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December 9, 2008 10:29 pm

TV market is a picture of gloom

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For flat-panel screen manufacturers who have enjoyed at least double-digit growth over the past decade, the last few months have been nothing short of a nightmare.

Prices for flat-panel TV and computer monitors have fallen rapidly as consumer demand in Europe and the US has evaporated rapidly as a result of the financial crisis.

Manufacturers have scaled back expansion plans and have left parts of their factories idle as orders shrank dramatically in the second half of this year.

KY Lee, chairman of AU Optronics, the world's third biggest flat-panel maker, told the Financial Times that this downturn meant the industry “cannot expect [future] growth will match what it was in past years”.

“It is obvious that the financial crisis has spread to home users,” Mr Lee said.

This makes the current downturn “totally different” from others in the past.

AU Optronics this week said sales had fallen by a third in the space of one month, from October to November.

Both AU Optronics and Chi Mei Optoelectronics, its smaller Taiwanese rival, said revenues last month were down by around 65 per cent from a year ago.

Industry executives and analysts now expect global sales of flat-screen computer monitors to decline next year for the first time since they were invented about a decade ago.

Flat-screen TVs, still the single-biggest segment of the LCD market, has been driving recent growth.

But with demand falling sharply, prices have plummeted.

A 32-inch panel now costs almost half of what it did a year ago, according to WitsView, a Taipei-based research consultancy.

For some panel sizes, prices are now so low that they have become a losing proposition for panel makers.

AU Optronics said it and other manufacturers had turned down orders from one large company because it was insisting on below-cost price.

That is very different from just a year ago, said Mr Lee, when “we could say that we were making a good profit from all [screen] sizes”.

Mr Lee said AU Optronics has had to “develop new skills and new management structures to tackle such a problem”.

This includes tighter control over cash flow by reducing inventory levels as well as cutting the utilisation rate of their factories.

“[But] now we have to cut even more production and capacity, expansion and so on – everything,” he said.

With these changes, AU Optronics should “have enough cash to survive for the next few years,” he said.

Mr Lee said he was confident that demand would eventually pick up again and that idle factories would not become “a normal situation” for the industry.

He cites the fact that there are some 2bn cathode ray tube television sets worldwide still to be replaced by flat-screen TVs.

Many of these are in emerging markets where there are more local and newly established brands to challenge AU Optronics’ larger rivals – Samsung and LG Display of South Korea.

Mr Lee said his company would focus on supplying panels to these players in the future.

Annual global shipments of LCD monitors

“In countries like China, India, Russia we see a lot of original brands and that will be important for our growth,” he said.

Mr Lee’s company noticed the first signs of trouble in June when TV and monitor brands started cutting forecasts after a collapse in consumer demand.

“Nobody wants to spend money anymore,” Mr Lee said.

His factories, which were at full throttle just six months ago, were now running at just 60 per cent capacity.

Mr Lee said there was scope for future demand for flat screens as the range of applications widened.

AU Optronics, for example, recently launched a computer monitor that could also be used to watch high-definition TV.

He said that this could prove a powerful source of new demand.

The fall in prices for smaller screens had also spurred new uses, such as printer display panels, Mr Lee added.

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