LCD-TV outsourcing shrinks

El Segundo, Calif. — Weaker demand for LCD-TVs has resulted in contract manufacturing of these TVs to fall short of expectations, according to the latest report from iSuppli Corp.

According to iSuppli’s latest report, How the Recession is Shaping Up LCD-TV Outsourcing, results in 2008 show only 28.7 percent of LCD-TVs being outsourced to contract manufacturers, compared to iSuppli’s previous projection of 35.2 percent.

iSuppli expects this trend to continue in 2009, with outsourcing lagging previous expectations by 5.6 percentage points. In 2010, 2011 and 2012, outsourcing will fall short of the previous forecast by 4.8, 3.2 and 2.6 points, according to the report.


“The primary reason for this shortfall compared to expectations is weakened demand due to the recession,” said Jeffrey Wu, senior analyst for Electronic Manufacturing Services (EMS) and Original Design Manufacturing (ODM) at iSuppli, in a statement. “Japanese and Korean OEMs needed to retain enough production in-house in order to rationalize their cost structures and to optimize their internal capacity utilization rates.”

Wu expects the LCD-TV market to continue to grow during the downturn in 2009; however, the operational and financial challenges caused by the recession are forcing many OEMs to reconsider their internal expansion plans and outsourcing strategies, as well as to initiate changes that are having an immediate impact on the supply chain.

The report indicates that a number of leading LCD-TV OEMs and original design manufacturers (ODMs) reported operational losses in 2008. iSuppli cites several examples.

Samsung’s Digital Multimedia Division incurred an operational loss of $311 million in 2008, despite the company’s market share gains.

In its fiscal year 2008, ending in March 2009, Sony incurred its largest operational loss in its history of $2.4 billion.

Sharp incurred a net loss of $1.3 billion in fiscal 2008, ending March 2008, citing stagnant consumption, fierce competition and a surging Japanese yen.

TPV Technology Ltd., which is the largest LCD-TV ODM, also suffered losses in 2008. At the beginning of 2008, the company projected that it would ship 7.5 million LCD-TVs, but ended up shipping 6 million LCD-TVs. The company’s full-year net profit for 2008 was $97.2 million, down 46 percent from 2007.

The report reveals that during the last two years, leading Japanese and Korean OEMs invested heavily in new manufacturing facilities in China and Eastern Europe to establish LCD-TV manufacturing clusters. In the past, only final assembly was done close to the end market, reports iSuppli. In an effort to streamline the supply chain and production process, OEMs began to localize the production of LCD modules and even of LCD panels. iSuppli said as a result of this aggressive expansion, outsourcing shrunk in 2008.

Unlike OEMs in certain other consumer electronics segments that are shifting more production internally, many LCD-TV OEMs now are looking to contract manufacturers for cost-reduction opportunities, said iSuppli.

Case-in-point: Hitachi Ltd. last week announced a major shift in its production strategy and will turn to contract manufacturers to produce its televisions in order to cut costs.

In another example, Sony at the beginning of 2009 announced a restructuring plan to close 14 percent of its 57 manufacturing sites, aiming to reduce operational costs by $3.2 billion this year. The announced closure inevitably will force Sony to further strategize its outsourcing approaches to LCD-TV manufacturing and to rely more on contract manufacturers, said iSuppli.

In addition to established ODMs, such as TPV and Proview, a handful of Tier-2 ODMs and EMS providers have made inroads into LCD-TV manufacturing, leveraging their existing technology and relationships with their clientele, according to iSuppli. Capitalizing on this trend includes Hon Hai, Innolux, and Wistron.