Reality Check: Is LCD supply manipulation afoot?

The Crystal Cycle is an industry term that refers to shortages in the supply-and-demand cycle for LCD displays. When notebook PCs started taking off, we saw the first shortage. There was another serious shortage with the emergence of 14-inch and 15-inch notebooks, and a third when LCD desktop displays took off.

Shortages, of course, mean higher prices and longer waits for products, facts that IT buyers need to keep abreast of. So every couple of years I put it in my mental calendar to call an LCD analyst and ask whether any shortages are coming up.

As sales of LCD televisions start to explode, you might assume we are in for another one. After all, the same mother-glass manufacturer who makes notebook and desktop displays makes the glass for televisions as well. But according to Chris Connery at industry analyst company DisplaySearch, something unusual is happening this year.

Given the huge potential market for flat-panel televisions, manufacturers have been expanding production ahead of demand. Samsung has partnered with Sony to build a US$3 billion Gen 7 mother-glass plant, while LG and Philips have joined forces in an effort to ramp up production. Plus, the Taiwan and mainland China manufacturers are going full bore. If every company produced at maximum capacity it would put an LCD display in every household and on every business desktop worldwide.

"Now we are in an extreme over-supply situation," Connery says.

That's the good news. Now for the bad.

According to Connery, the talk in the industry is that the manufacturers are looking to create an artificial Crystal Cycle. At a recent conference in Taiwan, a leading producer of LCD glass stated publicly that the industry should collectively look at cutting back on production from 100 percent to at least 85 percent. Otherwise, if supply outpaces demand, manufacturers will be forced to cut prices.

Where would they slow the market down? Big orders for call centers and CRT replacements ramping up in the desktop space will probably be the first victims.

What leverage can IT deploy? Well, there may be a win-win situation here. If there are supply constraints, manufacturers will be far more willing to negotiate on the new wide-screen desktop displays, Connery says. These displays are far more efficient to manufacture because of the number of panels that can be cut from a single sheet of mother glass.

At the same time, Microsoft Vista will take advantage of wide-format displays. Vista allows users to place multiple applications on the screen simultaneously in quadrants -- the upper right-hand corner, or in what is called a sidebar, on the side of the display. For customer service reps in call centers, financial services organizations with multiple feeds coming in at the same time, or for power users and developers, this will be a fantastic improvement on the user interface.

But don't purchase anything around the holidays, when there is high demand for flat-panel TVs. Connery says the best deals will be had in Q1 and Q2, when orders usually start to decline dramatically.

Will the mother-glass manufacturers actually create this artificial shortage? "The chatter is growing louder each day," Connery says.

Although I don't have the space here to give you all the gruesome industry details, sometimes a little knowledge is a good thing. I hope this week's column helps your company save some money.

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Ephraim Schwartz

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