With Capricious Market Conditions in Dec09, TFT industry living in the Truman Show
Amid gradual recovery of the global economic conditions and the boom of China’s domestic demand in 2009, TFT-LCD panel demand exploded in 2Q09, and triggered panel price hikes; panel makers have finally escaped from the red, with Korean panel makers as the first to slip back into the black in 2Q09. By 3Q09, global top-tier panel makers have all reported positive earnings. Yet, with monitor panel prices adjusted early in 2HSep, LCD TV panel and notebook panel prices have also slipped. Except for Korean panel makers, it may be a challenge for other panel makers to achieve profitability on an annual basis.
Looking at the overall supply-demand conditions in the TFT-LCD industry this year – in 1Q09, panel market was filled with uncertain future outlook as downstream customers continued to suffer from gloomy demand due to the impact of the financial downturn in 4Q08. On the other hand, overly-adjusted panel production capacity crippled material supply in upstream components. Facing demand boom in 2Q09, panel capacity utilization rate ramped up, but its output was restricted by the limited supply of upstream raw materials. In 3Q09 and early 4Q09, Japan- and Taiwan-based panel makers faced another bottleneck in their production due to glass shortage, while China’s increased demand in panels eased concerns of panel oversupply in 2H09, and stabilized supply-demand equilibrium.
The TFT-LCD market has recently been buzzing with different opinions toward monitor panel price trends in December – monitor panel prices were the first to rebound 1Q09, which triggered downstream customers’ inventory replenishment and led to months of sequential rise in inventory levels until 3Q09. As such replenishment took place during the crystal down cycle, and downstream customers’ outlook toward end-market demand in 4Q09 remained rather conservative, for the first time this year, monitor panel shipments started to decline in August. Having been mired in losses due to panel oversupply, panel makers are now cautious in managing their panel production facing weaker panel demand. After effective inventory clearing from August to November, downstream customers’ panel inventory has gradually been restored to a healthy level, and customers have become optimistic about market outlook in 1Q10, and their inventory replenishment invigorated demand for panels; this prompted several panel makers to raise their prices. Could panel makers bring about radical changes in the last month of 2009? Only time will tell. (See figure 1)
Monitor Panel Price Update
As monitor panel prices were adjusted early, upstream and downstream inventories maintained at a healthy level; additionally, inventory replenishment by certain system integrators and brand vendors led to tight supply in the market. Furthermore, the excessive decline of monitor panel prices from late September to November has caused several panel makers to report losses, prompting them to contemplate raising prices. In early December, panel price quotes varied widely among different customers due to their different base periods – while panel makers reduced prices by $1~3 for some customers, other customers were quoted a price increase between $2~5. In light of current market dynamics, it may take longer for panel makers to report financial turnaround. (See figure 2)
TV Panel Price Update
China posted phenomenal YoY growth in LCD TV sales during its National Day holiday, and encouraged highly-optimistic outlook towards its sales performance in 1Q10. The competition between China’s leading domestic brands and international brands continues, and buttressed panel prices in December; hence, price decline is still limited to $3 ~5 in December. On the other hand, in this year’s Black Friday promotion, prices of 42W hit an all-time low of $498/set, indicating that brand vendors are eager to lift the average TV size to 40” in 2010. However, 40W/42W FHD panel still costs between $300~350/sheet, indicating that it is probable that panel makers may face higher pressure to lower prices after Jan10. (See figure 3)
Notebook Panel Price Update
In November, 10.x and above panel shipments benefitted from the conversion to new models equipped with Windows 7 OS. Reduced panel shipments amid slowing end-market demand, coupled by rising component prices, such as DDR 2, led to mounting pressure in panel procurement. Fortunately, as prices of TV panels and monitor panels have been stable, notebook price declines will be limited, down by $1~3; of which, 10.x prices will likely maintain due to its increased demand. (See figure 4)
Conclusion
The buzz phrase, “stronger down cycle and weaker boom cycle” aptly describes the recent market condition. In an industry with routine cycle from upstream suppliers to end-market retailers, when irrational competition occurs, it inadvertently leads to irrational adjustments. After the TFT-LCD industry celebrated the boom in 2007, capital expenditure rapidly increased; while in 2008, China’s natural disaster led to its stagnant demand, coupled by the impact of the global economic downturn in 2H08, an anomaly in the crystal cycle has occurred; the market required cautious control mechanism, and regional performances varied vastly. Panel makers’ strict capacity control, downstream customers’ manipulation, and the boom of China’s domestic demand, created a stronger down cycle in 2009, which deviated from the norm. It remains uncertain whether such conditions will occur in the future; however, in this competitive environment, the battle between competitors in the game of survival will persist.
