Sharp Cuts Production at LCD Panel Plants

Sharp’s move to cut production at its 8th- and 10th-generation LCD panel plants stems from a tight supply of raw materials and a slowdown in Japanese market, analysts said. Sharp is believed to have reduced utilization at the 8G facility to 65 to 70 percent of capacity from around 80 percent, Avian Securities analyst Andrew Abrams said. The plants are expected to resume full production by early May and the short-term manufacturing reduction isn’t affecting product availability in the U.S., a Sharp spokesman said.

In addition to a shortage of raw materials like nitrogen trifluoride, advanced color films and indium tin oxide electrodes as a result of the March 11 earthquake in Japan, Sharp’s business with Sony, which accounts for 18 percent of production, has slowed, Abrams said. Nitrogen trifluoride is used in the cleaning of plasma enhanced chemical vapor deposition chambers in the high volume LCD production. The process deposits thin films from a gas state to a solid state on a substrate. Sharp LCD TVs also are among the top-selling brands in Japan, which is struggling to recover from the earthquake. Sharp accounts for 17 to 18 percent of global LCD production, Abrams said.

"TVs aren’t really selling at the moment in Japan since people are worrying about more pressing issues such as whether the power is on,” Abrams said. “Sharp is the biggest brand in Japan and it does make logical sense that even though nothing physically happened to the facilities, the demand side in Japan certainly hasn’t been robust” prompting them to slow production.

Corning, which supplies LCD glass to Sharp’s 8G and 10G plants, is maintaining production levels at its Shuizuoka and Sakai City, Japan, facilities to “replenish” inventories and supply other geographic regions, Chief Financial Officer James Flaws said in a statement. Corning is believed to have gained a small amount of business from Japanese LCD glass supplier Asahi, which has struggled with power outages, analysts said. Corning also could use the plants to supply customers in Taiwan, analysts said. The Shizuoka plant makes Corning’s scratch-resistant Gorilla glass, the supply of which wasn’t affected by Sharp’s move, Flaws said.

Most retailers we canvassed said they had adequate inventory for 30 days, but expected to supply to tighten by late Q2. The potential shortage could last 60 to 90 days as manufacturers work to resume full supply, Abt Electronics General Manager Philip Hannon said. Conn’s doesn’t expect to start feeling any impact until early Q3, Retail President David Trahan said. Manufacturers seem “unsure what the long term effect will be and most can only see out over the next six to eight weeks where there are no problems,” said Daniel Schuh, executive director of AV products at ABC Warehouse. “Beyond that we are not sure."

The shortage of components could prompt some LCD TV panel makers to seek price increases, analysts said. A tight component supply “makes things more difficult for the rest of the panel producers and that helps them raise prices,” Abrams said. “Given that pricing has been horrendous in this business, maybe this is the opportunity they get to raise prices a little bit."

LCD panel suppliers for PC monitors are already seeking price increases, said Chris Connery, vice president of PC and large format commercial displays at DisplaySearch. The panel makers are seeking to return to profitability after posting an operating loss in the second half of 2010, he said. Some industry observers believe the earthquake in Japan and the component shortages stemming from it are being used as a “negotiating ploy” to secure price increases, he said. “The price increases are coincidental to the disasters in Japan, but not related, so it is hard for many disassociate the two,” Connery said. OEM desktop and notebook PC suppliers also are pushing to raise prices, citing increases in costs tied to logistics, labor and materials, he said. The rising cost of oil, which is used in the housing of desktop and notebook PCs, is among the materials driving the price increases, Connery said.