Panel Price Pressure Persists in July, Reflecting Rising Inventory Pressure and Slow Season Effect

by WitsView on Jul.07 2010

Based on the latest survey by WitsView, a research division of TrendForce, sales performance in retail market was not as optimistic as anticipated in 1H10, and it mainly attributes to the following: firstly, sales performance was not as expected in Chinese New Year holiday and Labor Day due to the weakening demand for LCD TV in China’s domestic market. Thus, the fairly high panel and set inventory among domestic TV vendors weakened the panel demand. Secondly, the dramatic depreciation in the euro, caused by the European debt crisis, and the slow season effect resulted in the increasing cost of sales among brand vendors and the weakening demand for panels. Thirdly, since 4Q09, inventory replenishment from downstream customers, and the material shortage from upstream component drove monitor prices to rebound sharply. Hence, it’s expected that concerns in panel supply shortage may still exist in the upcoming hot season in 2H10, which will make downstream clients restock early for 3Q10. Moreover, panel shipment is expected to reach a historical high in 2Q10 because of the fully-loaded existing capacity and the ramp-up of new fabs. However, in 2Q10, sales performance of most IT and TV brand vendors were lower than expected, and that increased their panel and set inventory. The build-up of inventory may weaken panel demand in 3Q10. Thus, the market held a rather conservative attitude toward the third season. On the other hand, because of the weaker sales performance from downstream vendors, cell inventory of panel makers is also on the rise. If the utilization rate remains high in 3Q10, it will make the condition unfavorable for panel prices.

Samsung made a surprising announcement on July 1, 2010 that sales target in Flat-screen TV was revised up by 28% from 38 million units to 50 million units by the end of the year. Based on WitsView’s recent survey, sales performance among IT and TV brand vendors was lower than expected in 1H10. Hence, the annual performance will unlikely reach the original sales target if sales performance fails to surge sharply in 2H10. Yet, there are still some points we need to pay attention to regarding Samsung’s intention. First of all, in 2010, LED TV has become the sales focus among major global TV makers. Samsung has been aggressively controlling over the market condition in LED supply chain since the beginning of this year. Furthermore, in manipulating the cost of panels and sets, and the prices in retail markets, Samsung will definitely have an opportunity to expand the market share and maintain a certain profitability level with its brand image. As for the real purpose behind its announcement, we believe LED TV will bring Samsung not only higher market share but also better profit. Yet, Samsung’s attitude toward the market condition in 2H10 may possibly turn into negative, so it lifted its sales goal in order to motivate its competitors. In this case, panel demand could be sustained to prevent panel prices from plummeting. Nevertheless, we still believe that Samsung’s sales performance will top other competitors in 2H10. (See figure 1)

Monitor Panel Price Update

Shipment from top10 brand vendors hasn’t improved substantially due to weak end-market demand, which was caused by the seasonality effect and the European debt crisis. Panel demand is likely to decrease under the pressure of inventory adjustment in July which is quarter end for some brands. Furthermore, the depreciation of euro added clients’ sales cost, so the pressure to lower panel prices still existed. Monitor panel price is forecast to decline by $3-5 (See figure 2).

Based on 2Q10 WitsView’s TFT-LCD Panel Cost & Breakdown Analysis, the price gap between monitor panel price and total cost is narrowed to $3-5 in July. Among which, the profitability of 17 and 18.5W may appear to be the worst, about $3-5 while 19W and above may be $7-10 (see the figure below).

As for the price gap between LED and CCFL monitor panels, since LED Chip specifications are different among each panel makers, price quotes are still varied from one another. Moreover, it’s expected that monitor panels with LED-backlit monitor panels will only witness explosive growth in 4Q10. Therefore, the price difference, researched by WitsView, is solely for reference. The actual price quote is in accordance with individual panel makers’ strategies (see the figure below).

TV Panel Price Update

LCD TV inventory in China’s domestic market still needs to be cleared away, and the euro depreciated against the dollar, caused by the European debt crisis, in Europe market. Hence, brand vendors’ cost of sales increased which led to unfavorable conditions for purchase momentum. In the hot season of 2H10, benefiting from the advantage of the control in LED supply chain and in-house panel support, first-tier brand vendors may have a better chance to achieve their sales target. On the contrary, the market share of second- and third-tier brand vendors may shrink under the impact of major vendors’ lowering prices. In July, the price fluctuation of 26W, 32W and 37W are forecast to drop by $3-5 while 40W and above are likely to decline by $5-10. Yet, varied from clients’ demand, there is still room for prices negotiating.(See figure 3)

Prices of LED-backlit panels are listed below:

Notebook Panel Price Update

A survey, conducted by WitsView, indicated that the end-market visibility in July remained unclear. The increasing sales cost of brand vendors, influenced by the euro depreciation, is unfavorable for sales activities. Moreover, panel shipment was higher than expected in 2Q10, leading to the rising inventory among downstream clients. For some brands, since July is the last month of the quarter, inventory adjustment will be their top priority among all. Many unfavorable factors may weaken the panel demand in the beginning of 3Q10. Hence, the price pressure in July has been lifted, and panel prices are estimated to slide by $2-3. The hot-selling iPad is expected to erode the market share of large sized notebook and netbook.(See figure 4)

Conclusion

Since the global economics may fall into a second recession, end-market condition remains unclear. However, panel makers posted an explosive growth in shipments under the pressure of semi-annual financial earnings report. The rising inventory will become the major problem in Q3. Panel price, production cost, capacity adjustment, and end-market demand will determine when the panel prices will hit the bottom. Most importantly, the fundamental of economic stability is one of the most critical factors.

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Panel Price Pressure Persists in July, Reflecting Rising Inventory Pressure and Slow Season Effect

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