TV Panel Price Ready to Rise?
Less-than-expected low season demand and the continue fall of panel prices, Samsung’s DP department was in the red for the first time while LG Display had posted its second quarterly loss in a row. Taiwanese businesses that saw their third consecutive quarterly loss include Chimei-Innolux, AUO, Chunghwa Picture Tubes and HannStar, which recorded a combined Q1 loss of nearly NT$31.5 billion. Faced with such plight, panel makers have no choice but to raise prices if they want to improve their profitability in Q2.
According to a trend observation on market development in May by Trendforce’s research arm WitsView, the terminal market is still affected by the low season, adding pressure to panel pricing. However, as the sales of LCD TV grown by 4% YoY to about 2 million units during the Chinese Labor Day holidays (4/25-5/1), higher than expected by the TV manufacturers, panel makers are encouraged to build the case for price hikes amid pressure of continued losses. If the prices for TV panels are raised successfully, it might not only help Korean panel makers to return to profit in Q2, but also drastically increase profitability during the 2H hot season of the year and lift Taiwan and China panel suppliers from losses.
Samsung Electronics recently announced it gained 15% shares from the 8.5G production line of Shenzhen China Star Optoelectronics through Century Technology while TCL acquired 10% shares of Samsung’s Suzhou 7.5G production line for US$100 million. Taiwan’s AUO applied to the Ministry of Economic Affairs on May 6 to invest US$796 million in Infovision Optoelectronics Kunshan’s 8.5G line. These show that instead of being impacted by oversupply and huge losses, panel makers are continuing different patterns of investments. The huge capital expenditures still have to be met through capitals from improved financial structure and actual profits as well as support from banks. (See figure 1)
TV Panel Price Update
The end-market demand for TV appears to be weak in Q2. Even as top brands are setting higher targets in production and sales plans compared to the previous quarter, their panel purchase strategies will still be rational and conservative. The better-than-expected TV sales figures in the China Labor Day holidays added confidence to panel makers. Or rather, the Chinese orders filled timely the gap in orders due to the drop of demand from brand customers. As panel makers face serious financial pressures, the prospect of price hikes in May for panel makers is almost inevitable. After adjusting their inventories in Q1, major China TV manufacturers have lowered their stockpiles to about 4-5 week of supply. As prices are going up, the demand for early stocking will be seen even earlier. Buyers and suppliers are still in early price bargaining stage. However, as the market is still in a relatively empty stage, it is not adequate for WitsView to reflect the prices in the first half of the month ahead of the market even through it expects TV panel prices to rebound by US$3~5 by the end of the month. The prices should be reflected according to the decision by the market. (See figure 2)
Monitor Panel Price Update
The continued drop in TV panel prices is the main reason behind the losses reported by panel makers in Q1. However, monitor panel prices exhibited moderate increases instead of large surges despite the strong actions by panel marker mainly because of the pressure due to an unclear terminal market demand. The murky demand from the downstream clients remained and the consideration of the half year financial report and Q2 in the end of June have made businesses more cautious on stocking panels. However, as panel makers hope to keep the upward trend for prices, it is expected that prices of panels of some sizes will still see an increase of US$0.5-1.5 by the end of the month. (See figure 3)
Notebook Panel Price Update
According to a WitsView research on ODM shipment, the sales of both large notebook panels and netbook panels saw significant decreases in May. In addition to Apple’s iPad 2, other major PC and cellphone brands are launching their versions of tablet PCs in Q2, eating into the laptop markets. Although the impact of the March 11 Earthquake on the upstream key component supply is lessened as suppliers are gradually resuming production, and also businesses have a certain amount of supply in their inventories, some components such as power IC, analogy IC, HDD and ODD still see the risk of undersupply after May. As a result, some downstream businesses are beginning to plan for material stocking and production preparation early in June to respond to the demand in the back-to-school season in Q3. This will help panel prices to rebound starting in June. Although prices are still pressured in May, there will still be room for raises of within US$1 as panel makers are facing large losses.(See figure 4)
Conclusion
If panel makers are forced by financial losses to hike panel prices, although it may help their Q2 financial conditions, the insistence to raise prices without the support from the demand-side will not help improve the basics of the market. It will only transfer the pressure further down the supply chain. On the other hand, if downstream clients restock their Q3 demand early in Q2 as they face again the prospect of price raises, it will actually hurt the upward trend for panel prices. This is indeed a dilemma at the moment. The lessons from the history of the industry’s development have shown that both overreacting and under-reacting can lead to negative impacts.
