LCD Displays

Running Head: LCD DISPLAYS

LCD Displays: Popularity Driven Market Phillip Morgan ECO 100 Principles of Economics Professor Fairchild December 7, 2007

LCD Displays

Demand Elasticity of the LCD Display Industry Over the past 75 years, the television market has changed nearly as much as the television itself. Dating back to the first experiments in 1884 up to the experimental prototype 108 Liquid Crystal Display (LCD) model, the evolution of the television and its market have continued to experience extraordinary growth. Early on, the high cost of the television hindered mass consumer purchases. Currently, most American households contain an average of two televisions and 66% have three or more. With the prices forecasted to remain competitive in the foreseeable future, the market is anticipated to continue its growth trend. Given the recent popularity of LCD displays and televisions, how has aggressive pricing and strategic marketing driven the demand elasticity of the industry? A look back through the history of the televisions origin is a testament to the growth that this market has experienced. A German engineering student named Paul Nipkow began the earliest television experimentation in 1884. He later proposed and patented the world's first electromechanical television system. This technology gave way to mechanical television, which was first produced in the late 1920s by John Logie Baird. The first color television was patented in 1925, but not successfully produced until RCA did so in 1946. In 1987, the first analog high-definition television was produced in Japan. From 1939 until today, there have been over 220 television manufacturers that have produced in or for the United States market. In todays market, the demand for LCD displays has overtaken that of the conventional electronic color television offerings. The top three LCD manufacturers for 2006 were Samsung, Philips, and Sony. All of these companies have changed strategies and product offerings as times have changed to accommodate product demand. The newer, High-Definition televisions (HDTV) give viewers a stunning and convincing quality of imagery. Rear projection,

LCD Displays Widescreen, and Plasma televisions are other varieties of products that round out the current market. Also, personal computer (PC) monitors represent a strong portion of panel sales.

Product manufacturers typically target consumer concerns, prioritizing them in attempt to gain an edge in the market. One priority that has been identified is ease of use. Many televisions through the years have been notorious to consumers for being difficult to learn the many product features. Consumers would rather have a product that did not require training or the necessity of reading a lengthy instruction manual for operation. Ergonomics is another area of television production that has improved in recent years. Televisions of times past were manufactured without regard for weight, size, and consumer handling. Televisions of current times are slim, sleek, lightweight, and simple to maneuver, should the need to move arise. The television market has experienced excellent growth in recent years. Unit sales of LCD televisions more than doubled during 2006, penetrating 26% of the global color TV market by the fourth quarter and a third of the U.S. market (Corning: The Future, 2007). LCD television prices that seemed to be in a free-fall have propelled glass producers business much faster than anticipated. Corning is the leading supplier of LCD glass, whose position in the LCD industry gives them a unique insight to understand and predict market growth. LCD glass volume in Cornings display segment surged 52% in 2005 alone (Corning: The Future, 2007). The future looks just as bright for the production and sales of LCD televisions. Glass demand was forecasted to grow nearly 300% for the period from 2004-2007 (LCD TV Futures, 2003). Producers now fear that they may underestimate demand as prices of LCD televisions drop below the tipping point that will enable them to quickly overwhelm the market during the next two or three years (Corning: The Future, 2007). There is speculation that LCD televisions could very well repeat the 30-year successful run of cathode ray tubes (CRTs), the television

LCD Displays model with the richest history. In general, television demand is exploding with increases in unit volume and screen size. These demand increases have come about as a result of decreased pricing, which has been influenced greatly by reduced raw material costs. From a pricing standpoint, Samsungs market dominance is fueled by product

differentiation, as well as cost leadership (SECs Market Outlook, 2007). The LCD products that Samsung has on the market have experienced excellent consumer feedback, aided by a better product mix and strong seasonality on personal computer products. LCD television sales are predicted to generate solid growth of over 50% of the industry revenue, with the 40+ segment expected to show the strongest growth. Incrementally reducing prices by size, the market sales trend is maneuvering toward larger product offerings. Samsung has the most efficient next generation capabilities to compete in this 40+ market segment (SECs Market Outlook, 2007). Lower prices have lead to higher sales volume, as each price drop of 18% has resulted in a sales increase of 165% (Holzel, 2002). Newer technology has created this lower pricing on mature product lines, driving the demand elasticity of the LCD industry. LCD televisions have had their share of misfortune as well. LCD product complaints have fluctuated widely in recent years, as the market has struggled with periods of over-supply and under-supply. When demand has been high and supplies low, prices have risen and more manufacturers decided to increase capacity by building new plants (Boom/Bust Cycles, 2005). As consumers demand larger sized panels, it has the effect of decreasing supply, because manufacturers cannot produce as many panels from a set of substrates (Boom/Bust Cycles, 2005). When new factories start up, supply soars and prices drop. This creates hardship on the suppliers to make a profit from their products and consumers become accustomed to lower prices, driving elasticity. Production capacity has increased significantly in recent years, which

