LCD display brands look to outsource as profits dwindle

LCD display brands look to outsource as profits dwindle
Plummeting LCD TV prices and diminishing margins are forcing many brands to outsource their factory operations, according to IHS iSuppli.

The research body’s Global Manufacturing and Pricing report suggests worldwide production of LCD TVs conducted by contract manufacturers will nearly double from 2010 to 2015.

ISuppli claims that the two major segments of the outsourced electronics business—electronics manufacturing services (EMS) providers and original design manufacturer (ODM) companies—together will produce 127.9 million LCD TVs in 2015, up from 65.1 million in 2010. The EMS and ODM companies will account for 43.0 percent of LCD TV unit production in 2015, up from 36.2 percent in 2010.

“The continued growth of the LCD TV industry during the last couple of years, in spite of the economic downturn, has further intensified the competition among television brands and contract manufacturers,” said Jeffrey Wu, senior analyst for EMS and ODM at IHS. “However, even amid this growth, prices have fallen, causing profit margins to dwindle and prompting brands to increase outsourcing to achieve greater cost efficiency.”

ISuppli says outsourcing can reduce costs and provide manufacturers with greater asses flexibility.

The use of contract manufacturing also mitigates the impact of exchange rate fluctuations and, with an increasing number of contract manufacturers offering vertically integrated production, outsourcing can provide cost savings and a leaner supply chain.

Among the leading Japanese brands, Toshiba has been the most aggressive in outsourcing. Sony also has been active on this front, initiating rounds of restructuring efforts in 2009 and divesting its LCD manufacturing facilities in Mexico and Slovakia, contributing to the increased use of contract manufacturers in the LCD TV industry.