The earthquake in 1HMar inspired panel makers’ confidence
According information in the market, LCD TV sales performance during Chinese New Year (CNY) fell below market expectations – although it posted growth compared to the same period last year, the sales figures were slightly lower than the performance during National Day holiday in 2009. Therefore, there was some buzz in the market about a potentially high LCD TVs inventory in China. The factors contributing to the potential inventory build-up are in line with our previous projections: First, as CNY holiday took place slightly later this year, downstream customers had adequate time to restock their inventory in preparation sales during the holiday; in other words, inventory level may be higher than actual demand during that period. Second, with the expected labor shortage, set makers over-stocked their inventory in 1HFeb, before the holiday begins, and maximized their production capacity to offset the issue of insufficient production capacity led by such labor shortage. Therefore, when demand falls short of expectations, inventory level will naturally rise. Third, panel price increase led to higher set cost, hence, set makers are less willing to offer price promotions, except for LED TVs, whose margins are higher; set makers hoped to attract consumers’ attention through offering substantial price cuts. Fourth, as the global economy was on course for a slow recovery in 2009, China’s domestic market boomed thanks to Chinese government’s policies. In the absence of more appealing purchase incentives, it could subsequently lead to weaker purchase momentum.
Just as the market was buzzing with concerns of oversupply in 2Q10, affected by flattish LCD TV sales during CNY, an earthquake that measures 6.4 on the Richter scale occurred on March 4th in Jiasian Township, Kaohsiung County, in southern Taiwan. This incident inspired a glimpse of hope to panel makers. Immediately, media broadcasted several reports on the potential price increase in March due to the impact on the TFT-LCD production capacity. However, according to our assessment of the damage, the only facilities affected were several of CMO’s fabs located in Southern Taiwan Science Park. Their immediate shut-down and inspection was in compliance with standard operating protocol, which took about 2 to 3 working days; but it caused little impact on the supply and demand of the industry.
As for panel supply, some panel makers are still affected by the tight supply of several components such as glass, IC, and polarizer, giving the sellers (panel makers) favorable positions in panel transactions during 1HMar. According to WitsView’s market price survey in 1HMar, monitor panel prices will likely rise by $2~3, a more moderate increase compared to that of February. Panel prices for ≦32W small-sized TVs are quite stable due to the price increase of monitor panels; but the pressure on ≧37W panel price increased. Notebook panel prices will either remain stable or rise by $1~2, amid the stable market supply and demand, as well as the continued rise of monitor panels prices. (See figure 1)
Monitor Panel Price Update
Although LCD TV sales during CNY holiday was below market expectations, monitor downstream customers’ sales plans in March increased compared with that of February; coupled with tight supply of several component, there are no signs of oversupply yet. On the other hand, the unexpected earthquake gave panel makers a reason to extend the prices increase. Therefore, , panel makers still aim to quote a $3~5 increase in 1HMar; however, price increase for 17” and 18.5W might be strained due to their weaker market demand; these prices are estimated to rise by <$1. (See figure 2)
TV Panel Price Update
LCD TV sales during CNY holiday was below market expectations, hence, market buzz on the inventory build-up led to pressure on large-sized panels to cut prices. Major global TV brand vendors will launch their spring models in 2Q10, which will stimulate demand. Meanwhile, TPV, the world’s largest LCD TV OEM, demonstrated its strong ambition – the company will continue to expand the scale of its own brand and OEM this year, in addition to top-tier brand vendors’ OEM orders, panel makers other than CMO also benefitted indirectly from the CMO-Innolux merger. The earthquake in early March temporarily eased the concern of oversupply in the LCD TV market as previously forecasted, therefore, TV panel price in 1HMar remains flat. (See figure 3)
Notebook Panel Price Update
Notebook panel prices also benefitted from continued rise in monitor panel prices. Moreover, with the world’s leading ODM and OEM makers revising up their first quarter sales forecasts, mainstream notebook sizes may increase by $1~2; the reduced capacity in CMO and HSD’s G5 fabs caused by the earthquake may also contribute to short-term price stability. (See figure 4)
Conclusion
The benefit of the earthquake to the weakening demand during the slow season might be temporary. Currently, inventory build-up in China’s retail channels is still the key factor influencing price trends in 2HMar, and the gradual increase in brand vendors’ and OEMs’ monitor panel inventories is another concern in the market. If rational market adjustments took place early, it may facilitate market development during the hot season in 2H10. End-market demand momentum depends on whether brand vendors can offer appealing products to attractive consumers; hence, in the case of the relatively high panel prices, downstream set makers may not have much wiggle room to cut prices.
