The display contains 6 million LEDs (1920 × 1080 × RGB) which may have required breakthroughs in LED device size, mounting, and driving technologies. The performance looked impressive compared to an LCD, and according to Sony’s press release, it has 400 nits brightness, more than 100% of NTSC color gamut, and very high contrast. One might expect this technology to be quite power-hungry, but Sony claims it uses only 70W.

This development, while surely at an early stage, adds some interest to the technology race for large-size flat panel TVs, especially given the buzz around 55” OLED TVs from LG and Samsung. It is also an ironic development, considering that when Samsung first started promoting LED backlights for LCD TVs back in 2009, they positioned it as “LED TV.” We called this into question, and these days most consumers understand that the LED refers to the backlight, not the display. If Crystal LED comes to market, industry might need to re-educate consumers.

Samsung emphasized that it is using RGB color patterning, which means that it has made progress on organic material deposition techniques. The RGB color approach is in contrast to LG’s white OLED that uses a color filter method. LG’s demonstration of its 55” AMOLED TV was not a surprise, since LG had already announced the TV last month along with its plans to commercialize the 55” AMOLED TV in 2012.

Figure: Samsung Showcases 55” AMOLED TV at the CES 2012 Press Conference

Progress has been made in many areas of OLED technology, including organic materials, color patterning, electronic driving methods, and encapsulation. OLED is now ready to enter large-size TV applications. However, the ability to scale OLED display manufacturing to fabs larger than Gen 5.5 has yet to be demonstrated. Additionally, the cost of larger panels is not yet clear. What is clear is that there will be a lot of completion in 2012 for bragging rights over large-size OLED TVs.

In addition, LG showed a camera accessory, similar to the Microsoft Kinect, that connects to the TV and allows for 3D gesture recognition. Although no demonstration was available at the press conference, we’ll try to get the device on the show floor to recognize us. In combination with the recent announcement of its Google TV partnership, LG seems committed to investing in smart TV.

It seems like TV makers had Apple in mind when designing the latest batch of smart TVs, especially in the area of device interactivity. It is apparent that at least some of these new capabilities may have been developed to compete with Apple’s possible entry into the TV market in late 2012 or 2013, as suggested by industry chatter. We’ll continue to follow and analyze developments in technology this week at CES.

Given the fact that the flat panel TV boom is over in Japan, and that Japan is a market where foreign brands don’t have much room to play, it is interesting to see that Samsung is planning on re-entering the Japanese TV market. What might be driving Samsung to do this?

First, LGE, Samsung’s rival, has already entered the Japanese market and seems to be making some progress as seen from the gradual growth in unit share since its entry in Q4’10, reaching nearly 1% in Q3’11.

Second, big retail channels, which had been hostile towards overseas brands, are showing interest and cooperating with Korean brands, as they believe Japanese consumers may be looking at alternative brands.

In addition, Samsung’s Galaxy series smart phones have enhanced the company’s brand awareness with solid sales performance in Japan, and smart TVs are expected to benefit from the increased brand awareness and recognition.

Samsung is the #1 TV brand worldwide, in every region except for Japan and China. Thus if Samsung reenters the Japanese TV market and competes with the domestic brands, it would be sign of a true global leader, increasing the brand value.

Finally, channel margins in Japan are quite high, and the domestic brands tend to be profitable there. This is not the case in the US and China, where price competition is severe and profitability is always a challenge.

Most Japanese brands are suffering from falling market shares and lack of profitability from the TV business globally. Samsung sees this as an opportunity to challenge these brands with high-end products, including OLED TVs, which the Japanese brands are not ready to launch.

As Samsung parts ways with Sony on their panel joint venture, it seems determined to move into one of the remaining TV markets that it does not already dominate.

A half-year of falling LCD TV panel prices has driven panel makers in two directions: reduce costs or increase value. In a search for higher value, panel makers are launching several new sizes, including 36.5”W, 39”W, 43”W, 48”W, and 50”W. Meanwhile, in order to reduce cost and target emerging markets, panel makers are developing a series of new LCD TV panels that are largely differentiated by the backlight design, including direct-type LED backlights, thick backlights, and scanning backlights. These new designs include many technical changes:

• Brightness reduction
• Reduction in LED packages
• Slim bezel border development
• T-Con (timing controller) reallocation
• Panel’s power supply unit redesign
• Thick direct-lit CCFL backlight development
• Thick direct-lit LED backlight development

The multiple backlight types, plus several new panel sizes, mean that there will be a wide array of choices of LCD TV designs in 2012. This is likely to create confusion, especially when brand recognition is added to the mix. Consumers may lose a sense of how to choose the LCD TV they want. However, this great variety in LCD TV models is the result of innovations from the LCD TV panel supply chain designed to adapt to market changes.

