After peaking in December 2011, LCD TV panel shipments to Chinese TV makers fell sharply in January. They soon recovered in February, as forecast in the monthly NPD DisplaySearch MarketWise-LCD Industry Dynamics report. In February, shipments to Chinese TV makers from the panel makers surveyed reached 3.75M, up 18% M/M, three points higher than the previous forecast.
Panel shipments to Chinese TV makers will grow seasonally 24% and 2% in March and April, due to the May Day holidays. However, the supply chain’s production and inventory build-up is expected to stop in April. As a result, the demand for panels from Chinese TV makers is forecast to fall 13% and 8% M/M in May and June, respectively.
Recent supply constraints are not due to recovering demand in the market. Instead it has been caused mostly by low yields on new models and by panel makers adopting new technologies. Panel makers also rearranged panel capacity, and TV makers asked them to build production for new models. Meanwhile, TV makers agreed that there is little room for decrease panel prices further. Some said that panel prices have reached bottom. As a result, a price hike is expected for TV panels in April. Key factors include price negotiations and the attitude that Chinese TV makers and leading TV makers take toward their captive panel suppliers.
Chinese TV brands have been cautious about building up production or stocking more panels. As a result, the current inventory level is safe, with about 5-6 weeks of TV sets and 7-10 days of panels on hand. This is true despite the fact that sales in China have been slow during the last two months. Most Chinese TV makers believe they can get the panels they need. The exceptions are 42” and 47” and other models that are forecast to have supply constraints in April.
Compared to the previous forecast, which had already been trimmed, the latest industry survey shows that some panel makers have further lowered their shipment plans for Q2’12. The shipment plans for March are up a modest 2%, but we see them decreasing by 1-3% in April and May. Panel makers discovered that they needed to reduce their shipment plans to better react to soft demand and more importantly, to avoid inventory problems. In our view, this industry-wide adjustment helps stabilize supply and demand throughout the forecast months.
Our latest survey shows that the two Korean panel makers reduced their shipment targets for April and May. This is in contrast to the forecast changes at Taiwanese panel makers. Korean panel makers expressed increasing concern about the overall demand outlook for China. It is possible there will be fewer subsidy programs this year, and the home appliance to rural program will be the only one left. The decreased forecast is also a result of competition and the Korean panel makers’ business strategies (e.g. open cells) involving Chinese TV makers.
Chimei Innolux will continue to lead in shipments during the forecast months. Compared to the previous forecast, Chimei Innolux has significantly increased its shipment forecast for the next three months. Despite its increased targets, Chimei Innolux shows a clear seasonal trend in the Chinese market. Their shipments grew 30% M/M in February, and they are estimated to peak in March with a 24% M/M increase. Chimei Innolux will maintain this high level of shipments in April before seeing declines of 20% and 17% M/M in May and June, respectively.
LG Display does not have a positive view of Chinese demand and expressed concern that inventory might become an issue in Q2’12. LG Display’s Q2’12 shipment plan for China is conservative, and the company is not supporting an open-cell business for its external TV customers. At the same time, LG Display faces competitive pressures from Taiwanese panel makers on the new sizes: 29”, 39”, and 50”.
Samsung increased its TV panel shipments slightly in March. The company forecast that monthly shipments would trend downward in Q2’12. It is projecting a low forecast for shipments to the Chinese market, especially in June. The target for June shipments is even lower than the record low that occurred in January. Our industry checks revealed that TCL, Samsung’s major Chinese local TV customer, will reduce its panel procurement in order to support CSOT, its captive panel vendor. Despite the risk of losing some business from Chinese TV customers, Samsung expects an increase of business from its captive and strategic customers in Q2’12. It will be worth watching to see whether Samsung will implement its aggressive business strategy as planned, sending open-cells to China this year.
AUO plans to ship more in March, but capacity constraints and yield rate issues limit AUO’s panel output. On the demand side, AUO reported that some Chinese TV customers were adjusting inventory and pushing shipments back to April.
BOE failed to meet its shipment targets for January and February, but the company still plans to increase its shipments throughout the forecast months. BOE is focusing on the supply of 32” in particular, and there is concern about a supply imbalance for 32”, especially in the Chinese TV market. Currently, more than 55% of BOE’s panel shipments are to Chinese TV makers.
There is competition from China’s local panel makers. Recently, China’s Ministry of Finance officially announced changes to the import duties on certain products, which will be effective April 1, 2012. Among them is a duty on 32”+ TV open-cells. The duty on open-cells will be increased from 3% to 5%. According to our cost analysis, the increase might not be enough to force Korean and Taiwanese panel makers to build fabs in China. However, if domestic suppliers build more LCD TV panel fabs as planned, then the import duty might be increased further. For political and business reasons, foreign panel makers are considering building LCD fabs in China. Previous plans included building fabs, but current plans include the option of moving existing fabs. An argument against building new capacity is the overcapacity in the industry.
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