Higher-than-expected shipments of panels to Chinese TV makers over the past 3 months has encouraged optimistic shipment forecasts for the remaining months of the year. However, the next wave of demand for the New Year, Chinese Lunar New Year holidays and additional demand driven from China’s energy-saving subsidy has yet to be proven. Our latest surveys indicate that shipments are forecast to grow in November and reach a record 7.2 million units in December. There will be a decline in January and February, but the drop-off will be much milder than usual; while there were declines of 36% and 42% M/M in Jan’11 and Jan’12, respectively, the decrease in Jan’13 is forecast to be 17% M/M. This implies that Chinese TV makers are planning to carry higher levels of inventory early next year. This is likely due to a lack of confidence in panel availability, especially for sizes like32”,39”,40” and42”.
Industry-wide, the production of 32” panels is forecast to drop next year and this has worried some TV makers. According to our LCD TV value chain research, in 2013 Innolux and AUO plan to slash their 32” supply plans the most, by 62% and 19% Y/Y, respectively. The cutback at Samsung is 15% Y/Y, while LG Display plans to keep its shipments of 32” flat. Chinese panel makers are currently enjoying strong demand for 32” LCD TV panels and are implementing price increases, but they are alert to the risk of demand correction and price pressure. BOE and ChinaStar are planning to diversify their product portfolio by adding larger sizes, such as 46” and 55”.
China is an important indicator for the LCD TV industry due to its scale. The demand for TV panels is anticipated to weaken in Q1’13, given that the inventory for seasonal demand and spring 2013 models will have been built by then. Meanwhile, there is increasing concern that current strong demand for 32” will not last, as China’s energy-saving subsidy program, which benefits 32” and 42” the most, will expire mid-2013. As a result, some TV makers may give up 32”, instead competing in the size upgrade game, triggered by new sizes and low-priced large sizes such as 60”.
Panel makers worry not only that Chinese TV makers but some global TV brands may make adjustments to their orders to bring them in line with actual market demand. Any increase in panel shipments in particular to Chinese TV makers may increase the risk of oversupply in Q1’13, which would cause a correction in TV panel prices. Even a leading Chinese TV maker expressed concern about the risk of over-shipment of 32” and a slow-down in demand. The supply chain participants now sense that demand will move downward, though it could be small, but overall demand is passing through its peak level. To avoid any risk of uncontrollable excess supply, panel makers are likely to adjust their fab loading soon. As we reported, industry-wide fab capacity loading rates peaked in October at 88% utilization on average, and are forecast to decline very modestly starting in November before a bigger drop next February, while remaining above 80% on average.