Bigger phone screens? Not so fast.

August 16, 2012: 11:46 AM ET

Manufacturers want to pump out more high-end smartphones with massive screens. (The next iPhone might even have one.) Trouble is, some display manufacturers are struggling.

By Peter Suciu, contributor

samsung_smartphoneFORTUNE -- As far as the displays on mobile smartphones go, bigger is better. The increasingly large displays of devices like Samsung's Galaxy Note and, possibly, the upcoming iPhone are great: bigger screens are naturally better for watching videos, playing games, and manipulating photos and other apps.

Too bad the outlook for cell phone displays is murky and -- unlike the screen size of gadgets -- could actually be shrinking according to NPD DisplaySearch, which predicts a decline for the second half of this year as first quarter mobile phone shipments were lower than forecasters' estimates.

Among those already feeling the pinch is South Korean LG Display, the world's second-biggest maker of liquid crystal display panels after industry leader Samsung Electronics. LG Display, which reported second-quarter net loss of $98 million, noted the loss on the sluggish demand for TV sets and mobile devices that use the LCD display technology. According to the Quarterly Mobile Phone Shipment and Forecast Report, NPD DisplaySearch revised is forecast for the upcoming quarters.

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What gives? Several factors created weaker demand for mobile displays, including the economic slowdown in Europe as well as also a wait-and-see attitude from consumers. "Apple did not have the sales that analyst predicted," said Charles Golvin, principal analyst with Forrester Research (FORR). "There has been expectations for the iPhone 5, which will likely be announced next month and on sale shortly thereafter. A lot of people are likely holding off buying an iPhone so they aren't stuck with a device a month before their friends are showing off the latest and greatest."

Thus with a new handset on the way, Apple (AAPL) could actually break out from the slowdown in the mobile display market. "I expect to see the iPhone 5 buck the trend, due to the drop-off in demand for iOS leading up this quarter's release of the new handset," Golvin added. Rival Samsung has also bucked the trend, and reported a $5.9 billion for the June-ending quarter, as its Galaxy S Handset proved another hit for the South Korean electronics giant. Analysts have estimated that Samsung, which now controls more than a third of the total global smartphone market, could sell between 15 million and 20 million of its Galaxy S III handsets in the September quarter.

Can the rest of the industry expect this kind of success? Perhaps. "We are expecting slight growth over 2011, primarily from the smartphone market," said Vinita Jakhanwal, senior manager of small and medium displays, with IHS iSuppli. "There are still a couple of sectors that are getting impacted, but this is impacting devices, which in turn is impacting the mobile display market." These include the aforementioned slowdown in the Europe as well as a softening in the Chinese market.

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But despite the slowdown, mobile displays should still see some growth -- thanks, in part, to demand for new types of screens. "Total devices are still increasing in 2012," added Jakhanwal. "Apple's iPhone shipments remain a significant part of the market." The iPhone may use so-called in-cell technology that integrates the touch sensors within the LCD panel. This could result in a handset that will have a larger screen -- but without adding weigh in the process -- and will be thinner as well noted Jakhanwal. Crucially, that would boost demand.

Other cutting-edge, if hard-to-pronounce developments could also help boost demand. NPD DisplaySearch noted that AMOLED displays, which consume less power, actually had higher growth while other technologies showed declines. NPD had estimated 23% quarter-over-quarter growth, but it actually surpassed this, reaching 26%. In contrast, old-school LTPS TFT LCD technology was forecast to be up but fell.

The technology in the phones also seems to match the various makers' place in the market. Sony (SNE) and HTC were among the companies to release premium models that utilized the LTPS TFT LCD technology, while Samsung's support of AMOLED, the thin-film display technology, is driving rapid growth. (Samsung's Galaxy S3 featured a 4.8-inch 720HD AMOLED display.) "Samsung has been the most enthusiastic support of AMOLED," added Golvin. "They're used that as a way to differentiate their handsets. It is able to provide very high-resolution and very good black levels."

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Ultimately, screen size and resolution are likely to increase in new phones. NPD DisplaySearch predicted that 4.3-inch screen displays and handsets offering 720 HD resolution will become even more popular. That leaves industry observers waiting to see what Apple will do. It is expected to unveil its latest device at a September 12 event.

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