (Menlo Park, Calif.). "Right now, there's an incredible glut of notebook displays and everybody wants to create demand in the monitor space with aggressive pricing, which will eventually create a shortage. And then there'll be a firming of pricing for a while and slow growth till the next expansion, and then we'll have another surplus."

Streigler also sees low-ball monitor display pricing as a phenomenon that won't last. "I suspect that at the end of 1998, [monitor display] prices will go up," he said, noting that capacity for notebook displays is barely greater than the demand. "As soon as notebooks demand more capacity than they do now, monitors will go away again."

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