Skip to main content

Slowdown worries are coming into view in the hot flat-panel TV market.

Investors fear that the credit crunch that started this summer in the U.S. mortgage sector could slow the economy by crimping consumer spending. That could push high-definition TVs right off the holiday must-have list, say industry watchers.

But even without a U.S. consumer slowdown, sales growth looks ready to slow in the luxury TV market. That's because some big makers of liquid crystal display panels -- such

AU Optronics



LG Philips

(LPL) - Get Free Report

-- held back on expansion efforts last year and early this year.

These moves could leave the industry with a low supply of key TV components, say analysts.

The scarcity, especially in the most popular 32-inch TV screen size, may put the brakes on sales growth this year, say industry experts.

"This is going to be a crunch year for LCDs," says DisplaySearch analyst Paul Gagnon. "The market wants to grow more, but demand will exceed supply. There are not enough panels."

The tricky balance between supply and demand seems to have an uneven path ahead this year. A shortage in the prime-sized TVs will help sustain margins but deflate sales volume. To compensate, TV makers and retailers will have to slash prices on the 40-inch and above models to keep sales juiced, say analysts.

The thin-screen high-definition TV market has been on a tear the past few years, as consumers toss aside their conventional cathode ray tube sets for sleek new expensive models.

While playing out in particularly volatile hot and cold cycles, the overall sales trend has been very good to players like LCD glass maker


(GLW) - Get Free Report

and chipmakers like


( ZRAN) and

Trident Microsystems

( TRID).

But recent reports from other industry players have raised concerns about the health of the big TV market.

Last Wednesday, TV distributor



took a beating from investors after slashing sales guidance by 30%. The Olevia brand TV shop claimed that -- among other things -- a credit crunch among suppliers in Asia had dimmed the business outlook.

Observers warn the company is not a good tell for the market and is struggling with its own issues, including an unusual amount of accounting adjustments in its fiscal fourth-quarter financial report and the announced departure of its CFO. Corning, a Syntax-Brillian supplier, recently reaffirmed that it expects to see healthy growth this year.

"I think retailers are being more cautious about the fourth quarter, watching to see if this is a midcycle slowdown or a recession," says one money manager who is short Corning and was short Syntax-Brillian.

Industry analysts say inventory levels among retailers are normal.

But among TV makers there is a tight supply of 32-inch models, which represent the largest volume category at 37% of total LCD sales, says iSuppli TV analyst Riddhi Patel.

With a relative scarcity of 32-inch TVs, the sales prices are not likely to drop enough to create a big buying spree as in years past, say analysts.

Add to that the economic uncertainty, and analysts and investors wonder about the strength of consumer TV demand.

"At this point it doesn't seem to be impacting purchases of TVs," says DisplaySearch's Gagnon. "That's not to say a slowdown in discretionary spending could affect it."