TV panel prices increased in Q2’12, mainly due to supply constraints. In general, panel makers limited capacity utilization, and the introduction of new manufacturing processes (e.g., color filter on array, Cu process, UV²A, optical alignment, IPS, gate on array, and oxide TFT) took up additional capacity. In addition, the development of new sizes (39”, 50”, and 58”) also has had an impact on panel prices.
However, in Q3 the situation changed because TV brands have adjusted their business plans downwards due to expectation of weaker demand driven by continued economic weakness, especially in Europe and North America and slowing growth in China. With the reduced demand, the sentiment in the industry is that TV panel prices can’t continue to increase, and may fall again in the 2nd half of 2012.
Nevertheless, things do not always go the way people expect. In our July Monthly Large-Area LCD and PDP Pricing report, we forecast that LCD TV panel prices will be flat in Q3’12. Part of the reason for this is our assessment (see our Quarterly Global TV Shipment and Forecast Report) that the China Energy Subsidy Program for television will stimulate growth, stabilizing the supply-demand balance of LCD TV panels. However, recent research indicates that TV panel price increases are possible in September due to tightness in China, the biggest LCD TV market. As Chinese TV companies tend to purchase LCD TV cells rather than modules, LCD TV panel makers are indicating they might increase open cell prices (32”, 42”, 46”) in September to reflect the tightness as well.
As analyzed in MarketWise – LCD Industry Dynamics, the Chinese TV market is playing an increasingly influential role. While TV panel supply/demand was balanced, and overall panel prices flat, in August, it is almost time for TV makers to refill the pipeline to prepare for the Q4 hot season. Sell-through improved in July, benefiting from the energy saving subsidy program, as well as lower prices, especially for the models that do not meet the energy saving index. Competitive pricing by online retailers has spread to traditional channels, driving traffic and decreasing inventories slightly. Some TV makers are planning to use up their quota of subsidies quickly, and then refill inventories. TV makers are planning to build LCD TV products that meet the energy saving criteria, despite the weak demand expected in China in 2H’12. The subsidy program in China will continue to help TV vendors to reduce inventories and is likely to accelerate the replacement of CCFL-backlit LCD TVs with LED-backlit models in China.
Most Chinese TV makers intend to continue purchasing panels to build sufficient inventory for not only the coming Q4’12 heavy promotional season but also for the New Year holidays and even for the preparation of Chinese New Year holidays (not until February 2013). Our latest surveys indicate Chinese TV makers have increased their shipment targets by 7%.
Meanwhile, mainstream LCD TV panels, including 32”W, 42”W, and new sizes such as 39″W and 50″W, are not accessible to all buyers. Taiwanese and Korean panel makers are de-emphasizing 32” panel production, given its weak profitability outlook and competition from Chinese panel makers. Taiwanese panel makers are gradually reducing production of 40”/42”/46”, allocating capacity to 50”W, which is more efficient at their Gen 7 fabs. Some panel makers are using a bundling strategy – negotiating with TV makers to stabilize prices for some sizes (such as 39” and 50”) by offering allocation of some sizes that are in constraint.
Thus, some Chinese TV makers bit worried that panel makers will increase prices in September, and the overall supply availability in Q4 seems not as open as they would like. In the past week, our industry checks have found that some panel makers are indicating a 1-2% price hike to Chinese TV makers in September for sizes including 32”W, 42”W and 46”W (both cell and module prices).