By Alex Malouf
PC display manufacturers are riding the LCD monitor wave and posting spectacular growth rates. Although everything looks buoyant at present some warning lights are flashing: LCD display shortages hit the market last year and even CRT monitors are currently in short supply. Some companies may have misjudged the Middle East in their quest for ever higher profits.
Market changes|~|Manish-BenQ_side1.gif|~|“LCD monitors are much more comfortable than their CRT counterparts. Children and parents love to have whatever they are viewing on a bigger screen, with added multimedia features," says Manish Bakshi, BenQ’s director for the Middle East and Africa|~|A major shift took place in the monitor market a few years ago shaking up the entire industry. The introduction of Liquid Crystal Display (LCD) monitors completely changed an industry accustomed to designing and producing one type of product: the CRT monitor.
Despite years of theory and speculation as to when the new LCD products would become the major seller in the global market, it is only now that vendors in the Middle East are seeing LCD sales grow rapidly. This is the product they are betting their futures on.
Out of the four biggest manufacturers present in the region — Samsung, BenQ, LG and Philips — BenQ has already finalized plans to end almost all CRT monitor production and supply to the Middle East. But abandoning CRT production could be a very risky strategy in a region which is far from mature and where most customers still cannot afford to splash out on an expensive LCD display.
The allure of flat screen displays is obvious. Manish Bakshi, BenQ’s director for the Middle East and Africa, explains: “LCD monitors are much more comfortable than their CRT counterparts. Children and parents love to have whatever they are viewing on a bigger screen, with added multimedia features. But there are other advantages to LCDs, like power saving. These monitors consume less electricity, so if you go into the financial cost structure, you will find that you pay smaller electricity bills if you use LCD rather than CRT. There is also space and weight saving over the bulky CRTs and fewer health hazards.”
Manufacturers are also being enticed by the long-term potential of LCD monitors. While the initial cost of setting up a production line may run into billions of dollars, long-term overheads are low and margins are much higher. “For us at BenQ we see so many advantages in the LCD market, mainly in logistics,” surmises Bakshi. “For every two containers of CRTs shipped, we could have moved five times the amount of LCD monitors in the same space. This carries over to warehousing costs, which are again much lower. If warehousing costs are less, insurance costs lower as do labour costs. These are hidden cost factors which come into play when you are selling the product, not just shipping.”
Logistics have always featured on the minds of those in the monitor market. The costs of shipping and storing products as bulky as CRT monitors meant vendors had to streamline their shipping procedures some time ago. Distributors for major vendors in countries where there is large demand for monitors order directly from the factories in the Far East, and in turn the goods are shipped directly to them. Small markets in the Gulf are supplied directly from Jebel Ali in the UAE, keeping costs to a minimum. While this may seem a simple process, difficulties arise in predicting demand and getting the supply just right, especially when getting product to market may take weeks.
K.S. Vasudevan, senior manager at Samsung’s Digital Information Technology Division, explains: “Jebel Ali plays an important storage role when there are container-based shipments, but costs and time are cut when produce is shipped directly to distributors. Samsung ships half a million monitors every week globally and it is simply impossible to manage this kind of number, so forecasting becomes vital. We have a system to operate this as smoothly as possible with our first tier channel partners who form the Global Samsung Business Network (GSBN). Our channel partners are trained to monitor the market and forecast. This forecast gets fed through GSBN and this gets automatically converted into factory logistics. At any point in time our factory is in a position to see the tier one partners’ requirements and accordingly produce the numbers. It is an efficient supply chain management system.”
Despite vendor’s attempts to introduce efficient logistics and timely supply, the overall market still experiences shortages from time to time. The issue of insufficient supply has primarily affected LCD displays but, worryingly for the region, there have also been CRT supply fluctuations. Part of this problem is due to logistics and forecasting where distributors guess wrong and end up having not enough inventory to meet rising demand. In fact there are almost as many reasons for the lack of supply as there are monitor resellers in the market.||**||Display shortages|~|vasu_side2.gif|~|“CRT shortages are here and will continue for several months, because there is not enough glass," explains K.S. Vasudevan, senior manager at Samsung’s Digital Information Technology Division|~|What has shocked customers and the channel alike is that there have been CRT shortages. With the uptake of LCDs and several major monitor vendors committing themselves to continued CRT monitor production, nobody foresaw that there would have been supply problems of CRTs.
