Can LCD be overthrown?
The LCD, or liquid-crystal display, is the king of the display industry-dominating all major product segments from televisions, to computers, to smartphones and tablets. But having reached maturity after decades of development, and continuing to face challenges from rival technologies, is LCD in danger of losing its market hegemony?
LCD primarily dominated the small-sized markets up until the late 1990s when massive investment in large-scale production using larger-sized factories, or fabs as they are commonly referred to, made it possible to produce big sizes at dramatically lower costs. This initiated a massive change in many market segments, such as TVs and desktop monitors, as well as enabling new product segments to emerge, grow and mature, like notebook PCs, smartphones and tablets. With LCD dominating the display landscape today, new challengers have emerged in recent years with the potential to disrupt the comfortable position that LCD enjoys today.
Early in the history of the flat-panel TV market, plasma TVs became synonymous with a flat-panel TV since it was the only flat display technology available in the larger sizes traditionally associated with TVs. This was especially true at the higher price points the TVs commanded. Can anyone remember the sub-HD 42" plasma TV from Philips for sale at $10,000 around the year 2000? As investment levels rose for new and more advanced production capacity in LCDs, far outpacing that for competing display technologies like plasma, LCD TVs started to capture market share at ever-larger screen sizes while enjoying faster cost reduction.
By 2014, LCD accounted for more than 95 percent share among TV shipments worldwide, leaving just a handful of plasma TV sets and bulky cathode-ray-tube (CRT) televisions still being shipped today. IHS expects both CRT and plasma shipments to end as soon as their production base shuts down. Meanwhile, new display technologies like organic light-emitting diode (OLED) have yet to make a significant impact on the TV market. Similarly, in the desktop monitor space, LCD rapidly replaced CRT as the display technology of choice, although there was never another flat-panel display technology to compete with.
Do scale and participation matter more than quality?
The interesting thing about LCD is that it has succeeded so well despite being a deficient technology in many ways compared to the alternatives. Plasma, a self-emissive technology like CRT, produces more accurate colors, better contrast and greater motion performance than LCD. However, when asked what matters most when choosing a good TV, a majority of consumers claim picture quality trumps all other attributes. So why has LCD come to dominate the TV market?
To be sure, LCD has employed more technological innovation than competing display technologies in order to compensate for its performance deficiencies. In fact, most of the major new feature introductions in the display industry center on advancing LCD performance. Such innovations include higher frame rates to overcome motion blurring, LED backlights with local dimming to enhance contrast and reduce energy consumption, and quantum dots to improve color. Furthermore, because LCD is not a self-emissive technology, it can achieve greater pixel density and higher resolutions than both plasma and OLED in some cases. Each of these incremental improvements has eroded the performance advantages plasma makers had been touting for years.
Even so, many enthusiasts in both the professional industry and consumer marketplace still prefer the picture quality of plasma to LCD. Two reasons why all major suppliers and manufacturers in the plasma industry ended production and threw their support behind LCD were scale and economics.
During much of the 2000s, there were more than two dozen LCD panel manufacturers. In contrast, the number of plasma makers never exceeded half a dozen. Moreover, the level of manufacturing investment in plasma panel production couldn't come close to the outlays made by LCD panel makers. Why?
The success of any core technology, including displays, depends on the success of the end-market customers, in this case the brands that sell these products to consumers. In 2005, shipments from the top 10 plasma TV brands accounted for just 2.7 percent of total TV market shipment volume. By comparison, the top 10 brands within the LCD TV category during the same year accounted for over 8.4 percent of total TV market shipment volume. At that time, CRT was still the No. 1 display technology, even though LCD was growing much faster than plasma and enjoyed a broader group of successful brands promoting the technology.
Fast forward to 2010, the pivotal year that plasma TV share peaked and began to decline, and the LCD bandwagon momentum became impossible to overcome. Plasma brands began to exit the category, consolidate, or retreat into large-sized niches where LCD couldn't yet compete on price as effectively. However, investment continued in larger-sized fabs for LCDs, and IHS forecasts that 2015 will see the final shipments of plasma TVs worldwide. In most cases, the plasma TV suppliers also had significant LCD production bases or were working on new OLED display technology, and the suppliers chose to reallocate their resources away from plasma in the wake of the inevitable outcome.
Not only can the support of brands within a category lead a display technology to succeed or fail, but the support of application category can also contribute to economies of scale. In particular, the PC and information technology (IT) categories have been instrumental in the success of LCD. And unlike plasma, the growth of these other IT-related categories occurred earlier and with broader applications beyond TV.
