One in four flat-panel TVs sold worldwide from January to March this year was made by a contract or outsourced manufacturer, as TV makers cope with a fall in consumer demand and optimise the total supply chain cost going forward.

Sharath Kumar, LG's Sales Manager for TV products in the Middle East, told Emirates Business: "The question TV manufacturers face these days is 'to outsource or not to outsource' as they revamp their supply chains to cope with the drop in demand caused by the global downturn. The trend is towards outsourcing. One in four of all flat-panel TVs sold globally from January to March was made by a contract manufacturer, not the company whose brand name is on the set. By next year, nearly a third of all TVs will be outsourced."

According to the latest quarterly LCD TV value chain report from Display Search, 25 per cent of LCD TVs shipped in Q1 were made by external OEMs (original equipment manufacturers) such as AmTRAN, Compal, Grundig, Jabil, TPV and Wistron, which is up one per cent quarter on quarter.

As the LCD TV market becomes commoditised, many brands plan to increase outsourcing for specific regions and products to build market share and optimise the total supply chain cost.

According to Deborah Yang, DisplaySearch's director of monitor and TV market research: "The outsourcing ratio is likely to increase to 30 per cent or more in 2010. However, shortages in LCD TV panels impacted panel prices and allocation for TV manufacturers. LCD TV brands, as well as OEMs, will need to pay higher prices to ensure that they have an adequate panel supply. Supply of LCD TV panels is a critical point for LCD TV OEM business success."

TV manufacturers can save a lot by letting someone else spend the huge sums on new factories fitted with state-of-the-art equipment.

Kumar said: "Unlike LG Electronics, which makes all of its own sets and LCD panels, other TV manufacturers appear to be looking to outsource more of their TVs. It certainly doesn't make any sense for the second and third tier brands to add new factories only to sell small, low-cost LCD TVs – the sector of the market where TVs are a commodity – as competition is the most cut-throat and prices are most attractive for consumers."

The Middle East, being an emerging market, is expanding opportunities for top brands and OEMs. With LCD panel supplies and prices creating a tight market situation, many countries are facing a volatile scenario, except for South Korea where makers report a stable panel situation. To ensure delivery lead times, LCD TV manufacturers are forging ties with broader numbers of panel suppliers.

More than 3.5 million LCD monitor panels were used for LCD TVs (under 26 inches) in Q1. "Shipments of small-sized LCD TVs, which largely use LCD monitor panels, continue to increase, putting a strain on LCD monitor supply," said Yang.

The supply situation of LCD panels should improve for OEM businesses. "LCD panel manufacturers will keep the supply of panels flowing to their customers. The focus on panels helps blunt declining volume sales and sinking prices that have hit every TV maker in the industry," said Kumar.

Today, the maximum number of OEMs are from Taiwan. However, China's role in the LCD TV market is also becoming increasingly important, as Chinese brands gain market share among top global brands.

For Taiwan-based TPV Technology, one of the largest monitor manufacturers, its main source of business comes from producing monitors for computer giants such as International Business Machines, Hewlett-Packard, Compaq and Dell. TPV also makes and sells monitors under its three brand names – AOC, Envision and Amark. In all, TPV makes more than 100 different models of monitors.

TPV ranks first in LCD TV sub-contract manufacturing with a 20.6 per cent share. Vestel, the world's third largest OEM manufacturer for consumer electronics and a prominent producer for set-top box solutions, which handles manufacturing for house brands including private and channel labels, had a 17.2 per cent share, followed by Taiwan based AmTRAN that supports Vizio's TV lines with a 12.4 per cent share.

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