It's either feast or famine in the flat panel market these days. Few IT related markets have experienced the level of volatility that the international LCD panel market has in recent weeks as the global shortage has rapidly given way to oversupply and prompted Taiwanese and Korean manufacturers to offer prices that range from good to desperate.
While the consumer is likely to be the beneficiary in the lead up to Christmas, there is a potential nightmare for resellers who overstock in a market where prices are changing daily.
Vendors expect the market to settle down by Christmas but in the meantime the message for resellers is blunt: churn or burn. Prices have fallen about 25 per cent in the past two months with some vendors accused of death defying pricing and selling panels for less than cost to get rid of surplus inventory.
While it is good news for consumers who have also seen prices plummet by 25 per cent over the past two months, it has become risky business for vendors and resellers alike with margins declining in dollar terms and the constant worry of being caught with expensive stock as prices continue to freefall.
Several international and local factors have contributed to the extreme volatility of the market, which has been more volatile than in many other countries.
The international situation began with an engineered shortage of 15-inch panels designed to push buyers towards 17-inch, that in turn created a real shortage in that sector. Having created the demand, Asian manufacturers rushed to increase their production capacity, but then over estimated demand in the Northern Hemisphere. With new production facilities coming on line and demand not meeting expectations shortage quickly turned to oversupply.
Taiwanese manufacturers responded by slashing prices
In Australia, following two solid quarters of growth, the market dropped by almost 25 per cent in the third quarter according to GfK, as corporate and government spending dried up while decision-makers awaited the result of the Federal election.
As a result the international oversupply situation was compounded by the diminishing local market and a lot of vendors found themselves with inventory that was becoming more expensive by the day as newer stock became cheaper and cheaper. Some smaller vendors began panic selling forcing their larger competitors to match prices.
"The market is very chaotic ... very chaotic," general manager of Mitsubishi Electric, Richard Freggi, said. "There is a great discrepancy in pricing between various vendors and some of them just do not know what the price is, particularly of 17-inch panels, because they have conflicting price lists. There is panic selling of panels in Taiwan and Korea due to the current oversupply. They are selling at a very good price today, a distress price tomorrow and back to a very good price the day after. So nobody knows what the price of the panel actually is and that creates confusion in the market place.
"The 17-inch panel manufacturer cannot tell you what the price is from one day to the next and it is even worse for the monitor manufacturers because they don't know what their new product price is and they have product in stock they have been trying to dump for the past couple of months or has been costed at the higher, older prices.
"It's seizing up the market," says Freggi. "The channel is very concerned about being caught with excess inventory in a very volatile time, so it is really affecting the whole supply chain. There is grave uncertainty because there is a lot of money at stake if you make the wrong call and that is impacting the demand for flat panel."
However, Freggi is optimistic for the future.
"We are going through an adjustment period and in the long term the consumer will benefit from it," he said.
"It is a short-term situation and it could be over within weeks. Things should settle down, panels will be cheaper and the consumer will be better off."
BenQ, one of a small group of Asian-based vendors that also manufactures and supplies its own panels, claims to be benefiting from the situation.
"We are a Taiwanese-based company and fortunate in that we have a very aggressive factory that is churning a lot of volume, so BenQ is growing pretty quickly," senior product manager, Paul Schnell, said.
Current volatility
Locally the company was in a good supply situation with neither oversupply or a shortage, he said. However, with the current volatility in the market resellers were holding very little stock.
"It's a case of churn or burn," Schnell said.
"They are buying few and often. They cannot afford to hold big supplies of product that moves that quickly. I'm all for them buying every second day if that is what they need to do to ensure they are not leaving themselves or us with a stock issue."
But what impact is it having on margins?
"At the end of the day resellers are competing against each and they tend to determine their own margins," he said.
"We can give a price to the resellers and make it fair and equitable to everybody but at the end of the day what they sell it for comes down to their own competitiveness against each other. We will set an RRP that is quite healthy but in terms of channel, RRP doesn't seem to have a hell of a lot of influence. The market is competitive and everyone's within a few dollars of each other and they fight on the pricing of getting a screen out there. Gee, its tough.
"I'm all for the channel making lots of margin but it is not always a viable proposition, especially when you have a market that is becoming commoditised and is very, very aggressive," Schnell said.
In terms of buying trends, he said customers were going for 17-inch LCD monitors in preference to the 15-inch model because there is no longer any major difference in price.
Like BenQ, local market leader Samsung, manufactures its own panels and supplies several monitor manufacturers.
Samsung market development manager, Joe Serra, said despite the oversupply situation caused by the poorer than expected first half in the Northern Hemisphere and several new factories coming online, pushing prices lower, everybody in the Australian corporate/government market had experienced a real downturn in sale in the last three months.
"The only thing we can attribute that to is the lead up to the Federal Election," Serra said. "There was a real slow down in buying because government departments did not know if their budgets were going to be real if a new government came in. A lot of departments were doing their research in those three months but were not committing any actual spending, so we are expecting a dramatic pick up in those areas next month.
"Even the retail sector was down dramatically in that quarter. All of this means there have been a lot of price fluctuations in the market. Prices are trending downward - in fact, to a certain degree they are almost spiralling out of control. There is a lot of product out there being sold at under cost just to move the volume and ensure people are not being caught with stock in their warehouse."
But Serra said the election result could not have been better for the market and he expected to see government and corporate markets starting to spend freely.
Once the market regains its equilibrium customers will begin to not only enjoy lower and stable prices but new technology. Mitsubishi Electric plans to a 40-inch plasma monitor in November to its new line of multimedia information monitors and several manufacturers are adding functionality to flat panel display to take advantage of the new Windows XP Media Centre Edition.
Picture enhancement
National marketing manager for LG Electric Australia, Paul Reeves, said the Australian LCD market had seen a surge in the demand for Multi-Function Monitors (MFMs) that incorporate TV tuners and are compatible with various AV formats. However, to date many monitors lack the adequate picture enhancement capabilities.
He said LG had solved the problem using its Flatron f-Engine technology.
Meanwhile, Philips is now offering new features such as features such as Smart Manage a proprietary asset management system for monitors.
Despite the current market volatility and its associated risk the industry is upbeat for the future. Commercial channel manager for Philips Consumer Electronics, Norelle Blumentals, said she was receiving reports from Taiwan of a move towards 19-inch flat panels and will be keeping a close eye on that emerging market.
Product director for broad-based distributor Ingram Micro, Matthew Sanderson, said the market was currently driven largely by increased digital convergence of home media technologies.
"LCD monitors are simply no longer seen as strictly for PC use, but rather as an integral tool capable of screening numerous forms of media," he said. "Due to advancements - particularly in LCDTV technology - consumers are now looking towards LCD for gaming and other forms of high definition media.
"This increased tendency on digital convergence also provides a variety of opportunities for resellers, ranging from selling a variety of associated accessories, to selling products that integrate the latest LCD technology into existing digital home appliances."
As for the CRT market, while there is still some life in it, the writing is on the wall.
"It will definitely have died within four years," he said.
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