3D projector bottleneck may leave cinemas reeling

http://today3d.blogspot.com/2010/03/3d-projector-bottleneck-may-leave.html

Three dimensional films like James Cameron's Avatar have opened up a new chapter for the film projector industry, but a happy ending depends on the ability of electronics companies to make components fast enough.

"The challenge will not be on how many you can sell, it will be on how many you can make," said Eric Van Zele, Chief Executive of Belgian digital projector maker Barco (BAR.BR).

"We really are confronted with a serious question of how we ramp up beyond what we can do now."

About 85 percent of the world's cinema screens have yet to be fitted with digital projectors.

Britain-based cinema research company Dodona estimates that there 115,000 cinema screens in the 57 countries it covers worldwide. Estimates for the number of screens fitted with digital projectors in 2009 vary from 13,000 to 17,000.

Barco believes it could make around 150 million euros ($203.6 million) from digital cinema in 2010.

However companies could be forced to take a rain check on further growth unless they can help clear the bottlenecks in supply caused by components makers. These small privately held companies which make printed circuit boards, optical devices and specialized chips have struggled to meet the recent demands of digital cinema.

In the fourth quarter of 2009 Barco shipped 36 million euros worth of projectors in the quarter but could have added 40 percent more to its revenues. "We could easily have shipped 10 to 15 million euros more if we had had sufficient components," said a spokesman.

Arnaud Gossens, an analyst at ING, said: "In the fourth quarter of 2009, which was their best quarter in terms of sales and deliveries, I estimated that Barco shipped something like 1,000 projectors, that reflects quite close to what their maximum capacity could be.

"Multiply that by four and you get a bit more than 4,000, so 5,000 would be pushing it to the limit," he said.

Nevertheless Barco announced last month that 2009 was its best year ever for digital cinema, when sales of projectors more than doubled, and added that it planned to expand its range in 2010.

PEAK DEMAND

Cinema operators are reaping the benefits of converting to digital, meaning that demand has never been greater for digital projectors.

"Our current roll-out plans will enable us to further benefit from the greater revenues and attendance ratios we have already experienced with 3D," said Drew Kaza, executive vice president of digital development at ODEON.

ODEON, a leading European cinema chain which is owned by private equity group Terra Firma, has just placed a new order for digital projectors with NEC Display Solutions, a subsidiary of Japanese electronics maker NEC Corp (6701.T).

NEC, another leading company in the market, is also experiencing demand which is outpacing supply.

"We are meeting very strong demand, and our supply is falling behind demand," a spokeswoman for NEC Display Solutions said.

"It appears that theatres are scrambling to install digital cinema projectors after the smashing success of Avatar."

She added that the company would look into expanding its output capacity if demand stayed as robust as it is currently.

Ihor Stech, Vice President of Operations for Christie, which is owned by Japan's Ushio (6925.T) and another of Barco's main competitors, agreed that the supply chain concerns were the major issue.

"The pressing question that remains is whether the supply chain can keep pace with the demand for component parts as quickly as Christie can to meet the demand for projectors," he said.

"We are working diligently with our supply base to ensure a rapid increase in components availability."

To solve the problem, Barco is considering funding expansion at its suppliers in exchange for discounts on components, or even bringing a second supplier on board for some components.

However it could be several months before this has any impact.

The shortage is being felt by cinema operators as they work to adapt their screens to show digital films.

"For sure, we were told how there aren't enough machines to meet demand. But we are somehow managing to secure what we need," said a spokesman for T-Joy Co Ltd, a Japanese theater operator with 13 theatres and a total of 119 screens, which is an affiliate of movie producer Toei Co Ltd (9605.T).

"Our plan is to install digital cinema projectors for all our screens by June, and we are working hard toward that goal," he said.

(Editing by Mike Nesbit)