Mounting pressure among sellers after China’s Labor Day holiday

by WitsView on May.07 2010

According to WitsView’s panel price survey in 1HMay, as market demand in April was underpinned by first-tier brands, and China’s local TV makers are still pulling in some small sized TV panels before its Labor Day holiday, therefore, even if panel orders were reduced due to weaker end-market sales momentum of second- and third-tier brand vendors, market supply and demand is maintained at an equilibrium. As a result, price negotiation between buyers and sellers is at a deadlock, and panel prices dipped slightly as expected.

In March, Japanese market benefited from favorable policy of “Eco-point” implemented by the government, which boosted LCD TV’s sales volume in retail channels. Initial estimates indicate that sales of LCD TV in March grew almost 2.6 times that of February, and almost 1.6 times that of Christmas holiday last year in Japan. Hence, demand from first-tier TV brand vendors has been supporting panel prices and limited the downside risk amid declining demand from China. Nevertheless, market buzzed with under-the-table negotiation model of “package deal” recently, signaling concerns of oversupply, and declining market confidence starting from May. Indeed, based on the closing price at the end of April, signs of loose production capacity can be seen.

Second- and third-tier brand vendors and system integrators have suffered from first-tier vendors’ aggressive price competition in retail channels following previous price hikes of panels. We expect second- and third-tier brand vendors’ market share to shrink continuously in 2010 if panel prices remain at current level. As a result of dominant players continue to expand their dominance, top-tier vendors have become highly influential on the future supply and demand in the market.

Both buyers and sellers have recently completed their negotiation for April prices. Hence, according to our price estimates for May, LCD TV panels of ≦32W are forecasted to slide by no more than $5. Prices of >37W panels are likely to drop by $5~10 while monitor panel prices are likely to decrease by $3~5. Notebook panel prices are estimated to decline by less than $2. (See figure 1)

Monitor Panel Price Update

As demand for 32W TV panel remained strong in April, and there was tight supply of some components, monitor panel prices at the end of April were supported, falling by $1~3. However, weakening demand for ≧40W large-size LCD TVs indirectly deterred the clearing of monitor panel capacity, leading to the increase in downside risk. For downstream customers, while sales performance in the commercial market was outstanding due to demand from replacements, sales performance in the consumer market remained stagnant. As a result, it led to concerns of rising inventory levels. Monitor panel prices are expected to decline by $3~5 in late May, with 17, 18.5 W, 22W, 23W, and 23.6W having higher downside risk. (See figure 2)

TV Panel Price Update

TV panel demand in April remained strong in the traditional slow season underpinned by first-tier brand vendors’ continued expansion of their market share as well as the hype of 2010 World Cup in South Africa, which supported TV panel prices. However, following the weaker-than-expected TV sales performance during Chinese New Year, the high inventory level led to the downside risk of large-sized TV panel prices. From different perspective, with TV set makers’ relatively higher inventory, if prices decline too fast, the losses in inventory value due to the price decline will far exceed the benefit generated by new orders from price squeezed. As a result, prices in March/April seem to be at the verge of a turning point, and are unlikely to plummet yet. Before May, the market held high levels of expectation for China’s domestic TV sales during Labor Day holiday. Yet, actual sales performance may be disappointing based on current market information. However, TV panel inventory is gradually reaching a healthy level after 3~5 months of adjustments, which is beneficial for the demand preparation before the National Day holiday. On the other hand, restocking for China’s National Day holiday will only take place after a few months. Therefore, after domestic electronic appliance makers’ inventory decreases, request to lower TV panel prices will be stronger than that of the previous two months. For TV panel price trends in May, price fluctuation of mainstream panel sizes 26W, 32W, and 37W will be in the $5 range, while prices of ≧40W panels are likely to fall by $5~10. (See figure 3)

Notebook Panel Price Update

According to our benchmark figure for downstream SIs’ set shipments of >10.2W, current data suggests a 7% QoQ growth in set shipments in 2Q10. However, in monthly shipment breakdown, shipments in April and May both decline compared to the previous month, and growth momentum is only expected to emerge in June.

In the past few months, prices of large-sized notebook panels remained fairly stable; hence, their downside risk is relatively limited despite the slow growth in end-market demand. Notebook panel prices are likely to fluctuate within the $0~2 range in May, with 10.1W and 17.3W having higher downside risk amid weaker demand. (See figure 4)

Conclusion

Pressure to lower panel prices is expected to increase significantly after China’s Labor Day holiday. Currently, we are concerned about the two key issues: first of all, panel makers’ work-in-progress inventory is already piled up, and it will continue to rise amid high utilization rate of glass input. Secondly, panel and set inventories of top-tier brand vendors and system integrators have been increasing gradually, coupled with inventory in retail channels and products in transit, it may lead to unfavorable conditions for panel price trends after mid 2Q10.

On the other hand, sales of LED TV have become the focus in the market; although top-tier brand vendors have already gained substantial control in key upstream components, second- and third-tier set makers and brand vendors may have neglected the following problems:

1. Stability of panel source&supply.

2. The possible risk of having to accept price increases amid shortages in material supply for panels or components.

3. Whether an effective solution for quality issues, such as light leak and uniformity, has been developed. After all, consumers have high expectations on the performance of TVs; hence, to brand vendors, the brand image conveyed by their TV products is far more significant than their prices.

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Mounting pressure among sellers after China’s Labor Day holiday

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