Sometimes even being thin does not guarantee a charmed life. Take liquid crystal display panels. Flat screen panels have been subject to vicious price cuts for most of their short lives – declines mirrored in weak profitability and share prices. Now investigators from three countries suspect that the $70bn industry engaged in price-fixing during its brief glory moments in 2002-03.
News of the investigations, being launched in the US, Japan and Korea, has sent LCD makers’ stock prices reeling. Shares in LG Philips, the Dutch-Korean LCD maker, have lost a quarter of their value since the 2004 initial public offering. That reflects overcapacity and insufficient demand, which have conspired to knock prices lower. These unfavourable dynamics have not yet played out: continuing oversupply is expected to drive prices down in the first quarter of next year. Aggressive promotions – Matsushita 42-inch plasma screens were briefly going for $999 on Black Friday, the big shopping day after Thanksgiving in the US – and high inventories add further pressure.
That makes the brief periods of supply shortages in 2002-03 look like ancient history. Since then the industry has experienced fierce competition, resulting in the emergence of some unlikely winners. Taiwanese panelmakers, for instance, originally cast as the underdogs, are now set to supplant Korea as the world’s biggest LCD manufacturers. The current industry structure, with the top three players controlling roughly equal chunks of the market, is also arguably more conducive to price wars than collusion.
LCD makers will, of course, be hoping the charges do not stick. They are no strangers to fines: Samsung Electronics, for example, is among those that have been slapped with fines for price-fixing of D-Ram chips. Today’s profit margins leave scant room for such levies – indeed, LG Philips ended the latest quarter in the red. For investors, it is a salutary reminder that highly cyclical industries can be dangerous in good times as well as bad.
Get alerts on IPOs when a new story is published