The Battle for TV Panel Allocation: Who Will Win?

by David Barnes, Vice President, Strategic Analysis

If I read the numbers correctly, TV makers plan to sell 29% more 32” and 37” LCD TV sets this year than last year. Sounds good, but what about notebook PC and LCD monitor makers’ plans to sell 11% more units? Don’t PC and monitor makers depend on some of the same Gen 5½ and Gen 6 LCD capacity used for 32” and 37” TV panels?

DisplaySearch expects Gen 5½ and Gen 6 LCD capacity will expand only 19% in 2008. Even with productivity gains, it is hard to imagine how PC makers and TV makers are going to get all the panels they want. Chinese consumers are fired up about the Olympic torch and it’s a safe bet they’ll want lots of new LCD TV sets to watch the games this summer. North American consumers are cooling down as the economy weakens and it’s also a safe bet some will consider LCD TV sets smaller than 42” this holiday season.

LCD suppliers are building new fabs that will start yielding later this year, but those plants are best suited for 42” to 62” panels. There is some flexibility but suppliers, brands and retailers are counting on demand for larger sets. Given the semi-fixed cost per box on the floor, retailers are particularly interested in larger sets because these carry higher price tags and provide more opportunities for warranty or installation sales.

If consumers want more 32” and 37” LCD TV sets, panel supply might constrain the market. While some retailers might welcome supply constraint on the low end of their price range, they might not welcome lost sales as consumers seek lower-prices elsewhere. No retailer, regardless of their price position, would welcome disruptions in their TV supply chain.

Buzz on the street is that global TV brands may use their captured LCD capacity to pressure new brands like Vizio or Ölevia that depend on merchant LCD suppliers and OEM/ODM assemblers. Negotiation strategies are being set for the all-important Q3 allocations that determine what sets will be available for Black Friday promotions. Allocations will be determined this quarter. Merchant LCD suppliers like AU Optronics or LG Display may play PC makers off against TV makers. This could restrict the capacity allocated to emerging TV brands. Vertically-integrated suppliers like Samsung or Sharp (with Sony as their partner) can allocate LCD capacity in accordance with their market plans. I don’t know if vertically-integrated, global brands will dominate new entrants but I assume they see an opportunity to reshape the market in 2008.

As a side note, it is that time of year when we are busy preparing more information on TV panel allocation and other pressing topics facing the TV supply chain for our annual TV Supply Chain conference. We will be presenting some interesting data on the impact of the U.S. economy on TV sales and other issues.