Top-tier panel makers’ third quarter earnings improved dramatically; Korean panel makers’ still enjoy greater cost advantage over Taiwan panel makers

Backed by a six-month panel price hike, as well as panel makers’ efforts to reduce costs, panel makers’ profitability has reached its peak this year. According to forecast from WitsView, top-tier panel makers will witness excellent profitability across all three applications this quarter.

 

Judging from the evolution of material cost to ASP ratio, it is evident that panel profitability has been improving month after month. Looking at NB panels – currently the most lucrative panel among the three applications – the material cost to ASP ratio of the 15.6W is only 53%, equivalent to the profitability level in the beginning of 3Q08. The fluctuations in ratios of monitor and TV panels, which saw aggressive price rebound, were more significant – take 32W TV for example, in 1Q09, material cost to ASP ratio was as high as 85%, thus panel makers suffered the most severe losses; in contrast, this ratio currently stands at 57%. This indicates that by reducing material cost and raising panel prices, panel makers achieve a 30% increase in profits compared to the beginning of the year, and there is also a 10% increase compared to 2Q09. This is also the key factor that major panel makers were able to return to profitability.

 

In the contrary, second-tier panel makers’ conditions were not so rosy – impacted by the shortage of glass substrate in June and July, several second-tier panel makers are left with the predicament of no material input, which led to lower-than-expected utilization rate. Without the support of economy of scale in their production, second-tier panel makers are faced with higher operating costs and depreciation costs. Amid such high fixed costs, several second-tier makers are still struggling in the red in this quarter.

 

The cost difference between Taiwan and Korea’s panel makers is another key highlight in the industry. While Taiwan panel makers’ G5 fabs are still in their depreciation period, Korean makers, with their earlier investment in the industry, are already entering the final period of their G7 and G7.5 depreciation; therefore, there is a substantial gap in the cost structure of G6 between panel makers in the two regions. Without depreciation costs, which account for 20% of the total panel cost, Korean panel makers enjoy far greater cost advantage and higher quotation flexibility in their products, such as 32W TV and 16:9 monitors. If panel prices decline in 4Q09 as expected, Taiwan panel makers will inevitably face the direct price competition from their competitors.

 


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