Guess What Could Stop the Tablet Revolution?
With 2011 shaping up to be the Year of the Tablet, securing the display components for the looming army of tablets may be a key factor in determining success. Last year we saw that the fast start for the iPad prompted LCD display shortages from Apple supplier LG, which said it was having a hard time keeping up with demand. Now with Apple (AAPL) selling 7.3 million iPads in the December quarter, the iPad 2 on the way, and seemingly every manufacturer at CES prepping a rival, the display component crunch could constrain the flow of tablets and hurt some manufacturers that aren't prepared.
The focus on displays may be what Apple was referring to when it reported last week during its earning call that it was investing $3.9 billion to secure inventory components through three vendors. MacRumors speculated that the sum was aimed at shoring up Apple's access to displays, especially ahead of the iPad 2 launch. In December, Apple reportedly struck two deals with Toshiba (TOSYY) and Sharp (SHCAY) to manufacture displays, though Sharp denied the report. Apple, according to Digitimes, is also securing iPad display-panel shipments for 65 million units this year through LG, Samsung, and Chimei Innolux. That's a huge number of iPads, and it would make sense for Apple to lock up the necessary components to ensure the iPad success story continues.
Tablet competitors may do well to follow Apple's example. Last month, Frank Chien, chairman of Formosa Epitaxy, a leading Taiwanese LED maker, predicted that demand for high-end LED chips for LCD displays could outstrip supply starting next month as tablet production ramps up across the industry. ISuppli said earlier this month that global tablet shipments are expected to hit 57.6 million units, up from 17.1 million in 2010. The overall demand for a relatively new product, however, is still forming, said iSuppli. The unpredictability of the nascent market could put a lot of pressure on display makers, which may face shortages or potentially oversupply as they try to guess how the tablet market performs.
For those building tablets, the challenge may be to make sure they have enough display panels to meet demand. The best companies might be the ones that have access to their own display technology, companies like Samsung, LG, and Sharp. And even among display makers, the best positioned manufacturers will be those that have the LED-chip technology in-house, said Sweta Dash, senior director for LCD research at iSuppli in a story in LED Magazine last year.
"By the second half of this year (2010), a clear distinction will emerge between the haves and have-nots among the panel suppliers," Dash said. "Those panel makers that have their own internal manufacturing of LEDs will have sufficient supply in 2010, while those that don't will encounter constraints."
Tablets aren't the only things causing the crunch. The overall popularity of LED-backlit LCD displays in televisions and computers could also help tighten supply for display components. ISuppli said last week that more than two-thirds of large LCD panels shipped worldwide in 2011 will incorporate LED backlights, up from less than one-half in 2010. This year, LED penetration in television and monitor panels will hit almost 50 percent compared with 20 percent last year, while LED backlighting in notebooks and netbooks is expected to be 100 percent.
With so much competition in the coming year, we might not see any one tablet place the demands on the component supply chain that the iPad did. But if the tablet market evolves as many are predicting, the race will be on to snap up display components and fast. Apple is getting ready for the tablet revolution and, in doing so, has shone a light on the importance of the electronics supply chain.
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