By Bing Zhang – Research Director, China Market
In a disclosure to investors on July 14, TCL indicated that it will post a loss for the first half of 2010 due to weaker than expected TV sales in China, inventory clearing, restructuring costs, and devaluation of the euro.
The company expressed confidence that financial results would improve in the second half, but the news shook both the TV and TFT LCD industries. There is speculation that most Chinese TV brands will post losses for Q2, the slowest quarter. In addition, Chinese TV makers have built up high inventories, and have been facing price pressure from foreign brands.
According to the DisplaySearch Quarterly Global TV Shipment and Forecast Report, LCD TV shipments in mainland China reached 29M in 2009, 119% Y/Y. As a result, Chinese TV makers had strong LCD TV sales, and most showed double-digit revenue growth. For Hisense and Skyworth, the top LCD TV brands in China, sales revenues grew 40% and 48% Y/Y, respectively, with net profits of 2.6% and 5.8%, respectively.
Based on the performance of local TV makers in 2009, Hisense, Skyworth, TCL, Konka, Changhong and Haier all announced very optimistic business plans for LCD TVs in 2010; combined, the business plans of the top 10 TV brands in China call for LCD TV shipments of 45M, 60% Y/Y growth, while DisplaySearch forecasted 39M. Currently, the industry consensus is that Y/Y growth for LCD TV will be closer to 30%, with total shipments of 40M or less.
In Q1’10, LCD TV shipments grew 82% Y/Y. However, due to the over-optimistic targets, too many TV sets and panels were produced, and the inventories piled up in Q2’10. LCD TV growth is expected to plunge about 20% Y/Y in Q2’10.
There is speculation that most local brands are carrying around 600K LCD TV sets each in their inventories—some even more. Under the current conditions, it may take at least two months to digest this inventory.
Foreign brands have taken a more aggressive pricing strategy in 2010, but due to the pressure of inventories and their financial situation, local brands have not followed, and the market share of foreign brands in LCD TV increased to about 27% in Q1’10, from 20% in Q3’09.
Since mainland China is the only market for the local players, they have no choice but to regain market share, so we believe they will join the price war sometime soon. Along with promotions for LED, 3D and internet TVs, which will create more demand, we expect that 39M LCD TV shipments is still achievable.
