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Major LCD TV cos to increase outsourcing

Posted: 25 Aug 2008     Print Version  Bookmark and Share

Keywords:LCD TV  Electronic Manufacturing Service  contract manufacturers  Original Design Manufacturers 

Contract manufacturers serving the LCD TV market may benefit from hard economic times as brand names increasingly outsource production to reduce risk, according to iSuppli Corp. "A recent trip to Asia revealed that a number of Japanese and South Korean LCD TV OEMs are considering increasing their level of outsourcing to Electronic Manufacturing Service (EMS) providers and Original Design Manufacturers (ODMs)," said Jeffrey Wu, senior analyst, EMS and ODM Services for iSuppli. "The major Asian LCD TV brands, which traditionally have been loath to outsource LCD TV production, said the use of contract manufacturing could help them to improve risk mitigation and asset flexibility during a time of economic uncertainty."

In light of this trend, iSuppli predicts that contract manufacturers will make 41.1 per cent of LCD TVs produced in 2012, up from 28.2 per cent in 2007.

Leading OEMs' change outsourcing strategies

With the exception of Philips, all of the other Top 5 LCD TV OEMs—Samsung, Sony, Sharp and LG—rely primarily on internal production to fulfil market demand and make limited use of contract manufacturers.

Sony Corp., for instance, manufactured 91.5 per cent of its LCD TVs in-house in 2007 and outsourced the remainder to ODMs such as AmTRAN, Qisda, TPV and Wistron. Sharp, Samsung and LG maintained a similar split between in-house and outsourced manufacturing in 2007.

However, iSuppli believes that these Japanese and Korean OEMs—which were traditionally inclined to maintain tight control over product design, supply-chain management and manufacturing operations—are looking to gain financial and operational leverage from EMS providers and ODMs.

"We plan to increase our TV shipments by more than 80 per cent within the next couple of years and intend to use ODMs to fill the production gap," commented one Japanese OEM. "We are now reassessing the originally planned, continuous internal capacity expansion, and in the meanwhile conducting discussions with 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 associated with heavy capital expenditures. This is forcing these OEMs to reconsider their outsourcing strategies.

In other words, EMS providers and ODMs may take advantage of the ambiguous economic environment to win more business, as OEMs take a mild break on their internal expansion programmes.

However, this scenario hinges on the assumption that consumer demand for LCD TVs will continue to grow, although at a slower rate. Should demand start to decline, OEMs would take production in-house to ensure higher capacity utilisation levels. Alternatively, OEMs may also consider restructuring their production facilities or even offloading them to contract manufacturers.





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