May 1, 2012 — LCD panel shipments to Chinese TV makers peaked in December 2011, fell sharply in January 2012, and recovered in February, shows the NPD DisplaySearch MarketWise-LCD Industry Dynamics report. In February, shipments to Chinese TV makers from DisplaySearch’s surveyed panel makers reached 3.75 million units, up 18% month over month (M/M).
Panel shipments to Chinese TV makers are estimated to have grown seasonally 24% in March and 2% in April, affected by May Day holidays. In April, the supply chain’s production and inventory build-up is expected to have stopped. Chinese TV makers’ demand for panels will therefore fall 13% and 8% M/M in May and June, respectively.
Supply constraints were caused by low yields on new models, and adoption of new production technology at panel makers, not recovering demand in the market. Panel makers also rearranged panel capacity, and TV makers asked them to build production for new models.
There is little margin for price declines, according to TV makers, with some reporting that panel prices have reached bottom. April is expected to show a price hike for TV panels, depending on price negotiations, and interactions between Chinese TV makers and leading TV makers with their captive panel suppliers.
|Figure. LCD TV panel shipment to China TV makers (millions). SOURCE: NPD DisplaySearch MarketWise-LCD Industry Dynamics.|
Chinese TV brands have been cautious about building up production or stocking more panels, keeping inventory levels at about 5-6 weeks of TV sets and 7-10 days of panels on hand. Inventories have stayed at these levels even with slower domestic demand during the last two months. Most Chinese TV makers surveyed by DisplaySearch believe they can get the display panels they need from suppliers, excepting 42” and 47” and certain other models that are forecast to have supply constraints in April.
The latest industry survey shows that some panel makers have further lowered their shipment plans for Q2’12 more than once. Shipment plans for March were up a modest 2%, but DisplaySearch sees them decreasing by 1-3% in April and May. Panel makers also need to reduce their shipment plans to better react to soft demand and avoid inventory problems. This industry-wide adjustment helps stabilize supply and demand throughout the forecast months.
The two major Korean panel makers reduced their shipment targets for April and May, expressing concern about overall demand in China. This is in contrast to the forecast changes at Taiwanese panel makers. There may be fewer subsidy programs this year, and the home appliance to rural program will be the only one left in China. 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 panel shipments, and has significantly increased its shipment forecast for the next 3 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 have peaked 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 2012. LG Display’s Q2 2012 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 2012. 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. DisplaySearch’s industry checks revealed that TCL, Samsung’s major Chinese local TV customer, will reduce its panel procurement 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 2012. Samsung may 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.