LCD driver IC makers are being hit by tight packaging capacity at back-end service suppliers due to a shortage of chip on film (COF) tapes, according to industry sources.

Despite improved demand in the TFT LCD panel market, Japan-based tape suppliers have no plans to resume some of the production lines they have suspended, the sources said.

Resuming the lines would increase their production costs, while prices remain low with the possibility of further declines, the sources said.

Fei-Jain Wu, chairman of backend service provider Chipbond Technology, said the COF tape market has previously seen a fierce price war, imposing heavy pressure on Japanese suppliers' profitability.

Wu said there is no sign that the LCD driver sector will see an ease to the material shortage and to the tight capacity in both packaging and testing any time soon.

Judging from estimation by panel makers, demand in the second half of the year will improve compared to the first half, and therefore back-end capacity will be tight, Wu said.

Chipbond's utilization of wafer testing and COG packaging are currently fully loaded, and its COF production is expected to reach 90% this quarter. Other backend companies King Yuan Electronics (KYEC), International Semiconductor Technology (IST) and ChipMOS Technologies have seen their utilization rates increase to 80% or more, according to sources at the companies.

In related stories, Taiwan quartz component makers have also seen short material supply from Japan-based providers, forcing some of them to delay shipments, the sources said. But price of quartz components is stabilizing due to short supply, the sources added.