Since 2005, aggressive capacity expansions in LCD factories have reconfigured the competition in flat-panel displays, according to David Hsieh, senior director of displays at IHS. The assertive supply-side expansion comes from panel makers, with the display supply chain gaining good resources from the well-established PC/IT market, especially for desktop monitors and notebook PCs, and then subsequently for tablet PCs. As a result, panel makers have gained great growth and financial reward from the PC market since the start of the new millennium, Hsieh noted, at the same time that process technology improvement and supply-chain growth have improved the capability of panel makers to build bigger glass-substrate fabs for enhanced LCD production efficiency.
Just say "yes" to LCD
Investment continues today in expanding LCD production and competitiveness. While TVs account for most of the revenue from LCD panel production, newer applications like smartphones are playing a greater role in industry profit and revenue growth.
For LCD panel manufacturers, investments in LCD are ongoing to grow both LCD supply capacity and factory size as manufacturers strive to compete and expand incrementally into larger screen-size categories. The investment in capacity and production technology has flowed in waves from Japan to South Korea to Taiwan and now to China, lowering the cost of production at each stage. This progressive East-to-West migration of the supply chain for LCD has allowed all end markets to benefit from lower costs, further spurring the replacement by LCD of the older CRT installed base.
Investment in LCD is substantial, and despite the market's ups and downs fueled by a phenomenon known as the Crystal Cycle, average annual investment is in the $5 billion range. The Crystal Cycle describes the cyclicality driving the LCD industry. Starting from the initial investment, a glut in supply results that creates a drop in panel prices, which fuels end-market growth as retail prices fall. The end-market growth then uses up industry capacity, creating a shortage of panels that drives commoditized panel prices higher, boosting panel-maker profits. This, in turn, creates capital used to fund the next wave of investment. And although global events can have a major impact, IHS has seen the LCD industry's resiliency in bouncing back by breaking into new categories or defeating other display technologies.
In tracking the investment made in equipment used to produce displays, the results show that LCD dominates, even if a considerable investment in OLED-a newcomer display technology hoping to take a larger part of the display market-has been growing as well.
Although LCD is the dominant display technology today, new technologies are constantly being introduced with an eye to possibly dislodging it from its lofty perch. One relatively recent newcomer is OLED, a self-emissive display technology like plasma in that it produces light directly from each cell. This is in contrast to LCD, which uses a backlight to produce light, then shutters that light through a color filter. Producing the light directly within the cell has many benefits, especially in contrast and efficiency, as well as making the display thinner and lighter. And although judgments are subjective, OLED is regarded by many as trumping all other display technologies-even plasma-in terms of pure picture performance.
Potentially, OLED could be less expensive to manufacture than LCD because of the simpler bill of materials and less complicated production process. While LCD is a very mature technology and enjoys production yields of more than 90 percent, OLED has had to overcome challenges with both manufacturing processes and materials that lead to a much lower effective yield. Yield is measured by looking at total glass input area minus unusable waste, either in the form of discarded materials from the process or in flawed panels. In the case of OLED, this has been a huge challenge.
A simpler structure enables OLED to be thinner, lighter and more efficient than LCD, but the process cost is still three to four times higher than for LCD because less equipment is being developed, with the OLED process also still not as mature as LCD. Nonetheless, the yield rate-which is the biggest challenge for OLED--could also be the biggest threat to LCD. If OLED can be produced with yield rates similar to LCD, then the gap in cost between OLED and LCD will narrow, with OLED a much better form factor and possessing higher color performance than LCD.
The problem with making OLED displays is much greater at higher resolutions, such as 4K-also called UHD-because the flaw rate is compounded by the greater pixel density. Thus far, OLED manufacturers have been doing a good job of improving the yield on smaller displays. Samsung has introduced OLEDs in a range of smartphones and tablets, and likely extending to other small or medium applications, including smartwatches. But even though Samsung did introduce a large OLED TV, it has since withdrawn from TV applications, leaving LG as the primary manufacturer participating in the OLED marketplace. Samsung, not one to cede a category to LG, and still dominating global TV sales, has led with more LCD innovations aimed at narrowing the performance gap with OLED. This includes curved LCD TVs-OLED was originally thought to be the only display that could be curved-and wide-color-gamut LCD TVs through a new technology called quantum dots. Quantum dots enable the LED backlight to produce a wider range of colors that compares very favorably against OLED, at a fraction of the cost of OLED.
There are other new technologies poised to impact the LCD category. At this year's CES event, Sharp introduced displays based on microelectromechanical systems (MEMS) that use a shutter technology and alternating colors of LED lights that were rapidly refreshed. Such displays have very fast motion response, a greater range of operating temperatures and very high optical efficiency, which reduces power consumption. These attributes could be especially beneficial when battery power is a concern, such as on mobile displays. Given the growth trajectory of smartphones, it's fair to say that MEMS displays are worth keeping an eye on, as they could well herald the next challenge to LCD's dominion. For now, however, LCD remains nearly invincible.
Paul Gagnon is director, global TV research, IHS Technology