Internally managed production facilities might sit on idle capacity

Tag : LCD
Hard economic times actually may be a boonfor contract manufacturers serving the Liquid CrystalDisplay-Television (LCD-TV) market, as brand names increasinglyoutsource production to reduce risk, according to iSuppli Corp.
"A recent trip to Asia revealed that a number of Japanese and SouthKorean LCD-TV OEMs are considering increasing their level ofoutsourcing to Electronic Manufacturing Service (EMS) providers andOriginal Design Manufacturers (ODMs)," said Jeffrey Wu, senioranalyst, EMS and ODM Services for iSuppli. "The major Asian LCD-TVbrands, which traditionally have been loath to outsource LCD-TVproduction, said the use of contract manufacturing could help themto improve risk mitigation and asset flexibility during a time ofeconomic uncertainty."
In light of this trend, iSuppli predicts that 41.1 percent ofLCD-TVs produced in 2012 will be produced by contractmanufacturers, up from 28.2 percent in 2007.
The attached figure presents iSuppli's forecast for in-house andoutsourced LCD-TV manufacturing for the period of 2007 to 2012.
Leading OEMs' change outsourcing strategies
With the exception of Philips, all of the other Top-5 LCD-TVOEMs-i.e. Samsung, Sony, Sharp and LG-rely primarily on internalproduction to fulfill market demand, and make only limited use ofcontract manufacturers.
Sony Corp., for instance, manufactured 91.5 percent of its LCD-TVsin-house in 2007 and outsourced the remainder to ODMs such asAmTRAN, Qisda, TPV and Wistron. Sharp, Samsung and LG maintained asimilar split between in-house and outsourced manufacturing in2007.
However, iSuppli believes that these Japanese and Korean OEMs-whichwere traditionally inclined to maintain tight control over productdesign, supply-chain management and manufacturing operations-arelooking to gain financial and operational leverage from EMSproviders and ODMs.
"We plan to increase our TV shipments by more than 80 percentwithin the next couple of years and intend to use ODMs to fill theproduction gap," commented one Japanese OEM.
"We are now reassessing the originally planned, continuous internalcapacity expansion, and in the meanwhile conducting discussionswith ODMs to understand their capabilities," said a Korean OEM.
Supply chain implications
OEMs are concerned that internally managed production facilities might sit on idle capacity if consumer demand fails to catch up.They may be required to alleviate the financial distress associatedwith heavy capital expenditures. This is forcing these OEMs toreconsider their outsourcing strategies.
In other words, EMS providers and ODMs may take advantage of theambiguous economic environment to win more business, as OEMs take amild break on their internal expansion programs.
However, this scenario hinges on the assumption that consumerdemand for LCD-TVs will continue to grow, although at a slowerrate. Should demand start to decline, OEMs would take productionin-house to ensure higher capacity utilization levels.Alternatively, OEMs may also consider restructuring theirproduction facilities or even offloading them to contractmanufacturers.
A more detailed analysis of the flat-panel TV value chains andleading OEMs' outsourcing strategies and their contractmanufacturers can be found in iSuppli's upcoming report: Global OEMManufacturing and Design Analysis (GOMDA) - Flat-Panel TV Module.For more information on this report and iSuppli's GOMDA service,please visit: http://www.isuppli.com/catalog/L2-goma.asp
CONTACT: Jonathan Cassell, Editorial Director and Manager, PublicRelations, iSuppli Corporation Tel: +1 408 654 1714 Tel: +1 408 9213754 WWW: http://www.isuppli.com
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Business Management , Consumer Products & Services , Consumer Electronics , Consumer Video Products , Computer Equipment , Computer Hardware Industry Top News , Consumer Electronics Overview , Computer Peripherals , Visual Display , Flat Panel Displays , Electronics , HR & Labor Management , Computer Equipment Manufacturing , Computer Equipment Products , I.T. Vertical Markets , IEEE Micro , HR & Labor Management in I.T. , I.T. , Labor Outsourcing , Manufacturing , HR & Labor Management in Manufacturing , I.T. in Manufacturing , Outso