While flat panel television sales are expanding, producers struggle to make profit. However, it is not the lack of demand that causes this problem as consumers spent around $115 billion on 220m flat panel televisions last year. Furthermore, many screens, around $100 billion’s worth, went into tablets, smartphones and satellite-navigation devices. It is due to the discrepancy between prices of LCD panels and manufacturing costs. Between 2004 and 2008 prices fell by 80%, while the costs of manufacturing declined by 50%. Therefore suppliers did not have much choice but to sell their panels at a loss or not at all. In six years, between 2004 and 2010 the industry lost around $13 billion. In fact none of the companies making large crystal display panels actually earns money from it. Samsung, LG, Panasonic and Sharp all make a considerable loss on LCD production. Companies that used to earn profit margin of 10-15% a year on panel industry, are now faced with a situation where they struggle to cut the losses.
There are several reasons for the price fall. Firstly, the European financial crisis prevents people from excessive, unnecessary spending, even if prices are reasonable. Secondly, LCD TVs are normally hard to differentiate as all of them are portrayed as large, good quality, and cheap. Finally, in recent years suppliers significantly expanded capacity which led to an oversupply and drove prices down. This problem has been present for years, however it was very well masked by clever accounting. Companies like Samsung and Sharp, also involved in TV industry, tried to make up losses from panel business with profits from complete sets. However, once these have become uncertain, they also started to generate losses. Most companies predict their production to be unprofitable for some years.
Despite the demand on flat-panel screens remaining high and television sales thriving, panel industry became a very unprofitable business. Televisions became so inexpensive that the profits have largely been squeezed out of them. What has been great news for consumers, however became a nightmare for manufacturers. To make matters worse, even once they deal with recent unfavourable conditions there are more challenges to come. In 2012 when Chinese factories come online the prices may drop even further.
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