LCD screen component makers are running their factories at far below full capacity, industry sources report.

Capacity utilisation among glass substrate makers slumped to 86 per cent in the second quarter of this year, according to specialist research house DisplaySearch. 

The figures are the worst for three years, the firm said. Lack of demand for glass substrates, which are the basic building block of LCD screens, reflects the weak state of the entire LCD market.

"Moving into 2006, several factors forced panel makers to reduce glass input in an effort to firm up supply: seasonal weakness, disappointing World Cup demand, continuous capacity expansion, weak pricing and growing inventories," said DisplaySearch vice president Charles Annis.

Leading LCD maker LG-Philips LCD today reported a record loss of $340m for the second quarter. The company blamed weak screen prices and a lack of expected demand from World Cup watchers. 

LG-Philips is currently the world's second largest LCD maker, behind Samsung Electronics of Korea.

"The second quarter was a difficult quarter for the company, as we were significantly impacted by much greater than expected industry-wide pricing weakness," said Bon Joon Koo, vice chairman and chief executive at LG-Philips LCD.

During the second half of last year, stronger than expected demand for large-area TFT LCD screens combined with very tight supply.

These factors drove glass substrate production close to maximum capacity, before the precipitous slump began early this year.

"We are disappointed with our financial performance in the second quarter of 2006. As a result, the company is now taking initiatives to address the issues that are affecting our business," said Ron Wirahadiraksa, president and chief financial officer at LG-Philips LCD.

"We are addressing an increase in inventory levels during a period of overcapacity, primarily in the LCD TV segment, by temporising production. We will continue to control inventory levels going forward."