Visibility of market demand remains low before Q3 with conservative and cautious stocking among downstream customers
Demands in European and US markets in Q2 remain weak under the effect of off season such that channel sales volumes of LCD TVs, monitors or Notebook PCs have all been flat. The accounting pressures at the end of Q2 and from the semi-annual financial report have made downstream customers very cautious about inventory control and stock preparation. Europe and US are still caught in the quagmire of debt crisis, and the volatile political and economical situations in North Africa and Middle East have led to hiking oil price and worsening global inflation such that consumers’ demands have been weakened. The only market with better demand performance in the first half of the year is the China-based Asian Pacific market.
According to the survey of panel shipment in Q1 by the research institute WitsView under TRENDFORCE, the shipment has been sliding by almost 6.5% with momentum for QoQ growth affected by reduced number of working days and the inventory digestions among downstream customers. However, stimulated by rebounding of panel price and the demand of Chinese May Labor Day Holidays, production capacity utilization rates among panel makers have been raised starting from Q2. Yet the weak end demand will not only stop the rising panel price, but also increase the inventory levels among panel makers and customers. If there is no significant recovery of market demand in Q3, we would see the predicament of a low demand within a high season in Q3 again. (See figure 1)
TV Panel Price Update
Global end market demands appear to be weak in Q2 except for the market in China with the promotion of May Labor Day Holidays. Sales volumes among first tier brands have all been below their original targets due to subpar performances in European and US markets such that inventory levels have all been climbing up. Under the premise of uncertain demands in Q3, procurement strategies with respect to panels still appear to be rather conservative. According to the observation on shipment results among major downstream TV brains by WitsView, QoQ growths in Q2 have been disappointing around 2~3%. After greatly reduced inventory in Q1, stocking attitudes before May Labor Day Holidays among major Chinese TV makers have become more active. With actual sales results meeting original expectation, confidence in price hiking in May among panel makers has been stimulated while a portion of OEM makers have also forced to accept the price hike of $1~$3 USD. Although this result can be helpful to panel makers to improve their financial performances in Q2, the manufacturing cost of the entire unit could be raised for major domestic TV makers in China. This result certainly does not help domestic Chinese brands in terms of market share competition with foreign brands from Mid-Autumn Festival to the National Day Holidays in the second half of the year. In the end it may backfire and greatly reduce the demand for panels in Q4.
Even though panel makers have been trying to raise the price in June, the price negotiation leverages among panel makers have been greatly compromised due to weak sales performances among first tier TV brands and lack of support by demands. Therefore we think there is strong resistance to pricing hiking for TV panels in June. (See figure 2)
Monitor Panel Price Update
With the prices of monitor panels increased slightly from the end of February to May, the overall price hike has reached the level of $3~$5 USD which should more or less improve the financial structures in Q2 for panel makers. However, according to WitsView’s investigation of shipments among downstream brand customers in Q2, the overall shipment has only been at best equaled to the shipment in Q1 with some possibility of QoQ regression. This result is an indication of stagnant market under the effects of slow recovery of global economy and worsening inflation. With low visibility of demand in Q3 and the accounting pressures from quarterly and semi-annual financial reports, downstream customers have been adopting cautious panel procurement strategies in June. Even though panel makers are trying to maintain the price rising pattern, we are afraid their bargaining powers are going to be further lessened this month. (See figure 3)
Notebook Panel Price Update
WitsView’s investigation on shipments among panel makers in May has shown active shipment attitudes among panel makers with MoM growth of close to 12% for large-sized regular-NB shipment, 21% for Netbook shipment, and 27% for Tablet PCs. However, in May the MoM growth of large-sized regular-NB shipments among downstream OEM/ODM makers is only 2~3%, and the MoM growth of Netbook shipment is only 1%. Such discord between supply and demand has made us worry about the rising inventories among downstream customers and channels. With weak demands in European and US markets and subpar sales performance in China market, there will still be pressure against the price hiking approaches among panel makers. (See figure 4)
Conclusion
The panel over-supply situation in Q1 has been somewhat improved by various factors such as production process conversion, production reduction, earthquake in Japan, and reduced number of working days. However, consumer confidence has taken a huge hit in Q2 under the effects of uncertainty of future global economy and aggregated inflation leading to weak market demands. On the contrary, panel makers have been raising their production capacity utilization rates such that the over-supply issues have resurfaced. Facing the upcoming hot season in the second half of the year, visibility of market demand has drawn a lot of concerns. Originally we expected the stocking demand in Q3 to be helpful to further price hike. However, judging from the conservative attitudes among downstream customers so far, the increased inventories in Q2 may not be fully digested until Q3 such that the driving force behind price hike in Q3 can be significantly weakened.