As a product planner for a TFT LCD manufacturer noted, it does not make sense for them to “continue to bring the latest and highest technology to the end market and sell it at continuously lower prices.” Rather, “we have to think differently and try to add value through the new sizes, as well as cost effective solutions.”

While some think that the LCD TV market is mature and will repeat the history of CRT, this product diversity has the potential to energize the market. The big question is whether end users, especially consumers in emerging markets, accept these new products. There are arguments for both sides, including these on the pro side:

• In regions such as India, consumers do not care about the thickness of the TV set, and for many Indian consumers, speakers and sound are highly valued, and thicker LCD TV casing can accommodate large and powerful speakers.
• New sizes can fill gaps; for example, there are no products between 46”W/47”W and 55”W LCD TV, so 50”W can be a good transition point, taking share from 50”W plasma TV.
• If these new sizes and backlight models are priced attractively, it may draw in new consumers.

However, there are also arguments to be made on the con side:

• Consumers might not think the new sizes are better; for example, is 43”W better than 42”W, or is 39”W is better than 37”W? Brand and price are still the key criteria.
• Consumers have equated LED backlights with slim design; it may be that thick LED backlights are not acceptable.
• CCFL is considered old-fashioned, and could damage some brands’ reputations.

Some have characterized the development of these new low-cost LCD TVs as a downgrade of the industry instead of a good sign of technology development. But with difficult times in the LCD panel and global TV markets, the key point is to survive. If these new products can fit end users’ needs at prices they are willing to pay, then they will be successful products.

On December 26, Sony announced the end of S-LCD, their joint venture with Samsung, which entails Gen 7 and 8 TFT LCD fabs. The joint venture, which started in 2004 and was strengthened through agreements and investments in 2006, 2007 and 2008, was owned 50% (+1 share) by Samsung and 50% (-1 share) by Sony, and was the largest joint venture in TFT LCD industry.

Sony decided to pull back from the joint venture in 2012, and sell its share to Samsung, making S-LCD a wholly-owned subsidiary of Samsung, who will pay KRW1.08 trillion to Sony. The reason for the closure, as Sony revealed, is that “LCD panel and TV market conditions have now changed. In order to respond to such challenging conditions and to strengthen their respective market competitiveness, the two companies have agreed to shift to a new LCD panel business alliance.”

At the same time, the companies signed a new agreement for supply and purchase of LCD panels. What are the implications of this change for Sony and Samsung?

• Sony’s panel sources will change, but probably in 2013 rather than 2012. Sony needs a stable and consistent supply of quality LCD TV panels, and we believe Samsung will supply more than half of Sony’s LCD TV panels. Sony’s other suppliers are AUO, Chimei Innolux, and LG Display (according to our analysis), but Sony does not seem to be increasing purchases from others in 2012. In the longer term, Sony will have the freedom to source TV panels from all suppliers.
• With more panel sourcing flexibility, Sony can reduce the use of Samsung panels, and focus on differentiating its LCD TV products.
• Sony is changing its business model, shifting more to BMS (backlight module system). Sony plans to purchase open cells from panel vendors and do the final TV set assembly at both OEM partners and in-house TV assembly lines. Thus, Sony will buy more open cells and fewer finished LCD modules.
• Sony might adjust their 2012 LCD TV shipment plan. The original plan was 22M, but it will likely be lowered to 20M and more focused on higher-end models. Sony is also shifting its promotional activities to China and other Asian markets, and to Latin America.
• Samsung LCD will have more flexibility in their fab product mix. As we have analyzed, without Gen 6 lines, Samsung is limited in its mix of IT and TV panel production. With the joint venture closed, Samsung will have more flexibility in how it allocates its Gen 7 and 8 fabs. This may help Samsung optimize its fabs for profitability.
• Samsung’s TV business continues to be the largest TV customer for Samsung LCD. And with no obligation to Sony, it is possible that the Samsung group will move to in-house LCD panel – LCD TV business.
• It’s also possible that the Samsung group will have more freedom to implement its AMOLED strategy, including the integration of SMD (Samsung Mobile Display) and the transformation of the Gen 8 fab from TFT LCD to AMOLED. Thus, the new Samsung could further integrate its LCD panel, AMOLED, and finished good production.

