Monitor Panel Prices to Go Up

by WitsView on Nov.08 2010

According to the latest survey conducted by WitsView, the research division of TrendForce, as we mentioned in October, IT panel prices fell below the cash cost in 3Q10, which impacted the profitability among panel makers. When the investor conferences had been held by major panel makers one after another of 3Q10, the operating margin among first-tier panel makers dropped by 5~10% QoQ, and CMI even reported an operating loss. When the reduction of input capacity had gradually taken effect, coupled by the inventory adjustment among downstream customers in 3Q10, the inventory level went downward. Under the above-mentioned favorable condition, panel makers are encouraged to increase the panel price in November.

In terms of flat TV products, since the worldwide sales performance of LCD TV did not achieve the target in the first three quarters of the year, the worldwide sales units for 2010 may be revised downward. Based on WitsView’s estimates, the latest projection for the global LCD TV sales is around 182Mn units. The weaker-than-expected sales performance was mainly impacted by the slow recovery in the global economy as well as the wrong sales strategy which focused on the promotion of LED and 3D TVs, whereas we ignored the fact that the average size of LCD TV still stayed at 34.1-inch in September. The size transition apparently falls far behind the development of new generations since there are ten G8 and above fabs have started the mass production. LED and 3D TVs marked the technical innovation in the industry, whereas their production cost, pricing, content services and the technical aspects in both software and hardware were not able to meet the consumers’ expectation. Additionally, since there are smart phones and tablets, which come with a similar price tag, available in the market this year, LCD TVs may not be consumers’ top choice. However, the fourth quarter is the last quarter for brand vendors to accomplish the annual target. The substantial panel price fall in 3Q10 may help brand vendors further launch price promotions to boost demand.(See figure 1)

TV Panel Price Update

In 2010, the Eco-point policy, introduced by Japan government, boosts TV sales in Japan domestic market, while the end-market demand remains flat in other regions, based on our latest interview with downstream customers. Hence, the substantial panel price fall in 3Q10 supports brand vendors to launch more price promotions in the year-end hot season. On the other hand, China major TV vendors have started to restock in preparation for the Chinese New Year holiday in 2011, which mainly focuses on the demand for LEDs and open cells. Yet, TV panel shipments for the year-end hot season have gradually come to the end in Europe and the US market, which will deepen TV panel glut. In order to fight for the last opportunity to ship out the inventory, panel prices may continue the downtrend in November.

In terms of LED TVs, since the price gap between LED and CCFL TV remains large (please see the table below on regional street prices in 40W standard models), consumers may only be willing to pay 10% more on LED TVs. However, take the average street prices of CCFL and LED TV in October for example, the price gap still surpassed 40% in China as well as Europe and the US market except for Japan market; moreover, the specification of LED models may be even lower than that of the CCFL counterparts. Thus, consumers were reluctant to purchase LED TVs. As a result, the inventory pile-up from the early shipments becomes the primary issue among brand vendors and downstream retail channels at the current stage.(See figure 2)

Monitor Panel Price Update

The inventory pressure has gradually become softer among panel makers after the significant reduction in the input capacity of monitor panel over the last quarter. Downstream customers also underwent a relatively large inventory adjustment in 3Q10, which gradually led to the controllable inventory level; additionally, thanks to the early inventory replenishment in TV panels from China’s customers, prices of some sizes, such as 17, 18.5W, 19W and 22W CCFL models, may potentially rebound in November. Nevertheless, the price increase was not as sharp, merely posting a $1~2 increase, while prices of >20W remained stable, which meant that the uncertain factors between the supply and demand weakened the uptrend in prices. Firstly, whether supply and demand is really under the balance remains uncertain. Secondly, the timing of price increase is at the beginning of the slow season. At current stage, panel supply is still larger than the market demand, and the key to maintain the balance in supply and demand is the capacity control. The previous experiences indicate that monitor panel prices rise against the downtrend will possibly lead to inventory pile-up. In other words, panel demand will post a weaker than usual traditional strong seasonality, which will result in panel price drop.(See figure 3)

Notebook Panel Price Update

Based on WitsView’s survey on shipments from downstream SIs, the shipments peaked in 3Q10 for the year-end hot season promotion and from the pressure of issuing fiscal third-quarter report. After the shipment hike, the overall end-market demand was still unclear except that the market condition slightly turned better under the stimulation of the strengthening euro in Europe. However, panel price has fallen below the cash cost level, coupled by the continued control over the input capacity at G5s, panel price decline becomes limited. With the possible monitor panel price rebound, panel makers hope to stabilize notebook panel prices. Nevertheless, that whether notebook panel prices will go upward remains unclear.(See figure 4)

Conclusion

In the beginning of November, the US Federal Reserve announced quantitative easing policy (QE2) in response to the sluggish economy in the US, which indicated the slow recovery in the global economy.

Since the market enters its slow season after mid-Q4, the demand from downstream customers will gradually slow down. The control of capacity is the key factor to stabilize the glut ratio. However, once the prices start to increase, the utilization rate will be further driven up. If the end-market demand remains weak, an oversupply issue may once again impact the panel prices.

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