Despite huge opportunity, the small display market is about to get a lot smaller.

According to ABI Research, the markets for small displays -- those used in mobile phones, PDAs, portable video, audio and game players, as well as automotive and navigation systems -- are showing explosive growth. But profit margins are slim, and analysts at the Oyster Bay, N.Y.-based firm expect shakeouts and consolidation.

Small-display production has been fuelled mainly by the exponential growth of cell phone shipments, which account for about 75 percent of the market, the firm reported.

"This rapid expansion is drawing many new competitors into the marketplace -- both current display makers who have excess capacity, and others who simply see the sector''s enormous potential,” said ABI Research Analyst James Seifert, in a statement. “The downside is that the added competition puts tremendous pressure on prices. So while there''s remarkable growth, nobody seems to be making a lot of money out of it."
 
Virtually all the world''s small/medium displays are made in three countries: Japan, Korea, and Taiwan. The Japanese invented and developed the technologies, the Koreans took manufacturing to the next level, and now the Taiwanese are producing high volumes at lower and lower cost, ABI said.

Saving the market from complete commoditization is the variety of display sizes, shapes and specifications, the firm said, noting that virtually every device uses a different form-factor display. That may soon change, however, as larger manufacturers settle on standard designs in order to squeeze weaker players and benefit from economies of scale.

This points to the likelihood of industry consolidation and shakeouts, notes Seifert. "Investors must identify those companies that have leading-edge technology or a commanding market position," he said. "Examples include Sharp in Japan, Samsung in Korea, and AU Optronics or RiTdisplay in Taiwan. Investors may also be looking at up-and-coming companies that represent good takeover targets."