This stabilization in pricing is due to several factors. First, many panel prices are approaching the cash cost of manufacturing. Most panel makers have been losing money since Q3’10 and need to balance their desire to increase market share and fill their factories against profitability. Over the past quarter, panel makers have carefully controlled capacity utilization to limit inventory. At the same time, good sell-through in Q4’11 has reduced downstream inventory.

This combination of low utilization and low inventory is likely to keep prices flat over Q1’12, but whether panel prices will increase depends on demand. On the upside, Chinese TV companies are building inventory in preparation for the 2012 Chinese New Year, which falls in January. With panel prices flat, some feel that there is little risk to holding depreciating inventory, which also encourages demand. In addition, growing demand for tablet PC panels is leading to a shift in utilization, with TV fabs being repurposed to produce smaller tablet PC panels.

On the downside, notebook PC and monitor demand is currently limited by the hard disk drive shortage caused by the Thailand floods, and key European markets are heading into a recession. More fundamentally, there are debates about whether panel prices can increase based on a short-term growth in demand. Since the last cycle bottomed out in mid-2010, there have been two short-lived price increases, in Q4’10 and Q2’11. However, each time, weakness in demand cut short the price increases.

Will it be different this time?

Some expect panel price increases in January, especially since there is already a tight supply of some LCD TV panel sizes. Looking at the TFT LCD supply/demand history, it is very uncommon for panel prices to stay flat for long. For now, we have the four “low” phenomena: low panel prices, low capacity utilization, low channel inventory, and low confidence on demand.

Some believe the current tightness is due to Chinese New Year preparations and a few aggressive LCD TV brands, but worldwide TV demand in Q1’12 is still unclear. Therefore, even though many set makers are longing for a price increase, it is not clear whether panel prices will increase. With industry conditions at a standstill, panel prices are unlikely to fall, and the only question is whether demand will emerge to tilt the balance toward price increases.

As the downstream LCD TV OEM and branded TV manufacturers are becoming more integrated by establishing backlight and module assembly lines close to their TV set production sites, the integration of the LCD TV panel and LCD TV set assembly has been evolving rapidly in the past years. LCD TV set makers have adopted the so-called backlight-module-system (BMS) assembly model, which has the final assembly of the LCD module along with the set assembly. In the traditional model, set makers purchase LCD modules as finished components that are ready for assembly. In the BMS model, set makers purchase LCD “cells” (the LCD panel without backlight unit or driver IC with PCB) or “open cells,” which are panels with the driver IC and PCB, but without the backlight unit (so called because they look like a panel with open wings).

In our recent LCD TV value chain research, we forecast that cells and open cells combined will increase from 25% of all LCD TV panel shipments in 2011 to over 50% in 2012. Nearly all LCD TV panel manufacturers are shipping cells or open cells for TV, and their plans call for increases in share in 2012, ranging from 25% to 60%, depending on their strategy and partnerships.

LCD TV makers like Funai, Samsung, Vestel, Foxconn, BriView, Raken, TPV, Wistron, and Chinese TV brands have set up their own module assembly lines to gain the benefits of BMS integration. Some set makers have set up joint ventures with panel makers in order to secure allocation of cells at competitive prices.

For panel manufacturers, the open cell business means less revenue because of lower ASPs. Some panel makers may also lose visibility into end market trends for LCD module specifications, unless their strategic TV customers share sales performance data or they have the access to market intelligence. Some panel makers see LCD TV cell as a foundry business, with limited opportunity for adding value. However, the cell business could have higher profit margins for panel makers by allowing them to focus on efficient production, and because they do not have the backlight and module parts supply chain management responsibility and risk.

For LCD TV makers, the LCD cell business allows them more flexibility in module and TV design, which can enable greater product differentiation. By integrating panel module and set assembly, they can increase efficiency. However, some set makers may not have strong design capability, they may face limited cell availability, and they will have to take care of supply chain management and production of backlight units and modules. This may exaggerate the advantages of stronger TV set makers.

While we expect to see continued growth in the percentage of cell/open cell TV panels, many panel makers are introducing new cost efficient models with thicker “direct” LED backlights; in this case, panel makers seem to have better backlight integration capabilities than TV set makers. This could slow or even the reverse the growth of cell shipments. Either way, the cell business is bringing big changes to the LCD panel and TV industry.