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provides a bit more elasticity in the supply side of the equation (Boom/Bust, 2005). Concern has been generated as to whether prices would drop enough to stimulate demand to meet forecasts (LCD Panel Production, 2006). There have been indications that the increasing demand of LCD televisions may even cause prices to begin rising again. Consumers have been gravitating toward larger screen televisions in recent times. There is a willingness in the market to pay a premium for a panel, given the advantages of the flat, wall-hanging television that satisfies both ergonomically and aesthetically. LCD television marketers have capitalized on consumer viewpoints that wall-hanging units are considered better than ones sitting on a stand or in a rear projection cabinet, although the primary driver of sales is pricing. As price differences have decreased, more sales of the higher end models have increased. Demand for LCD monitors and televisions grew rapidly in 2005 on lower prices, strong price elasticity, a healthier PC market, and a firmer global economy (Display Search Report, 2005). Demand was very strong at that time, growing from 42.9 million units to 64.8 units, a 51% increase over a two-year span (Display Search Report, 2005). Lower prices have truly led to higher sales volume. Advertising has played a key role in the sales of LCD televisions as well. Increased consumer exposure through advertising has influenced product demand and pricing. Keeping global brands of monitors and televisions in the public eye is a huge concern of marketers. Pushing into the television market means makers must invest billions in new plants to make more price-sensitive products. Given its growth opportunity, the display market forces producers to decide between becoming larger, more diversified and smaller, more individual productfocused in new operations. This investment means that these market segments have plenty of risks and rewards, moving at different rates in attempt to gain a strong market presence. Product

LCD Displays differentiation is another element that marketers strive to maintain. The potential for television growth is high, but the potential profit margin is limited by consumer market dynamics and channel structure (Barnes, 2005). Competition has been fierce in the LCD television market, with top manufacturers constantly battling for a competitive edge. Building a products image with excellent quality is imperative for continued success. Establishing trust and loyalty by connecting with customers can build long term relationships between manufacturers and consumers, ensuring a strong tendency for repeat business. Many marketing channels, such as newspapers, flyers,

commercials, celebrity endorsements, and Internet have been utilized to promote specific brands of televisions to potential customers. In addition to marketing specific brands, individual sizes and types of product offerings have been major catalysts for high demand elasticity of LCD televisions. Many of the manufacturers have been experimenting with alternative technologies in hopes of gaining a share of the LCD market. Plasma is one of the most visible technologies at this point, but there has been consumer apprehension with regard to a relatively short life by perceived television standards. Organic Light Emitting Diode (OLED) is another technology that many companies are attempting to bring into the market. Currently, they can be found in car stereos and other gauge applications. Another type of product is the Field Emitter Display (FED), which boasts an excellent viewing angle while possessing the same thin characteristics of the LCD. The FED models are significantly faster than the matrix LCD versions, but power consumption makes these models less attractive for portable applications (Boom/Bust Cycles, 2005). Electroluminescent (EL) products have been developed for use in entertainment and computing markets, enjoying an advantage in image quality, response times, and viewing angle.

LCD Displays If the manufacturing cost advantages can be realized, this technology will be able to compete well against large LCD and plasma displays for the thin television market (Boom/Bust Cycles, 2005). One of the most successful of the new designs is the electromechanical panel, which has

extremely fast response times and has proven to be extremely reliable. One of the most common of these devices is the Texas Instruments Digital Light Processor (DLP), which is a small chip covered with tiny mirrors (Boom/Bust Cycles, 2005). The prospective future of DLP is excellent, with the chief disadvantage of DLP being that they are more expensive than polysilicon panels. Flat panel displaysespecially the LCD modelshave taken enormous strides in the market because of their demand elasticity. When prices were much higher for the plasma models, demand shifted to an alternative technology in the marketLCD displays. As prices have been reduced for a particular item, such as the LCD televisions, consumers have responded by increasing demand for that item. Experts believe that the next decade will yield even greater gains for LCD models. In the LCD television market, the same major players continue to maintain their presence at the top. Since 2005, Samsung, Sony, Philips, Sharp and LGE have been the top manufacturers with the highest worldwide market shares. As the consumer interests have changed, the manufacturers respective market position has changed as well, generally dictated by panel size offerings. This is evidenced by Sony jumping from fourth place to first in the worldwide LCD television market during the fourth quarter of 2005 resulting from increased demand on larger (40 and higher) sizes (Tarr, 2006). The demand elasticity of these items drives the uncertainty of the market leaders ever-changing market position among its peers. Overall, LCD television panel sales volume numbers have all been higher than experts anticipated, with the trend

