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Contributors: Douglas McIntyre Jon C. Ogg

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Monday, October 02, 2006

LCD Market Difficulties Lead to Consolidation

We have written frequently about the overcapacity in the LCD business. Our former bearishness has turned into cautiousness, though we are still avoiding the group in case the consumer slowdown should affect home theatre sales. However, the companies in the industry have been doing some of the right things, including consolidating as a means of rationalizing capacity.

AU Optronics acquires Quanta Display
AU Optronics with a current market share of approximately 20.9% of Taiwan’s TFT-LCD products is expected to find further leverage for its products with this acquisition.Subsequent to the merger, AU Optronics will emerge as the world’s largest maker of notebook TFT-LCD panels with over 25% of the market share. In addition, the merger would lift the company as the second largest maker of LCD Monitor TFT-LCD panels and the third largest producer of LCD TV TFT-LCD panels globally.

Some sources were already saying AU Optronics (AUO) has decided to slow capacity expansion for its 7.5-generation (7.5G) plant in the first quarter of 2007. This, too, would ease capacity concerns.Having too much capacity has led to faster than aniticipated price cuts. The average street prices for 40-44-inch LCD TVs and business displays in North America dropped below those for high-definition (HD) plasma panel display (PDP) TVs of the same size range for the first time in July, according to research firm Pacific Media Associates (PMA). However, this cloud does bring a silver lining. Now that LCD is cheaper in the TV size that appears to be the sweet spot, the share gains from Plasma should help ease some of the overcapacity concerns.

Unfortunately (for some), now that Chinese taxpayers are subsidizing our television purchases the prices should go lower still. This is a mixed blessing for the industry, as the lower prices should help boost demand, but non-Chinese manufacturers will face a tougher competitive environment. For us cash-strapped consumers, though, it may be just the medicine retailers were hoping for.

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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