Panel Makers Target on LCD TV Market Due to the Heavy Pressure of Losses in IT Panels in 3Q10; Cost Advantage to Become the Key to Profit

by WitsView on Sep.07 2010

According to latest survey by WitsView, a research division of TrendForce, due to the weak end-market demand as well as downstream inventory pile-up, the pressure of panel price decline persisted in September, but it became softer compared to that in August.

The end of 3Q10 was approaching, along with the aggressive shipment for year-end peak season; the shipment volume recorded a substantial increase in September. However, inventory clearance was the top priority among downstream clients, so there was no significant growth in panel demand. Even though panel makers began to reduce the utilization rate since July, their inventory on hand remained high. Downstream clients placed orders based on the panel prices that panel makers offered, including requests of price protection and marketing distribution fund. Thus the transaction prices became complicated and unclear. Despite that monitor and notebook panel prices fell below the cash cost among panel makers, panel prices may continue the spiral downward under the price competitions.(See figure 1)

TV Panel Price Update

In North America, the penetration rate of flat-screen TVs was high, coupled by the slow recovery in the economy, LCD TV demand gradually weakened. In China, after the introduction of the subsidy policy on home-appliances in 2009, the penetration rate of flat-screen TVs reached a record high. In 2010, the overall domestic demand still had a 40% growth rate. Yet, the major vendors for home-appliances restocked aggressively in 1H10, as well as the weak sales performance during Chinese New Holidays and the Labor Day. As a result, because the set inventory remained high, the panel demand is forecast to stay flat before the China National Day holidays. On the other hand, stimulated by 2010 FIFA World Cup, the sales performance in Europe and Latin America was better than that in other regions in 1H10; nevertheless, the spread of Europe debt crisis weakened the end-market demand. In spite of the relatively weak performance in other regions, the domestic demand in Japan was strong. Under the introduction of Eco-friendly policy in 2010, combined with the complete close of the analog broadcasting in July 2011, it is estimated that flat-screen TV sales will be multiplied YoY in Japan this year. Japan’s brands will benefit from it even though the appreciation of yen has been reducing the competitiveness for panel export.

Since the street prices of LED TVs were still high, the sales performance was worse than expected. The price gap between LED backlight panels and the CCFL counterparts must be narrowed down as soon as possible in order to spur consumers purchase.

The sales performance among brand vendors was worse than expected in 1H10. In order to reach the annual sales target, brand vendors hoped to launch the price promotions to motivate the market demand. The IT panel price fell significantly below the cash cost. The cost structure of TV panels was better than that of IT panels. Thus. panel makers tried to make up the losses from IT products, so they increased the TV panel shipment in 3Q10. As a result, panel prices will continue to fall in order to obtain the orders from clients.(See figure 2)

Monitor Panel Price Update

According to WitsView’s observation, spurred by the year-end demand, shipments from SIs and brand vendors posted an increase in September. Nonetheless, set inventory adjustment was still the top priority among downstream clients, so the procurement volume for panels remained limited. Therefore, panel prices extended the downturns because the price protection and marketing distribution fund were requested by downstream clients. By the end of August, panel prices fell below the cash cost; additionally, Taiwan major panel makers began the relatively large capacity adjustment on G5 and G6 since July. Hence, the price decline in September became softer compared to that in August. It is estimated that the price will fall by $5 in September. During April to August, the price decline was close to 30%, which contributed to the year-end price promotions by downstream customers.(See figure 3)

Notebook Panel Price Update

WitsView indicated that even though brand vendors increased the shipment volume for the year-end peak season in September, inventory closeout remained the top priority. The end-market demand was unclear and downstream panel and set inventory levels remained high as far as we were aware. Thus, during August to September, brand shipments to retail channels were mostly from the set inventory on hand. Whether the end-market sales will be robust remained unknown, so downstream demand for panels stayed conservative. The prices for large-sized notebook panels faced the pressure of decline. Yet, in late August, prices of mainstream 14.0W and 15.6W dropped below the cash cost. Under the reduction of input capacity among panel makers, the price decline is estimated to decrease by $3~4, relatively moderate compared to that in August.(See figure 4)

Conclusion

The months September to October is the peak season for downstream brand shipments whereas this period is the traditional slow season for panel demand because of the seasonality. Downstream clients reduced demand tremendously in July to adjust their inventory, leading to the huge panel price decline that was similar to that in May 2008. Panel makers began to cut the input capacity under the pressure of losses.

The trilogy in the 2010 panel industry – firstly, monitor panel shipment soared in 1Q10 due to the price hike. Secondly, panel makers placed more emphasis on notebook panel shipment since the concern of excessive monitor panel shipment in 1Q10 was raised. The shipment growth rate for notebook panels was up to 16.3% in 2Q10. However, the unexpected Europe debt crisis, coupled by the seasonality, the build-up of inventory led to the significant panel price decline in 3Q10. On the other hand, price and cost of TV panels were both better than that of IT products after IT panel prices fell below the cash cost. Finally, TV panels became the protagonist in this trilogy in 3Q10. Brand vendors are expected to launch price promotions for TVs, otherwise the sluggish market will have a negative impact on the overall industry. The cost advantage will turn critical among panel makers. For now, Korea makers were supported by the in-house brands, and the cost structures were better than that of their rivals. Therefore, while the oversupply in panel occurred in market, Korea makers had absolute control over prices that may help them to fight for more market share or maintain the profitability even though panel prices continued to decrease. When the prices will hit the bottom remained unclear.

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