Large-area LED display industry faces pricing and supply challenges (MAGAZINE)
The LED display industry needs intelligent pricing that enables sustainable businesses, as well as a secure supply chain, including reliable LED suppliers, writes PETER PIHOS of EDG RESEARCH.
This article was published in the September 2011 issue of LEDs Magazine.
View the Table of Contents and download the PDF file of the complete September 2011 issue.
The large-area display (LAD) industry has returned to positive growth, at levels comparable to those before the economic downturn. The growth rate is tempered by continued price declines, even though demand is at record levels. Lower pricing of LADs, especially full-color ones, has opened up markets that could not justify the cost before, and this is a good thing as long as products do not become overly commoditized. Even so, this does not mean there will be clear sailing ahead. There are a couple of equally-important challenges, namely intelligent pricing and a reliable supply of components, that should be addressed in the coming years, so that companies may more easily enjoy degrees of financial health and stability.
A number of years ago I developed with John Finlayson, former general manager of Stewart Warner, a pricing model that we felt represented an intelligent way to price an LAD. The key word here is “intelligent,” by which I mean “pricing that affords a company the ability to make a profit, thereby enabling a business to have sustainability.” Periodically I sit down with my technical guru, Zoltan Helmeczi, who has been involved in manufacturing and sourcing parts for over 20 years, to see if the model still stands the test of time.
To be sure, the model still works for top-tier companies, but is less effective when you look at the lower half of the pricing range offered by some companies. If one were to take the extreme low end of pricing for a 20-mm-pitch system at $750 per m2 and work the model backwards, there is absolutely no way a company can expect to have a viable business. At that price level, many of my clients (who are mainly LAD suppliers) question how it is possible just to purchase the components (at least the ones low-cost providers claim they are using), much less allocate a portion of the sales price as a contribution to fixed costs.
Pricing has dropped dramatically in the past 15 years from $33,000 per m2 for a 30-mm system to $1,500-3,000 per m2 for a 20-mm system. But of course this means proportionally lower revenues and profits for LAD suppliers.
If I were a buyer I would want to be sure that the company I was purchasing from could continue as a business, to be able to assist if there was a technical problem, to have replacement parts readily available for the life expectancy of the system and generally to stand behind the product. With 85% of display production coming either direct or OEM from China, this is very important. The products may be commoditized, but they are not as yet disposable.
So whether you are an OEM customer or an end-user, care should be given when deciding which system you purchase. If not, you could end up like a recent European OEM customer that made a $100k down-payment, only to find the very next week that the company was in receivership and the chances of getting either the money back or equipment ordered were slim to none.
Reliable source of components
One of the concerns I hear most often from my clients is having a reliable LED supply chain in the future. LAD suppliers feel they will be regulated to second-class status, as their market share of LED consumption will not warrant continued product development for LADs. Granted the end market is very small compared to others, especially lighting, but is still in the region of $1.0-1.5 billion annually. It is no secret that some display companies have trouble reordering LEDs that they have purchased in years past. With the focus in LED development heavily geared towards lighting, what will happen to the LEDs that are used in LED displays? Will there be advances in LED display component technology that will match the advances found for lighting?
I believe there exists an opportunity for an LED supplier to focus on the LAD market by providing an approach that is different from the past and meets the needs of the future.