The Digitimes reports that after five months of oversupply and price declines, the market for large-size LCD panels is beginning to recover, as demand strengthens and availability becomes tighter, according to iSuppli. Average pricing for monitor panels has increased 2% in April, while notebook panels have risen 1%.
“On the supply side, prices are being boosted by several factors, including reductions in panel-maker inventories and declines in fab utilization rates, said Sweta Dash, director, LCD and projection research for iSuppli. “These factors are decreasing availability of panels in the market. On the demand side, sales of monitor panels are on the rise due to the gathering momentum for Microsoft’s Windows Vista operating system (OS), Dash indicated.
While this is good news for suppliers – whose bottom lines have been battered by months of weak pricing – it is bad news for buyers, who have grown accustomed to controlling the market. Buyers in the coming months will face tight supplies and price hikes as they rush to increase orders to stock up already depleted channel inventories or to obtain panels at current low prices. Tight supplies of monitor and notebook panels are expected to linger through the second and third quarters, as panel demand outstrips supply.
Panel prelude
Pricing for 17-inch monitor panels had declined 19% from October 2006 to March 2007, while prices for both 19-inch widescreen and standard panels decreased 18% during the same period. The 15.4-inch WXGA notebook panel started to experience price reductions starting in December 2006 due to a major slowdown in demand. By March, that panel price has already declined 12%.
By the first quarter, some large-size panel prices fell below manufacturing costs levels. This forced panel suppliers to cut utilization rates and shift capacity to larger-size and wider panels, which offer higher profitability. Some suppliers preferred to stop production of certain panel sizes that were yielding losses or weak profits.
Inventory cuts set stage for recovery
The stage for the present recovery was set in the fourth quarter of 2006, when panel buyers took steps to reduce their inventories to avoid a buildup in surplus stockpiles during the first half of 2007, which was expected to be seasonally slow.
Generally, panel buyers maintain very low inventory levels during oversupply situations to avoid being stuck with large amounts of high-priced finished goods.
As for finished-goods inventories at the panel suppliers themselves, most suppliers have been able to cut their stockpiles to three weeks. Some suppliers, including LG.Philips LCD, have reduced their inventories to the two-week level.
Furthermore, LCD component suppliers cut their production and utilization rates in the first quarter due to oversupply and price reductions for their wares. Now that panel demand is on the rise, there will be some lag time before components suppliers and others in the supply chain can adjust, further constraining panel availability and boosting prices.
TV panel prices
Slow seasonal sales and oversupply in the first quarter of 2007 pushed average prices for the popular 32-inch LCD TV panels to US$302 in March, with the low-end products falling to less than US$300, which is below the manufacturing cost level. This led some suppliers to severely cut their production plans for 32-inch LCD TV panels and to shift capacity to widescreen monitor panels.
With the 32-inch TV panels in tight supply in April, some suppliers have started increasing prices. Because of this, the average 32-inch TV panel price is expected to stabilize during the next few months and may even go up for some low-end products.
Rising production at seventh-generation (7G) and 8G LCD fabs impacted pricing for the fast-growing 40/42-inch LCD TV panels, causing their tags to decline 3% in April.
Monitors in transition
The monitor market is transitioning to the new widescreen and away from the standard format due to growing video usage, the rising sales of Vista and aggressive pricing.
The 19-inch monitors have been the most popular product in the widescreen market due their affordability. However, major price reductions in the first quarter brought the 19-inch widescreen panels closer to production cost levels, impacting suppliers’ profit margins. Many suppliers now are shifting their production capacity to 20-, 22- and even 24-inch widescreen panels due to factors including increased efficiency of producing such panels in 6G-and-more-advanced fabs, higher profitability and greater compatibility with the Vista system.
With monitor demand rising in April due to low pricing, supplies have tightened. This will cause prices to rise, especially for 17- and 19-inch standard monitor panels and 19-inch widescreen panels. By June, iSuppli expects these panel prices to increase more than 6% compared to April. Those prices are expected to increase further in the third quarter of 2007.
Pricing for 20-inch widescreen panels is continuing to decline in April due to increased production.
Notebook panels get wide
The notebook market also is shifting away from standard-format panels and toward widescreen displays. Notebook panel prices also are bouncing back after four months of reductions. Prices for 15.4-inch WXGA and 14-inch WXGA notebook panels increased 1% in April. By the end of June, these panel prices are expected to increase by more than 5% compared to April. The price increase is expected to continue throughout the second and the third quarters, due to strong demand.
Double booking trend looms?
Although panel demand at the factory level seems strong in April, not all of this demand may turn out to be real; panel buyers may be engaging in double booking as they strive to acquire the right volume at the right price. Furthermore, panel suppliers are planning on hiking panel prices more in the coming months, which may cause demand to decline as buyers readjust their orders.
On the other hand, many panel suppliers have already cut their capital expenditure and expansion plans. That may limit their production in the near term, leading to tight supply situations for various large-size LCD panels.
