The world has been in a mess for a while now and in many places economic activities have been halted for a period of time. But during the fourth quarter of 2020, the LED screen industry saw a rise in demand for LED screen products. You may think a rise in demand is always a good thing. However, demand is rising at a faster rate than expected and supply could not catch up. In the end, the industry players are facing a dilemma – to increase or to maintain the prices of their products and services.
The law of supply and demand
In economics, the law of supply and demand is always the first rule, prices are just numbers. These numbers go down when there is a surplus of goods and prices go up when there is a shortage of goods. For example, in 2018 – 2019, the LED screen prices went down due to the increased number of LED screen manufacturers. Production capacity increased strongly, but the demand in the market did not catch up with that. Then in the second half of 2020, LED screen prices raised for the first time, because of a sudden surge in market demand. As we enter the second half of 2021, increasing cost pressure is now unavoidable for all players in LED screen industry. For the past few months, the rate of increase in demand outpaces the rate of increase in supply. What is happening here? Why is the demand on the rise?
An increasing demand proves that customers are having a high level of readiness and ability in purchasing LED screen products. Normally, an increase in demand happens during the growth stage of the economy. In order to understand the demand for LED screen products, we need to look at the largest customer markets in the world – China versus Europe and the United States. While Europe and the United States were still suffering in the second part of 2020, China’s economy has started to recover. The customer market in China is growing. Thus, business owners and advertisers are looking for investment opportunities to get more customers and sales. One of the opportunities is to invest in LED screen products and services since these are effective tools in accomplishing these goals.
LED screen manufacturers in China started to receive more purchase orders in 2020 and the recovery in consumption brought new business opportunities. However, at the same time, Europe and the United States were still in trouble. Many businesses were still closed and the economy was still negatively affected, but the demands for display products were on the rise. Recent lockdowns have forced consumers to change their behaviours, and this has caused a disruption to the supply chain of the electronic products. While consumer-grade LED screens and other electronic device industries have different target audiences, these industries share the same raw materials and components with the commercial-grade LED screen industry. It causes the competitions in securing the supplies.
The semiconductor chip shortage
The two main components of an LED screen are semiconductor chip (integrated circuit) and printed circuit board. However, these components are not exclusively found in LED screen. In fact, the chip is the key component of many other electronic devices such as monitors, smartphones, electrical appliances, medical devices, etc. When lockdowns created demand for electronic devices and when the market started to recover, global chip shortages started to happen. Although chip manufacturers have greatly increased their production capacity, it is still not enough. The global chip shortage has led to bottlenecks in various businesses. The LED screen industry is the one that is hit worst. This is because LED (light emitting diode) is the key component of an LED screen and the heart of an LED is the semiconductor chip.
According to report from China, it is expected that the price of the semiconductor chip can increase up to 20%. This will directly cause the LED screen companies and resellers to raise the prices of their end products and services. However, increased business cost is not the only concern. The major issue here is the shortage of key components even though companies and customers are willing to pay a higher price. If you place your order today, you might only be able to get the components months later.
The spiking copper price
What about the future?
The shortages and the price increases of the LED screen’s raw materials are beyond the control of the LED screen manufacturers and the resellers. So there remains a challenge – to increase or to maintain the prices of the products and services. Some players have no choice but to offset the rising production cost by raising the prices. Some players are looking into differentiation strategies to add value to their products and services. A small portion of the players chooses to stay competitive in the market by taking a wait and watch attitude. Undoubtedly 2021 is a challenging year for the LED screen industry, but it is also a year of opportunities as the global economy is recovering. Although customers consider LED screen price as an important factor in their purchase decisions, they are actually looking beyond that. Those who can provide products and services that create the highest customer value will always win.