June will be a critical time to see if the increased panel prices can be sustained in Q3’12. In general, price negotiations will not necessarily be favorable for all panel makers. This is especially true now that some TV makers, particularly those with a greater presence in the European market, have become alert to the panel inventory built up over the past few months. Meanwhile, after the modest sell-through results for May Labor Day in China, and given that the cloudy global economic situation is likely to limit the confidence of TV brands, it is possible that panel orders will be adjusted downward and market will be shaky again from June.
However, in the first week of June, we observed the panel supply is tighter than expected, and in line with what we stated in the latest MarketWise – LCD Industry Dynamics: “Overall, panel price increase momentum will be stagnant after May/June and stay mostly flat throughout the forecast months with the exception of some sizes, particularly 40”/42”, in which prices may have another hike in June and Q3.”
Currently, five sizes of panel are particularly tight: 32”W, 39”W, 40”W, 42”W and 50”W. There are several factors in play here. From the supply side:
- Panel makers are continuously implementing new processes, and the learning curve impacts supply. The new processes include COA (color filter on array), copper array process, GOA (gate-on-array), and oxide TFT, which uses 7-8 photomask steps compared to 4-5 mask steps for a-Si TFT. As several panel makers are shifting some capacity to oxide TFT, the effective capacity is down.
- Production strategy shifts are also limiting supply. Korean and Japanese panel makers are utilizing Gen 8 to produce tablet PC panels. Taiwanese panel makers are deemphasizing 32” and 40”/42” to put more resources in new sizes like 29”W, 39”W and 50”W. This explains why the 40”/42” are in the tightest supply.
- The shifts to new LCD TV sizes and new product designs – like direct type LED backlight models – are giving some panel makers room to adjust their product mix, instead of allocating mainstream sizes which risks oversupply.
- Due to poor financial conditions, Taiwanese, Korean and Japanese panel makers have been very cautious and rational about capacity utilization. In May, some capacity utilizations were down from April, even though there were more orders. As panel makers are still selling panels under the total cost, they are likely to continue to be cautious about loading.
From the demand side:
- As analyzed in the Monthly Large LCD and PDP Pricing Report, demand for new sizes like 39”W and 50”W continues to grow fast, and brands are seeking further allocation.
- Although direct type LED backlight models have thicker form factors, they are seeing good sales results in markets like North America and China. This encourages TV brands to demand more open cell or direct-LED modules.
- Despite worries about on the worldwide economic situation, LCD TV brands are looking to achieve good growth this year, in particular Samsung, LG, Toshiba, Panasonic, Vizio as well as emerging makers like TCL, Hisense, Vestel, and Beko.
- As we noted previously, Chinese TV makers intend to continue panel purchase activities from April to August like in the past, in order to build sufficient inventory for the coming Q4 heavy promotion and selling season. On the other hand, the recently announced Energy Subsidy Program in China is stimulating China TV makers’ business plan. As we analyzed, this program could result in about 2 million additional TV purchases in China in 2012, and is likely to accelerate replacement of CCFL-backlit LCD TVs by LED-backlit models.
- As these supply constrains and demand factors will continue for several months, it is likely that the panel shortage in June will pave the way for tightness in Q3’12.