This article is more than 1 year old

Anti-trust bomb falls on LCD market

More EU probes could follow

Price fixing happens at times in the market when it is really competitive, when there are fewer margin points possible to shave off a commodity line and when the stakes are really, really high.

It's tough to prove. Most of the prices that LCD panels are bought for are secret, and to reveal them to anyone means that customers can lose their most favoured nation deal. The only people that might smell a rat are the buyers that have heard that prices should be falling, or anyone smart enough to count up the outputs the current factories can produce and work out if there is a glut or not, such as an analyst. Even that's tough in a world where the prices of LCD panels are naturally volatile. Prices are generally falling as outputs go up, but demand is rising rapidly, and a big 80 inch TV set takes up more panel capacity in fewer orders.

Just take the shift to touch screens. Obviously the layers that need to go on top of the screens to make them touch sensitive are additional, but the actual screen sizes go up from maybe 2 inches diagonally, to over 4 inches, doubling physical screen space on anything up to 1 billion devices. It's not just touch screen devices, but screens on all phone classes which are going up in size. That is probably about to happen again, if Apple revolutionizes the touch screen platform with an oversized iPod Touch, as is largely expected, and if the world then copies it.

When you start to build a factory you have no idea of when high yields will come on stream or how much payback you will get for that yield. You gamble. And if three or four players in a market all gamble at once, they can quadruple capacity in a rush, all released at the same time as those factories are completed within months of each other. The outcome is a glut.

Samsung has been very cagey and has not said whether it is in receipt of a Commission statement of objections. But if this time the price fixing is more recent – for instance relating to the current recession – rather than buried in the rubble of 2001 onwards, then there may be some interesting issues surrounding TV sets. And you could not fix the prices on TV set LCD displays without involving the market leader, which is the S-LCD joint venture that Samsung has with Sony.

These two are the global market leaders with 22% and 15% each, so a total of 37% between them. You might argue that they supply their own LCDs so they could get around any price fixing that went on in the market, ignore it or bypass it, but of course if that were the case, their end products would be so much cheaper than everyone else's, because other brands would be suffering from the price fix, which would invariably hold pricing high. In which case their market shares would have rocketed. Sony's market share DID rocket, but Samsung's remained the same – inconclusive.

While we have no privileged information and we are not pointing a finger at anyone, the market conditions for suddenly commodity items are not good, and in order to prevent disaster, people are capable of doing desperate things. We saw in the dotcom era, and the temptation that Enron and others were under to “fix” performances which market conditions created, using scams. So even if it is not these companies which are caught up in it, there will at least be more investigations and someone's head will be in a noose at some stage: that much can be guaranteed. Then $580 million will be the least of anybody's worries.

Another complication of the LCD market is Sony's desire to be its own boss in LCD manufacture or at least not to be partnered with its biggest TV rival. In February it said it would pick up part of the $3.5bn cost of building out Sharp's new 10th generation LCD TV panel plant. Sony would be happier to be in partnership with a smaller Japanese rival, rather than a larger Korean one.

More about

TIP US OFF

Send us news


Other stories you might like