The current growth in demand of flat panels in the television market is creating a need for new display manufacturing capacity. iSuppli/Stanford Resources forecasts that the television market will grow from 160 million units in 2003 to more than 200 million units by 2008, with nearly all of that growth in flat panel technologies. The most significant expansion will be in the TFT-LCD business, but the industry expects tremendous change in plasma and rear-projection technologies as well. The introduction of these technologies will affect the television-set-manufacturing industry in a big way.

The pursuit of the TV-set market by TFT-LCD makers is creating the largest expansion in TFT-LCD capacity in the history of the industry. Between 2004 and 2005, the total area of TFT-LCD production capacity will increase at a compounded rate of 13 percent per quarter, for a year-on-year increase of 61 percent. The fact that televisions require much larger panels than notebook PCs and desktop monitors means that as the share of large panels going to television increases, the rate of unit growth is somewhat slower than that for area. Nonetheless, the unit growth will increase 10 percent compounded quarterly, and the annual increase from 2004 to 2005 will be 39 percent, still very impressive.

The current ramp-up in production began at the end of 2003, when Samsung, Chi Mei Optoelectronics and Quanta Display began production at their new fifth-generation fabs. By the end of 2003, these companies were operating a total of seven fifth-generation lines. In the first quarter of 2004, AU Optronics launched its second fifth-generation line, and Sharp commenced production at the first sixth-generation line. In all, the industry will see eight fabs debut in 2004, including L.G.Philips LCD's sixth-generation fab and the fifth-generation lines of CPT, Hannstar, Innolux and SVA/NEC, China's first fifth-generation fab. This expansion comes despite the fact that the cost of state-of-the-art TFT-LCD fabs is approaching $2 billion.

Sharp's new sixth-generation plant in Kameyama, Japan, uses substrates that are 1,500 x 1,800 mm in size (approximately 5 feet x 6 feet), which is large enough to fit six 37-inch panels on each substrate. The company said it plans to process at least 90,000 sheets per month, which means that the plant could produce 500,000 37-inch panels per month if its yield rate was 90 percent. Combined with the set assembly capability built into the back end of the fab, this one plant may be able to produce 6 million large LCD televisions per year.

By the end of 2005, there could be as many as six sixth-generation plants in operation, all geared to LCD TV panel production. Close on the heels of this wave is the next; the ramp-up in seventh-generation fabs will start with a joint venture of Samsung and Sony in South Korea next year, and there could be two to four seventh-generation fabs operating in Taiwan by the end of 2005.

Much of the revenue growth in television sets is occurring in screen sizes above 40 inches, a market segment that TFT-LCD has been unable to serve in volume. The key technologies here are the plasma display panel, or PDP, and rear-projection television, or RPTV.

Production of PDPs for television is set to double in 2004, and is expected to grow at a compound annual rate of 57 percent from 2003 to 2007. Plasma manufacturers, led by Fujitsu-Hitachi, Matsushita and Pioneer (soon to include NEC through acquisition) in Japan and LG Electronics and Samsung SDI in Korea, have also been ramping up rapidly. Quarterly capacity doubled during the course of 2003, and during the next year, CPT and Formosa Plastics said they plan to start high-volume production in Taiwan.

Meanwhile, rear-projection TV is undergoing a faster technology transition than the TV market as a whole, with microdisplay-based sets about to displace CRT-based sets. The leading technologies are DLP, produced by Texas Instruments, and high-temperature polysilicon LCD, produced by Epson and Sony Corp. Intel's announcement that it will enter into production has breathed new life into the development of liquid crystal on silicon microdisplays, but production volumes to date still are still limited.

The industry expects that shipments of microdisplay-based RPTVs will exceed 1.5 million units this year, up from 400,000 last year. Sales of such sets should surpass those of CRT-based RPTVs in 2006, just a few years after introduction of these technologies into the consumer market.

For now, there is ample room in the high-end TV market for these technologies, but as production increases and quality improves, competition between them will increase, along with TFT-LCD as larger sizes come into production.

Just as the lure of large-screen TV is changing the display industry, the introduction of flat panel technologies into the TV market is changing the structure of the TV industry. Traditionally, vertically integrated companies have dominated the TV market, using internal display and video processing technologies. With a wide availability of standardized flat panel and video ICs, many players are entering the television market by relying on ODMs for set manufacturing, similar to the pattern in the monitor market. The shift from bulky, heavy CRT-based systems to flat-panel-based systems lowers shipping costs and enables ODMs producing in low-cost regions to be competitive.

With the increased competition in the market, vertically integrated Japanese consumer electronics companies have been pulling back on production of CRTs and CRT-based television. Chinese television manufacturers including Konka, Skyworth, TCL, Changhong, Hisense, SVA and others are looking toward exports as a way to boost revenue. TCL's joint venture with France's Thomson and Changhong's partnership with U.S.-based Apex are examples of approaches to gain access to foreign markets.

The growth of flat panel technologies will affect TV set makers and panel makers alike, but consumers will come out the winners.

Paul Semenza is executive vice president at market research firm iSuppli/Stanford Resources (Santa Clara, Calif.).