Samsung’s Vasudevan explains: “CRT shortages are here and will continue for several months, because there is not enough glass. Vendors switching to LCD manufacturing have added to the problem, but that is only part of the story. Japanese manufacturers have been phasing CRTs out for the past three years. While some manufacturers have been stopping production, others such as Samsung were in a position to supply. What concerns us is the availability of raw material at this point of time and the glass needed. This is creating the shortage in CRT monitors. After the third quarter of 2004 the situation may change.”
Shortages in the LCD market have been due to vendors’ strategic decisions on production rather than any underestimation of demand. There have been times over the past few years when there has not been sufficient raw material for production of the glass panels used in LCD products like monitors, laptops and televisions. At the beginning of that period, during late 2002 and early 2003, vendors flooded the market with LCD monitors but sales were lower than expected. This flooding of the LCD monitor market also resulted in prices crashing. Owing to the glass panel shortages and lower prices on LCD monitors, vendors have prioritised production and switched to manufacturing other goods with higher margins. When demand for LCD monitors did pick up, like at the start of 2004, vendors were not been producing enough product to meet demand
“From the industry’s point of view, LCD televisions and laptops have higher margins than monitors,” notes Keon Hyeong Kim, IT products manager at LG Electronics Gulf. “So vendors want to switch glass panels to TV and laptop production. With LCD monitors, the price is still decreasing dramatically and most vendors do not enjoy good margins.”
The one positive of all these monitor shortages is price stability. “What we have had over the past few years is a price waterfall effect,” adds Kim at LG. “LCD monitors have fallen from about US$600 to half that. CRT display prices have likewise fallen by the percentage. A 17” CRT which is available for Dhs350 to Dhs400 now was available for double that a year ago. The price fall has been relatively similar in nature over the whole display market.” Price crashes have also been due to some vendors selling below cost. Following shortages, prices have stablised and there are indications that there will now be price rises in both LCD and CRT segments. “Shortages have resulted in price increases not only for LCD but also for CRT monitors,” explains Taeho Roh, the head of Samsung’s IT division in the Gulf. This is very rare in our industry. But the channel will have to get used to price rises for monitors.”
The lack of availability of monitors has been a mixed blessing for vendors, ensuring a fairer playing field when it comes to pricing. Mayank Christian, business manager at Philips, says: “With problems further up the supply chain, every vendor has been hit just as hard cost-wise. I hope that other manufacturers pass on costs via increase in prices and do not continue to subsidise to artificially low levels. It is not possible for any manufacturer to even attempt to absorb this increase and the industry will therefore have to pass it on to up to the end user.”||**||The year of the LCD|~|KimLG_side3.gif|~|"LCD televisions and laptops have higher margins than monitors. So vendors want to switch glass panels to TV and laptop production," notes Keon Hyeong Kim, IT products manager at LG Electronics Gulf|~|LCD shortages have confounded vendors who believed that 2004 would be the year of the LCD. If not for shortages, LCD growth rates would have been much higher. Many customers who would have purchased LCDs had the product been available have instead reverted back to the CRT monitor. Some vendors have been trying to drive the market towards LCD technology as margins are much higher on these high technology products than the older CRT boxes. Many vendors, including BenQ, are switching production and sales to focus on LCDs.
The take-up of LCDs has rocketed in the Gulf region over the past year. Vendors estimate that sales in the UAE will reach at least a quarter of a million LCD monitors this year, an increase of 20% over last year’s numbers. Samsung claims that nearly half the monitors it sells nationwide in the UAE are LCD products and that revenues have already crossed over in favour of LCD monitors.
This growth in LCD sales has led some vendors who were not in the market to begin operations here in the Middle East. One well known manufacturer looking to do well is iiyama. “The Middle East is a very interesting market for LCD monitor displays and we want to start working in the GCC markets.” says Teo De Lange, Middle East sales manager at iiyama. “We have already started to make arrangements with retailers, and we will launch our product range this summer.”
