In Q1’13, the LCD TV panel supply chain is adjusting to built-up inventory from 2012. With LCD TV panel shipments 14% higher than set shipments, we would expect over-supply and inventory adjustment in the first half of 2013. Accordingly, LCD TV module and open cell prices have been falling in recent months. Panel makers have been reducing capacity utilization.
LCD TV Panel and Set Shipments, 2010-2013
However, unlike in past over-supply cycles, we are not seeing sharp reductions in panel prices, and since the Chinese New Year, there have been indications that the over-supply is easing somewhat, despite softness in sizes like 40” and 50”, 55” and 60”. Starting in March, Chinese TV companies have been playing a key role in placing more LCD TV panel orders with panel makers. Based on this increased demand, panel makers are becoming more optimistic, and are starting to plan increases in capacity utilization in Q2’13.
While China is the biggest LCD TV market, with the greatest potential for growth and the North American and European markets are slow, there is also a consensus in the industry that panel inventories in China are at an unhealthy level. So why do Chinese TV makers continue to increase their panel demand? There are several possible answers.
- Size Proliferation. There are many new LCD TV panel sizes, with Taiwanese and Chinese panel makers launching 28”, 29”, 39”, 50”, 58”, 60”, and 65”. The increased number of sizes leads to new SKUs, which increases the requirement for inventory; as each new product requires developing additional inventory.
- Open Cell + BMS. Nearly all Chinese TV makers have adopted the open cell + BMS (backlight-module-system) business model, meaning they buy semi-finished open cells from panel makers and then integrate the BMS. Since the purchase price of open cells are lower than LCD modules, this enables TV makers to buy more products for the same amount of money, increasing inventory levels. This model is increasingly being used by other vertically integrated TV makers like Samsung, Funai, TPV, Foxconn, BriView, Wistron and many others, and as shown in the Quarterly Large-Area TFT Panel Shipment Report, open cells accounted for 55% of LCD TV panel shipments in Q4’12.
- Sell-Through. Strong Chinese New Year sales (we estimate 14% Y/Y growth) have encouraged TV makers in China to build inventory for the coming Labor Day holiday in May.
- Subsidy Program. China’s energy subsidy program will end in June, which is leading Chinese TV makers to make a final “push,” with promotions highlighting the last opportunity before the expiration of the energy subsidy program. Along with the promotion to consumers, set makers are buying more panels.
- Psychology. As reported in Quarterly FPD Supply/Demand and Capital Spending Report, we are projecting a tighter supply/demand balance in 2H’13. However, panel buyers may feel the need to buy in advance of a tightening market rather than waiting for the shortage. The potential for price increases could encourage them to buy more in advance, building inventory.
- Cost Control. The open cell + BMS business model gives TV makers more opportunity for cost reduction in parts other than the LCD, which may decrease their sensitivity to panel prices. Although panel prices may have not hit bottom, they are buying to secure allocation, since they can still reduce the TV BOM cost even if panel prices are not falling.
- Exports. Chinese TV makers can try to use cost competitiveness to enter overseas markets, with some quite aggressively trying to grow their market shares, for example, Hisense in the U.S. and TCL in Europe. As shown in the Quarterly LCD TV Value Chain Report, the top 6 Chinese TV makers (TCL, Hisense, Skyworh, Changhong, Konka and Haier) are expected to sell more than 55M LCD TVs globally in 2013. These ambitious growth plans also encourage them to buy more panels.
Chinese panel makers have been changing the TFT LCD industry, and now we are starting to see Chinese TV makers impacting the supply/demand balance for LCD TV panels. At the same time, the Chinese TV market has become the earliest adopter of new technologies such as 3D and LED backlights, and now 4Kx2K. It is certain that China’s inventory adjustment, panel buying behavior, and adoption of new technologies will have a growing influence on the global LCD TV supply/demand balance.