Analyst: Fast LCD ramp-up causing sluggish tool market in 2006

June 22, 2006 – Aggressive capacity expansion for new 5G-7G LCD facilities that came online in 2005 have resulted in a LCD panel oversupply situation in 2006, causing sales of TFT-LCD array processing equipment to drop 10% this year, according to The Information Network.

The New Tripoli, PA-based analyst firm points to “a rash” of new equipment purchases in 2004 for 5th-, 6th-, and 7th-generation facilities, which came online in 2005. As a result, LCD supplies grew rapidly, and panel makers’ investments in array processing equipment slowed to 5.5% in 2005. That oversupply situation will worsen in 2006 — from an average of 6% oversupply to more than 13% this year, noted Robert Castellano, president of The Information Network.

In the past few days, LG.Philips stated it is reviewing its total capacity plans for the rest of the year as inventories rise, and AU Optronics recently cut back its LCD production rates. Other major producers also have raised inventory concerns, he noted.

As a result, LCD manufacturers will delay equipment purchases, causing the market for array processing equipment to drop 10.2% this year to about $4.0 billion, led by lithography tool sales from Canon and Nikon ($1.3 billion together, down from $1.4 billion a year ago). Toolmakers are already feeling the pinch — Micronic Laser Systems AB, which cut 1H06 expectations for new orders of its LCD mask laser pattern generators by about a third, ” and we will see it across the board as pushouts continue,” Castellano said.

He added that the LCD overcapacity situation “should improve as LCD prices drop, companies cut back on production, and Christmas buying approaches.” However, he noted there are other mitigating factors that could impact consumer purchases of LCDs, including high energy prices and increasing interest rates.


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