LCD Displays expected to continue. As flat panel televisions begin to saturate the market and prices continue to fall, revenue growth will become much more difficult to achieve (Flat Panel LCD, 2007). Most of the market leaders share the same basic objectives. These firms want to utilize

the lowest-cost process to make the lowest-cost goods, possessing the ability to produce the best looking image of any flat panel display. In todays LCD television market, as prices drop and advertising increases, consumers typically flock to their nearest retailer to purchase any new technology. The price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of the product (OSullivan & Sheffrin, 2005). The demand for this elastic product truly fluctuates with the ever-changing market conditions. Throughout the history of the television market, technology has driven the product demand. As a product has moved through its life cycle and matured, prices have been adjusted to continue bolstering sales until obsolescence. Strategic marketing and aggressive pricing campaigns have aided in increased sales volume for manufacturers. The LCD television market has continued this pattern of elasticity, but with much more impact over its short existence than previous models. The elastic nature of these products will continue on, with substitutes, alternative technologies, and complementary goods readily available when prices fluctuate. Following the form of its predecessors, the LCD television will dominate the market, flourishing as a result of competitive pricing and strategic marketing until technology catches up with it as well.

LCD Displays References Barnes, D. (2005). Consolidation and Expansion in TFT-LCD Industry. Retrieved October 10, 2007, from USDC Web site: http://www.usdc.org/resources/Display Trends_Fall05/ onsolidation_article.htm Boom/Bust Cycles. (2005). Retrieved October 10, 2007, from Extreme Tech Web site: http:// www.extremetech.com/ Corning: The Future of LCDs. (2007). Retrieved October 10, 2007, from The Stock Advisors

Web site: http://www.thestockadvisors.com/main-section/corning-the-future-of-lcds.html DisplaySearch Report Updates TFT LCD Supply/Demand, Capital Spending and Equipment Supplier Rankings (BizWire, Trans.). (2005). (Original work published 2005) Retrieved October 10, 2007, from EE Times Web site: http://www.eetimes.com/press_release/ bizwire/showPressRelease.jhtml Flat Panel LCD TV Sales Soar. (2007). Retrieved November 30, 2007, from Ecoustics Web site: http://news.ecoustics.com/bbs/messages/10381/380832.html LCD Panel Production and Sales May Come Up Short. (2006). Retrieved October 10, 2007, from Seeking Alpha Web site: http://seekingalpha.com/article/7821-lcd-panelproduction-and-sales-may-come-up-short-gnss-trid-glw-phg-sne LCD TV Futures [Research Study Forecast]. Corning, NY. Retrieved October 10, 2007, from Corning Web site: http://www.corning.com/docs/displaytechnologies/events/Prediction% 20Markets%2003feb%20NYC%20complete.pdf O'Sullivan, A., & Sheffrin, S. (2005). Survey of Economics: Principles and Tools (2nd Custom ed.). Upper Saddle River, NJ: Prentice Hall. (Original work published 2002)

LCD Displays 10 Price-Elasticity Market Analysis of Wall TVs (T. Holzel, Trans.). (2002). (Original work published 2002) Retrieved October 10, 2007, from Velocity Associates Web site: http:// www.velocityassociates.net/detailed_case_study.shtml Q2 2006 Samsung Electronics Ltd Earnings Conference Call Final. (2006). Retrieved December 6, 2007, from EBSCO Host Web site: http://search.ebscohost.com/login.aspx? direct=true&db=bwh&AN=32U2921941524FDW&loginpage=Login.asp&site=ehostlive&scope=site SEC's Market Outlook. (2007). (Original work published 2007) Retrieved October 10, 2007, from Samsung Web site: http://www.samsung.com/AboutSAMSUNG/ ELECTRONICSGLOBAL/InvestorRelations/IREventsPresentations/downloads/ 20070321_merrill.pdf Tarr, G. (2006). Sony Tops In LCD TV Worldwide, Study Says, Retrieved November 30, 2007, from TWICE Web site: http://twice.com/index.asp? layout=articlePrint&articleID=CA6315300 Television History-The First 75 Years. (2006). Retrieved October 28, 2007, from History of TV Web site: http://www.tvhistory.tv/History%20of%20TV.htm