A painful memory for participants in the LCD and TV industry is of the crash in the 2nd half of 2008. The global financial crisis that had been building for the past year exploded in the middle of 2008, leading to the failure of Lehman Brothers and the market crash. With consumer spending on hold, panel prices fell dramatically as the supply chain was in panic. By the end of 2008, industry indexes had reached historic levels, including panel prices, panel makers’ profitability and panel makers’ capacity utilization, which hit as low as 60%.
Panel inventory adjustments, as well as slow TV demand and stagnant replacement cycles, are causing a similar situation in the 2nd half of 2013. TV and panel makers have become increasingly concerned by the demand slowdown and inventory pile-up. Panel prices have been falling rapidly since the end of June, and, as forecasted in the NPD DisplaySearch Monthly Large-Area LCD and PDP Pricing Report, panel prices will continue to fall into Q1 of 2014. Panel makers are not yet reducing capacity utilization levels, but they are talking about inventory control and trying to curb their production.
The inventory in China is a critical point for the current oversupply situation. We estimate that in September, Chinese TV makers had more than 8M finished panels (particularly “open cell”) and WIP (work in process), significantly higher than normal. The Chinese National Day Holidays in October is the strongest selling season and is always expected to be a good time to clear inventories. However, we found that LCD TV sales volumes during this year’s holidays were 2.6 million, a 5% drop Y/Y. Although LCD TV inventories decreased to 6-7 weeks after the golden week, down from 8-10 weeks at the end of September, excess inventories remain an source of downward pressure on panel prices.
Using TV panel pricing data, we can compare trends in 2H’08 and 2H’13 to see if they are similar in terms of price declines. The figure indicates that in terms of percentage price declines, 2H’08 is the worst period. The panel price outlook in 2H’13 is more similar to the situation in 2H’10, when there was excess inventory in the pipelines and panel makers were pressured to push out the panels with lower prices. That downturn lasted into the following year, and supply chain participants were still aggravated by inventory adjustment in 2011. Panel makers were struggling with weak demand at that time, and it should be recalled that LCD TV shipments declined for the first time, a 5% Y/Y drop in 2011. LCD TV panel prices eventually stabilized at rather low levels for several months, as panel makers controlled panel production until panel prices rebounded in April 2012.
History repeats itself sometimes, especially TFT-LCD crystal cycles. The cause and effect of the cycles are not the same, however. What can we expect right after the trough in 2H’13? Will the down-turn cycle last into 2014 or can it be reversed quickly? The TV supply chain “war map” has changed, triggered by Taiwanese panel makers’ introduction of new sizes, optimizing their production and cost efficiency, while Korean panel makers followed quickly with their new sizes. Meanwhile, an upgrade cycle into larger sizes has also emerged.
From the experience in 2010 and 2011, we can see that when panel prices stabilize and inventories fall to a certain level, TV makers increase their orders rapidly because they want to buy panels at lower prices to make up for losses due to high-cost inventories. While many try to “play” ahead of the game to win market share, it’s more important for supply chain participants to “plan” well ahead of the game to maximize the margin and minimize losses across the cycle.
Figure 1: LCD TV Panel Price Change, 2008-2013 (June – December)
Note: Pricing for open cell panels only.
Source: NPD DisplaySearch Monthly Large-Area LCD and PDP Pricing Report, to be published October 2013.