There are good reasons for China to increase import duties.

• First, domestic panel makers such as BOE, ChinaStar, and CEC-Panda are ramping up LCD TV panel fabs, and they need to catch up with their peers in Korea and Taiwan in the technology and production stability. Falling panel prices are a challenge to these players, and they need a more secure market place to grow.
• Second, Korean and Taiwanese panel makers have pulled back on their plans to build fabs in China because of over-supply. This presents challenges for Chinese authorities, who had depended on TFT LCD manufacturing as part of their economic growth plan, especially in provincial cities.
• Third, after several years of involvement in the panel industry, including governmental encouragement and subsidies, more than 90% of LCD TV panels used in China are still imported from Korea and Taiwan.

However, there are many different views on raising import duties. The strongest objections come from panel buyers: the domestic TV brands, who care most about quality, reliability, stable supply, product mix, and of course prices, regardless of the nationality of the supplier. Taiwanese and Korean panel suppliers are more competitive than Chinese suppliers in these aspects. For example, as we track in our Quarterly Large-Area TFT LCD Product Roadmap Report, Taiwanese and Korean panel makers are developing many new TV panels (such as 39”, 43”, 48”, and 50” wide panels, direct-type thick LED backlit panels, slim type LED backlit panels, FPR 3D technology, and 120/240 Hz) that have been broadly adopted by Chinese TV companies. Since domestic panel makers cannot currently provide this range of panels, raising import duties increases costs for TV companies.

We understand that there has been a great deal of political discussion and lobbying in the past few months. There are now indications that duties might be raised a modest amount, to 5% for cells and open cells, which most Chinese TV companies are buying, as well as for modules, perhaps starting in January. This scenario is basically a compromise between the desire to protect domestic panel makers and the cost structure of the domestic TV brands. However, 5% might not be big enough to drive Taiwanese and Korean panel makers to build fabs in China. According to our cost analysis

During the first round of store visits to observe the midnight opening of several retail stores (for electronics at least), the activity was intense. There were long lines and strong buying activity for TVs, notebook PCs, smartphones and tablet PCs.

After retiring for a few hours at 2 AM, and returning to revisit the stores at 7 AM, the situation had changed dramatically. With the first wave of buyers snapping up the door-buster promotions, the activity at many retail locations had almost vanished. Parking lots in front of Target, Best Buy and Walmart were about 10% full compared to over-flowing at midnight. Many of the crammed stores were mostly empty with store employees milling about tidying displays and chatting about the rush. Interestingly, many of the floor-stacked door-buster items remained in heavy inventory on the floor. Was this a boom followed quickly by a bust?

A 32” Emerson LCD TV for $188 at Walmart (photo below) still had over 100 units available, and many of the other TV specials were still well-stocked at 7 AM, 7 hours after going on sale. A 40” version was still trickling out, although most supplies were gone. In general, it seemed the 32” deals were not as strongly favored by shoppers as 40” and larger sets. One Best Buy had 20 units of the $199 42” Sharp LCD TV, as opposed to the 10 advertised, they sold out within an hour, and the 60” Sharp LCD TV for $799 sold out right at 7:30AM.

After seeing a few more slow stores from 7 until about 10 AM, traffic started to pick up again as sleepy Thanksgiving revelers awoke and headed out to find many of the specials still available. Could it be that those camping out in front of the store only needed to do so for the top 1 or 2 promotions? Would they have chosen to wait if they had known?

It seems as though there are two classes of consumers for Black Friday: those willing to brave the cold and long lines in the name of tradition, and those content to miss the best deals, but still accomplish Christmas shopping at substantial discounts. For the latter, plenty of deals remained, and for the few who came out at the previous year’s opening times around 4 or 5 AM, the shopping was great with almost no crowds. The strategy to open early will have to be analyzed later by examining sales and store traffic, but at least initially, it seems it wasn’t necessary.

Overall, TV demand looked strong. We expected to see more in the way of 40”+ promotions for TVs, and the huge volume of 32” inventory still remaining later in the day is perhaps an indication that consumers indeed want larger sizes. The shipment share of 32” LCD TVs was much higher in Q3’11 for North America than we expected, so hopefully the later crowds will help clear the inventory of smaller sizes, but it might have been an error to lean so heavily on those 32” promotions when the pricing wasn’t drastically different from a year ago.