Slower component price declines expected in 2Q09 rush order effect leads to some parts shortages

by WitsView on Apr.27 2009

Since the emergence of the rush order effect in Feb09, not only has it provided a much-needed boost to the utilization rates of Taiwan’s panel makers, it has also helped ease the growing operational pressure on upstream component makers.

Looking into 2Q09, the component price drop is expected to be much more moderate over 4Q08 and 1Q09. The key reasons to this assessment are listed as follows:

1. Given the substantial component price falls during the past two quarters, the room for further declines is limited for most components.

2. Thanks to the panel makers’ higher utilization rates, inventory previously forced to be sold at low prices has mostly been cleared away.

3. With component makers all grabbing a relatively fixed share of the market, there is no immediate need to further lower prices in attaining a bigger share.

4. Panel makers have shifted some of their focus in the negotiations with component suppliers to on-schedule delivery times instead of additional material cost downs.

Separately, as the backlight unit uses several different materials, which include CCFLs, optical films, metals, plastics or even LEDs, its price drop will be more notable compared to other major components.

Amid the still unclear demand visibility for 2Q09, the rush order effect is expected to continue for the time being. However, to the upstream component makers, the previous 2~3 month lead time needed for the preparation of relevant materials has been substantially squeezed due to the influx of the rush orders. For parts that are more custom-designed or require a longer lead time, which include driver ICs, T-con and inverters, it will be very hard for such materials to be delivered on schedule every time.

Needless to say, panel makers are inclined to provide more support to their in-house component suppliers over the independent players. In the wake of the still uncertain global economic climate, unless there is a strong technological or production cost advantage, these independent manufacturers are often the first to see their orders being cut. This phenomenon is most notable in the color filter segment, where the in-house production is already very high. Business has also been difficult for the highly vertically integrated polarizer market and small market capitalized optical film segment. The decline in orders during the past few months has made it hard for such players to generate cash, rendering their businesses to become increasingly more vulnerable.

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Slower component price declines expected in 2Q09 rush order effect leads to some parts shortages

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