Optimistic outlook for the TFT-LCD industry in January 2010 as monitor panels lead the price increase

by WitsView on Jan.06 2010

It has been confirmed that panel prices will increase; and at the end of last month, several customers have accepted the monitor panel price increase. At this stage, as the market holds great expectations toward sales of LCD TVs during Chinese New Year, panel demand remains buoyant; this helps to stabilize panel price trends. Due to several manipulated variables in the market, the current cycle of the TFT-LCD industry has deviated from the usual supply-demand cycle, resulting in a stronger slow season and a weaker hot season. In this market anomaly, variables that affect the panel price trends are more complex, hence, the recent monitor panel price rebound can be attributed to the following factors:

1.As panel makers deliberately use bulk orders to gain higher bargaining power, orders from major brand customer are given priority; moreover, the competition for market share between the two leading system integrators, TPV and Innolux, has expanded from monitors to TVs; after the Chimei Innolux merger, TPV began to increase its panel inventory on hand in 4Q09, therefore, given limited panel supply, the second- and third-tier customers are compelled to purchase panels at higher prices, providing panel makers an opportunity to increase prices.

2.Between last October and November, the substantial decline in monitor panel prices has led to severe financial pressure among panel makers.

3.After new wave of personnel re-organization, several panel makers focus their attention on first quarter’s financial performance, and raising prices will help them achieve immediate results.

4.China’s Ministry of Finance re-adjusted the electronic product subsidy program, increasing the maximum subsidy to RMB7000. This move spurred shipments of LCD TV panels, and is expected to stimulate China’s domestic sales performance during Chinese New year, encouraging consumers to purchase 40~50-inch LCD TV.

5.Glass supply is still unstable and constrained, despite its gradual recovery; supply of several upstream components is also tight due to rush orders. (See figure 1)

Monitor Panel Price Update

Monitor panel supply is constrained due to buoyant demand for LCD TVs, inventory replenishment of monitor panels from downstream customers, and tight supply of several components. In addition, panel prices fell by 5~10% between last October and November, bringing it close to its fully-loaded cost. Therefore, since the price rebound at the end of December, several panel makers have been preparing for a $5~10 price increase, while others are relatively more cautious due to concerns of potential negative effects that could result from such sharp increase. According to our survey, monitor panels will increase by $3~7 this month. (See figure 2)

TV Panel Price Update

Based on our survey, China’s LCD TV sales during New Years were outstanding, coupled with the subsidy increase in the electronic product subsidy program from China’s Ministry of Finance, which helps to stimulate market demand for 40-inch and above TVs, the market is optimistic toward the sales performance during the upcoming Chinese New Year. Backed by China’s strong domestic demand, several panel makers are planning to increase prices by $3~5 for customers who received lower price quotes in the past; this increase will be applied mostly to 37W and below, 40-inch and above panel will retain their initial price quote. (See figure 3)

Notebook Panel Price Update

Although the market anticipates Windows 7 to stimulate demand for PC upgrade in 2010, the hot season for notebook sales is drawing to a close, and notebook panel demand is on a downward trend. Cushioned by panel price increase of monitors and TVs, notebook panel price declines are maintained within the $1~2 range. Even though notebook panel prices are on a downward trend, this decline is relatively limited as notebook panel prices had already been revised down during the shipment down cycle in October 2009. (See figure 4)

Conclusion

The outlook of 1Q10 is highly optimistic, but industry players hold different views on whether panel price increase will be sharp or slow – this is because 1H10 is a traditional down cycle in the U.S. and Europe, therefore global sales depends heavily on China’s domestic market; but China’s demand is still concentrated in TVs, offering limited stimulus to sales of IT products. Recent developments in the market showed contradictions to actual market conditions. Under these circumstances, a sharp price increase could be a double-edged sword – while it could significantly improve panel makers’ revenues and profits, it could also be the cause of the next turning point in panel prices.

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Optimistic outlook for the TFT-LCD industry in January 2010 as monitor panels lead the price increase

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