Price trend after middle of the third quarter is going to be determined by the time and range of adjustment of production capacity utilization rate

by WitsView on Jul.13 2011

The global market has suffered from debt crisis in Europe, slow economic recovery in Northern America, earthquake in Japan, and inflation issues all over the world leading to apparent lack of consumer confidence. Except for the outstanding market growth of Tablet PCs, market demands for LCD TV, LC monitor, and Notebook PC all appear to be weak. The pressures from quarterly and semi-annual reports by the end of June for most companies plus the lowly end demand in July have led to fairly conservative attitudes toward inventory control and stocking preparation procurement among downstream customers.

According to the forecast by research institution WitsView under TRENDFORCE, there is a QoQ growth of roughly 10~12% for the panel shipment in Q3 indicating conservative stocking attitudes among customers before hot season such that the increased inventory level of Q2 will be digested during the third quarter. If the market over-supply cannot be balanced in Q3 by panel makers through reduction of production capacity utilization rate, the not-so-hot hot season in Q3 will kill the hope for panel price rebounding and any chance of turnaround from loss to profit. (See figure 1)

TV Panel Price Update

Market demand for LCD TV in July remains weak especially for the European Market severely hit by debt crisis in multiple countries. Climbing inventory level of complete set has led to conservative strategies for panel stock preparation among downstream customers. The market of domestic demand in China has also been slowed down after May Labor Day Holidays with MoM regression of almost 20% among the sell-in of top six TV brands in May. According to WitsView’s latest prediction with respect to global LCD TV demand in 2011, there has been a downward adjustment from 211M (units) to 203~205M(units) with YoY growth dropping to 10~12%. The sales performances of TV brands have been worse than expectation with sliding profits under this gloomy economy such that they can only hope to stimulate this sluggish market with price cut promotion facing the hot season in the second half of the year. However, with the apparent financial deficits among panel makers in Q2, panel makers are reluctant to suffer further profit loss by price cut even with the lack of fundamental support for panel price. There is absolutely no room for price cuts for products below 42”. There may be some chance for customers of LED products to see the price cut of 3~5 USD. There are also rooms for price cuts of 3~5 USD for products of 46” and above due to better cost structures. (See figure 2)

Monitor Panel Price Update

The small price hike of LCD monitor panel has encountered great resistance from customers in July. The survey by WitsView on shipments among downstream brand customers in Q2 has indicated that there could a regression of 3~5% of overall shipment under the impact of weak end market demand, thus market demand in July remains sluggish. Even though panel makers do not want any further price cut due to profit loss, current investigation shows that a slight price decline among quotes of certain sized products is inevitable under the shipment pressure. On the other hand, due to the fact that sales performances of brand makers failed to meet original targets in Q2, inventory pressures have been climbing, which leads to potential risks, especially in Europe and China. Therefore, panel prices will continue to be suppressed until the inventory drops to a reasonable level. (See figure 3)

Notebook Panel Price Update

According to the survey on shipments among panel makers in June by WitsView, in terms of shipments of large-sized Regular-NB and Netbook panels, only CMI has enjoyed MoM growth while the other panel makers all suffer from shipment regressions. This is an indication that end market is still in sluggish economy in Europe and US with weak demands. Tablet PC is still the main focus of the growth of portable products. The main concern is that we are yet to see any sign of recovery in the market even though we are getting close to the hot season in the second half of the year. Under the pressures of rising inventory and customer inventory adjustment, the package deals between panel makers and customers may have already began, which could be an X factor for the following panel price trend. (See figure 4)

Conclusion

By reviewing past experience of industrial development, we can see over-stockings caused by market misjudgment in the first half of both 2008 and 2010, causing stacking inventory issues to suppress the price trend in the second half of both years. The first half of 2011 has a different background of industrial development from those in 2008 and 2010. There has not been irrational stocking among customers due to earthquake in Japan. However, inventory issues resurface due to debt crisis in Europe, regional instability and inflation issues, and panel oversupply has led to the lack of strong price support. The key factor for market turnaround in the second half of the year is going to be the time and range of production capacity adjustments among panel makers. The time frame from July to September is going to be critical for observing the variation of production line utilization rate. Otherwise the inventory issue will only lead to a not-so-hot hot season (even with existing demand), and it is going to be extremely difficult for panel makers to see profit turnarounds.

Next
Top 10 monitor SIs’ shipments rose by 2.9% M... Prev
China Top 6 TV brand shipments slump by 19% MoM in...