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Outlook stable for TFT-LCD: Fitch

"We see the vertically integrated producers -- or those who have key components produced in-house -- to be in the best position."

Matthew Jamieson, senior director, Fitch Ratings

The outlook is stable for the Asia-Pacific thin-film-transistor liquid-crystal-display (TFT-LCD) sector this year, as robust shipment growth and rational capacity expansion will provide firm profitability and cash flow, Fitch Ratings analysts said in a teleconference yesterday.

Although the TFT-LCD sector is likely to benefit from a friendly industry environment this year, the performance gap of each player is likely to widen, said Kevin Chang (張崇人), associate director of Fitch's telecommunications, media and technology team.

The company sees major brand LCD product companies enduring more pressure than panel makers, the analysts said. Taiwan's dedicated panel producers such as AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) are expected to maintain strong cashflow from operations.

"In short, we see the vertically integrated producers -- or those who have key components produced in-house -- to be in the best position," said Fitch's senior director Matthew Jamieson, citing such examples as Sharp, Sony, Matsushita, Samsung and LG Electronics.

In contrast, a tight supply of LCD panels this year is likely to put pressure on the TV brand-only companies, such as Toshiba, Hitachi, Sanyo and JVC, Fitch said.

Jamieson said manufacturers' prudent management of capital expenditure last year will limit capacity expansion this year.

Chang pointed out that LCD TV panel makers with more advanced facilities using glass substrates more than 2m long are also more likely to achieve higher profit margins, particularly for display sizes exceeding 40 inches.

"The Olympic Games in Bei-jing is likely to smooth seasonal demand and boost new purchases in Greater China. In the US, demand is expected to be supported by the lead up to the scheduled switch to digital TV broadcasting in February 2009," Chang said in the teleconference.

He also indicated that demand for large TFT-LCD panels will mainly be driven by LCD TVs; what is noteworthy is that the retail price has fallen to a sweet spot that has stimulated demand, with 42-inch TVs selling at or below US$1,000.

In a separate report, Fitch said the global TFT-LCD demand in terms of display-area is likely to grow by about 30 percent this year, chiefly as a result of the solid momentum shown in LCD TV shipments.

The ratings firm also spotted trends where new applications in electronic gadgets are creating new demand for panel sizes smaller than 10 inches.

An increase in consumer spending in developing economies is not only a strong growth driver but also a factor likely to partially offset the reduced level of expenditure expected in the US and western Europe, the ratings agency said.

The firm also predicted an increase in consolidation within the industry through mergers and acquisitions, as well as through strategic alliances this year, as manufacturers seek to enhance competency by achieving economies of scale.

"These activities have improved industry discipline and should continue to do so," Chang said.
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