"The credit profiles of TFT-LCD players will experience less volatility in profitability and cash flow in 2008 because of robust shipment growth and rational capacity expansion," Kevin Chang, an associate director with Fitch's telecommunications, media and technology team, said in a special report on the sector to be published Thursday.

He said he expects TV vendors and panel makers to continuously focus on product differentiation, cost reduction and reasonable capital spending in 2008 after their record high revenue and earnings in 2007.

The total addressable market for TFT-LCDs will continue its rapid expansion in 2008. The global TFT-LCD demand in terms of display-area is likely to grow by about 30 percent in 2008, chiefly as a result of the solid momentum of LCD TV shipments.

Evolving applications in many electronic gadgets are also creating new demand for panel sizes smaller than 10 inches. Fitch considers rising consumer spending in developing economies not only a strong growth driver but also a factor likely to partially offset the reduced level of expenditure expected in the U.S. and western Europe.

Conservative capex by panel makers in 2007 will lead to tight supply in 2008, according to Fitch.

"Although the potential for capex increases is substantial in 2008, the expansion of panel production capacity will not materially affect the supply-demand relationship before 2009," the ratings agency said.

Fitch said it believes industry participants have learned, through previous industry cycles, the necessary know-how needed to reduce operating volatility. TFT-LCD makers are now on a path of progressively increasing their production according to market demand, and the new facilities themselves are mainly aimed at the more than 40-inch panel segment.

Although the TFT-LCD sector is likely to benefit from a friendly industry environment in 2008, Fitch said the gap between the performance of each player is likely to widen due to fierce competition in the global consumer market and the different cost structure of each company.

Fitch said it expects major brand companies of LCD products to endure more pressure than panel makers. With the industry vulnerable to a possible tight supply of display panels, LCD TV set vendors that are vertically integrated (that is, using in-house panels) or affiliated with panel suppliers are well positioned to control production cost amid severe industry competition. Nevertheless, Fitch said it believes major dedicated TFT-LCD panel makers will maintain solid cash flow from their operations in 2008, providing essential support to capital expenditures.

LCD TV panel makers with more advanced facilities are also more likely to achieve higher profit margins, particularly for display sizes exceeding 40 inches. As economies of scale gain importance in terms of competency, consolidation within the industry through mergers, acquisitions and strategic alliances is likely to increase. These activities should continue to improve industry discipline.

The Asia-Pacific TFT-LCD Outlook Report will be available shortly on the agency's Web site, www.fitchratings.com. In conjunction with the report, Fitch Ratings will be hosting a teleconference Friday morning, February 1, at 10 a.m. Taiwan and 11:00 a.m. Tokyo/Seoul to discuss the 2008 outlook for the Asia-Pacific TFT-LCD sector.

To register for the event, please contact Valerie Tan at +65 6796 7209/ valerie.tan@fitchratings.com.