Vendors like iiyama are eager to enter the market because, unlike with CRTs, which were bought alongside PC systems, customers are buying LCD monitors as single items. LCD products are very profitable because of this single reason.
“For LCD monitors, we are seeing a different ball game to how we used to do business,” says Christian at Philips. “There are so many different purchase groups. People want to upgrade their CRT monitors with LCD monitors without changing their PC system for the time being. At the same time, a new very fast growing retail segment has appeared and end users have started buying LCD monitors off-the-shelf, so to speak. For this segment, ergonomics and aesthetics matter, as does brand. LCD monitors being very light in weight and small in volume, are purchased off the shelf in hypermarkets. This was simply not done with CRTs, or was not possible before. You can say that there is a sort of ‘disconnect’ between PC and LCD monitors if you will.”
If there is one group which is driving the LCD market then it is the enterprise segment — big businesses and governments who are taking to LCD monitors at a much more rapid rate than consumers. “More and more corporates are splitting monitor sales from PC sales, as they will get a better deal,” explains Samsung’s Vasudevan. “Health benefits play a part but many corporates are also buying because they need to replace old hardware, and costs are easier to absorb. Around 60% to 65% of LCD sales come from the corporate segment, even in a country like the UAE. If you go to Kuwait and Qatar, corporate sales account for about 75% to 80% of total sales.” ||**||CRT demand|~|mayank-Philips_side4.gif|~|“We have high growth in CRT, along with even higher growth in LCD. What is essential is to balance the mix and keep the business healthy,” says Mayank Christian, business manager at Philips |~|What is often overlooked by the channel and vendors amid the hype surrounding LCDs is that in many countries there is no demand for these products. Customers cannot afford high-tech and instead need a lower-priced monitor to do the job. “In our region, price plays a big part in deciding what monitor to go for,” says Christian at Philips. “This is because a LCD monitor is far higher in value than a CRT of an equivalent size at the moment, even with the large price erosions that we had last year in the LCD sector,”
Major manufacturers such as LG and Philips regularly record that 90% of sales in non-GCC countries are CRT monitors. Samsung notes similar statistics in markets like Egypt where customers’ purchasing power is much lower than Saudi or Kuwait. Some CRT vendors have responded to this demand dynamic by building local assembly lines.
Despite reports to the contrary, CRT monitors have a strong future in the region. “We have high growth in CRT across the region,” reveals Christian at Philips. “As long as there is demand for these products, we will keep on supplying. With the large shortages of LCD panels compounded by price increases, there is more reason for CRTs to grow.”
The choice customers now face between a LCD and CRT monitor may prove to be a blessing in disguise for the CRT market. The three major CRT manufacturers — Samsung, Philips and LG — are releasing new ranges, replete with a host of features to jazz up the old beige box.
New CRT models have in-built video functionality, allowing users to change resolution if they want to watch television or a movie. Colours are much sharper, and viewing screens are now flat. The weight has been reduced as has the size — convenient not only for customers, but also for vendors who save costs on shipping and storage. Even aesthetics is finally getting a nod in the CRT department, with good looking, stylish products instead of the bulky boxes from previous years. With new products which appeal to customers, CRT sales growth is assured for the medium term at the very least.
There is enough room for both CRTs and LCDs in the Middle East market. Vendors may want to push the new technology as much as possible to push up their revenues and margins, but customers are still choosing CRTs. “If the demand is there in the CRT market we will supply, no matter what the margins”, concludes Kim at LG.
The channel needs to offer the most suitable product for each and every customer who walks in and not get exclusively fixed to one monitor type. At present vendors may be hyping up LCD displays, especially with the high margins on offer, but there is still a strong demand in the market for CRTs and this will remain the case for the near future.
“The market in general has a healthy growth rate in both categories,” says Christian at Philips. “We have high growth in CRT, along with even higher growth in LCD. What is essential is to balance the mix and keep the business healthy.”||**||