The technology supply chain going into the holiday season is focused on one thing going: Screens. Will there be enough LCD screens produced to meet demand for all of those smartphones, slates and tablets in the pipeline?
It's no small issue. The industry is already seeing capacity constraints as HTC and others are racing to keep up with demand. Apple can't make enough iPads. And there are a bevy of Android tablets being prepped. The common thread to all of these items is that they need screens and only a few companies---Sharp, LG, Mitsubishi, AUO, and Samsung---can manufacture these screens.
The problem: There's plenty of supply for large LCD screens---think TVs---but the demand is on the small side (smartphones, tablets etc). In fact, there's a likely glut of large LCDs on the horizon, reports iSuppli. However, you can't simply retool a large LCD fab for the small screen overnight. Ideally, that's what LCD manufacturers would do.
And the big monkey wrench in this equation is the potential for an Apple iPad that has a 7-inch screen. Sources within the supply chain expect Apple to launch a 7-inch screen in November just in time for the holidays. The 7-inch iPad remains just a rumor at this point, but a well-placed source says the supply chain is already stirring.
From an Art of War perspective, a 7-inch iPad is just brilliant. Why? There are only so many screens to be had. Apple and its procurement team can gobble up LCDs for its latest iPad and crowd out supplies for all of those Android tablets. That's why Samsung may wind up in the Android tablet pole position---it can make its own screens.
As for the rest of the tablet gang, companies are going to be looking for multiple suppliers and that's going to raise quality issues.
After perusing earnings transcripts from a bevy of suppliers in Asia, it appears that they think they can supply the screens, but it's going to be very tight.
LG executives said last Friday on its earnings call.
It is true that there has been some constraint in procuring LED chipsets.
Sister company LG Display, which makes the screen for the iPad, also said some components were in short supply---but also noted large screens for TVs may be seeing an inventory correction ahead. All of LG Display's capacity buildouts are going to mobile screens, said Anthony Moon, vice president of investor relations at LG Display. He said on July 22:
The capacity we are building second half this year and the capacity we are building next year is mostly for the mobile applications including smartphone.
Other companies are also talking about tight supplies for screens and the components that go with them.
Given the concerns about screen supplies, it's no wonder that there are strong rumors that China is going to build a "screen city" in the central part of the country. This rumored city is two to three years from being operational, but for China this effort would be the Silicon Valley for manufacturing.
For now, file the coming screen supply crunch---along with the 7-inch iPad launch---as informed speculation. Bottom line: The small screen is the big theme going into fourth quarter. All of these devices look great, but they aren't worth a damn if there isn't an adequate supply of screens to go with them.