EL SEGUNDO, CA – Shipments of small- and medium-sized display panels fell for the second straight month in May, as demand decreased from cellphones and all other major product categories – with the major exception of tablets – according to IHS iSuppli.

Coming on the heels of a 6.9% decline in April, shipments of SMD displays from the two major groups of suppliers in South Korea and Taiwan fell further to 187.1 million units, down 4.2% sequentially.

SMD panels, ranging in size from 1" to 9", are used in consumer items, including smartphones, tablets, digital still cameras and personal navigation devices. Nearly all of these displays employ LCD technology.

“SMD demand in May was impacted by declining sales to the cellphone market – the leading application for such displays – along with other key areas, including digital still cameras and portable navigation devices,” said Vinita Jakhanwal, director for small and medium displays at IHS. “The only exception was the tablet market, where demand continued to exceed supply.”

Suppliers of SMDs for cellphones in May trimmed their forecasts in light of weaker-than-anticipated handset shipments from Nokia and Research In Motion. Both companies have been under intense pressure because of strong competition from Apple’s iPhone, as well as from handsets based on the Android operating system, says the research firm.

Handset panel shipments to China during the period were also disappointing, with officials in the country cracking down hard on an illegal gray market estimated at 255 million units this year, according to IHS iSuppli. No relief appears in sight, with the gray market in China projected to decline starting next year.

The market for SMDs in digital cameras continues to be impacted, as panel supplies are shifted to the more lucrative smartphone and tablet spaces. Meanwhile, the portable navigation device segment continued to shrink steadily.

This is expected to be a short-term slowdown, with shipments set to rise for the entire year and during the following years.

The one positive aspect in the SMD market is the fast-growing demand from the tablet segment. Along with high shipment growth, tablet displays command a relatively high price compared to SMDs in other applications. This is because of their high specifications required for advanced performance, says IHS iSuppli.

Taiwanese vendors will start mass producing for Apple iPad panels starting in the third quarter, while Korean vendors have aggressive plans for capacity expansion to meet demand for PC-type tablets, such as H-P’s TouchPad.

Fearing possible component shortages after the Japan quake disaster in early March, branded vendors and channels pulled in SMD shipments ahead of time to bolster stocks, says the firm. However, with inventory in the channel building up and in light of endemic weak demand, panel shipments could not recover and declined in April and May. The uncertain picture in Europe, with rising inflation and sovereign debt issues, was also a contributing factor to the SMD panel decline in general during the period.

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