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The Big Picture: Is the LCD Becoming the New Motherboard?

The {complink 379|Apple Inc.} iPad is breaking new ground in so many ways. But in one particular area, Apple could shake up the entire electronics supply chain.

Last spring, market research firm iSuppli Corp. reported some very interesting findings from its tear-down of the iPad. Some 44 percent of the product's bill-of-materials (BOM) cost was in the user interface. Specifically: the LCD, touchscreen, and associated electronics.

That BOM equation reflects a shift in product design — and the value chain of components for that design — that is a mere ripple now but could eventually become a big wave. In computers, product design starts with the motherboard. Component suppliers vie to win a spot on that board. But the iPad is designed around the user interface. This emphasis, in which the focus starts with the screen rather than the data processing, is what has made the iPad so attractive and useful, and thus so popular.

“This unleashes an extremely interesting dynamic,” iSuppli CEO Derek Lidow said in a press release. “The question of which companies in the supply chain will capture the profits from this user-interface-based approach will be of major importance in the coming years.”

Translation: The chip giants of the PC industry, such as {complink 2657|Intel Corp.} and {complink 103|Advanced Micro Devices}, could lose their dominance in the electronics industry. Yet they seem oblivious to this shift. In “Intel, Microsoft, and the curious case of the iPad” CNET's Brooke Crothers notes that Intel's Paul Otellini thinks tablets will have only a marginal impact on PC sales and that AMD’s Dirk Meyer doesn’t think tablets merit R&D spending yet.

They may not see the threat because they aren’t looking in the right direction. They think the display is just another component. But if the LCD becomes the new motherboard, then the companies associated with the display, touch screen, and associated electronics — and in the iPad that's, respectively, LG Display, Wintek Corp. and Broadcom, and Texas Instruments — will grow in influence. The LCD might eventually subsume some of the functions now performed by individual chips, just as Intel microprocessors kept integrating the functions of other chipsets on the motherboard.

Whether, and how quickly, the balance of power shifts to the display will depend on both the growth of the tablet market and whether the dominant tablet manufacturers focus on the display as the center of the design universe. {complink 7426|Gartner Inc.}, for one, has an incredibly rosy forecast for tablets, predicting growth of from 19.5 million units this year to more than 208 million in 2014. To put that in perspective, PC shipments were 306 million last year and will probably be around 350 million this year.

Whether other tablet manufacturers follow the design lead of Apple is a tougher question. Many of them view the tablet as a mini-PC rather than a smart display. However, it's not just the iPad that should prompt computer companies to rethink their designs. Just look at where the consumer electronics industry is headed. It’s video everything: Internet-enabled TVs; video on your smartphone. Earlier this month, {complink 1131|Cisco Systems Inc.} announced a video conferencing service for consumers.

If the display becomes the center of the universe, big changes will occur in the channel. For one thing, supplies and pricing could become more chaotic. LCD supplies have historically whipsawed back and forth dramatically — like DRAMs. In both LCDs and DRAMs, each new generation of technology requires a new, more expensive fab. If manufacturers fail to time the switch just right (and they never do), the transition to a new generation causes severe shortages and then huge gluts in supply.

That's just one of the many potential implications. If I were a channel executive, I would keep my eyes glued to the screen.

5 comments on “The Big Picture: Is the LCD Becoming the New Motherboard?

  1. Barbara Jorgensen
    October 21, 2010

    Great blog Tam! To further strengthen your point: “Cypress Semiconductor Corp. today announced that Samsung Electronics Company Ltd. has selected the TrueTouch solution from Cypress to implement the touchscreen in the Wave 2 and Galaxy 5 mobile phones.” LCDs  are just big semiconductors, so why not design around them? And you are right–chip makers such as Intel should keep an eye on these developments. It wouldn't even be that tough to re-brand themselves: “Intel Outside.”

  2. Tam Harbert
    October 21, 2010

    Yes, the manufacturing processes for LCDs and semiconductors – as I understand it – are very similar. It makes me wonder if some of these big LCD companies might eventually buy some of the chip companies.

  3. Anna Young
    October 21, 2010

    Tam, The rate at which technology changes nowadays is incredible and the impact on the companies that design, manufacture and market these products is similarly astounding. If your suspicions turn out right and LCD manufacturers get a piece of the action this could force companies that manufacture microprocessors in a bind. I don't doubt that companies like Intel could see their hold on the PC segment for instance simply fall away. Take the example of the type of drives that Apple is now installing in its computers. The company is now bypassing hard disk drives and this is going to change the market much as you are predicting here. If Apple successfully swaps a different type of drive for hard disk drives, then companies like Seagate and Western Digital could be in really big trouble. Would you know if there are other segments of the electronics industry that are experiencing such potentially market-altering changes?

  4. Tam Harbert
    October 21, 2010

    Thanks for you input. Good point about the disk drives. I think solid state memory is already enscounced in most mobile computers and smartphones. But the disk drive makers have moved into the solid-state disk market, and so they needn't be shut out. I don't see the chip makers getting into the LCD market. I don't necessarily see any other big component changes looming, but I do think the hey day of the PC is over. More and more the action is in mobile phones and tablets. The manufacturers, component suppliers and software vendors that are successful there will probably be the new leaders.

  5. DataCrunch
    October 22, 2010

    If Google has its way, all apps and storage will be on-demand and in the cloud, including an eventual web OS.  More and more companies are coming out with online drive solutions, which will have to impact in the future the current PC drive manufacturers.  I currently use laptops and desktops regularly, but I can see myself migrating to using iPads, tablets and/or netbooks more in the future for tasks that I traditionally have used on PCs. 

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