TV Shipment Plans Too Aggressive for ‘Evolving’ Supply Chain, DisplaySearch Says
LCD TV panel manufacturers are scaling back business strategies for 2013 as LCD TV demand growth slows, according to the latest quarterly LCD TV value chain report from NPD DisplaySearch. Panel makers’ shift to avoid an oversupply of LCD TV panels is a “drastic change in business models,” involving new strategic alliances, improving capacity allocation and expanding product portfolios to include larger screen sizes, said Deborah Yang, DisplaySearch research director.
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By moving to larger screen sizes, LCD TV panel makers hope to shrink unit shipments while increasing total panel area shipped, which should boost profitability, Yang said. “Consumers are focused on TV prices, while brands have been focused on TV features,” she said, which led to lower demand and profits for those in the 2012 TV supply chain. “A misalignment in panel size portfolios between buyers and sellers could result in supply constraints,” as panel makers and TV brands try to bolster portfolios and enhance their bargaining power to improve profitability and gain a competitive edge, she said.
DisplaySearch is forecasting 4 percent year-over-year growth in LCD TV panel shipments this year and 11 percent growth in TV set shipments based on a survey of shipment plans from TV makers, particularly Samsung, LG and Chinese TV makers, DisplaySearch said. Yang said Samsung and LG are working with Sharp to bump up panel supply in 2013, especially for 32-inch panels. Some TV brands’ 2013 shipment plans reflect a strategy to set higher targets and secure sufficient panel supply, but they “may be too aggressive,” Yang said. “The TV supply chain is evolving,” she said, and Taiwanese panel makers are leading the development of new panel sizes and ties with TV brands.
Meanwhile, panel and set makers are adopting new business models around open cell and backlight-module-systems (BMS) assembly, which could “force other TV makers to follow suit,” changing the TV value chain long term, she said. Nearly all Chinese TV makers have adopted the open cell + BMS business model, where they buy semi-finished open cells from panel makers and then integrate the BMS, according to David Hsieh, DisplaySearch vice president for the greater China market. In a blog post Wednesday, Hsieh said since the purchase price of open cells is lower than LCD modules, that may lower sensitivity to panel prices, leading TV makers to buy more products for the same amount of money. TV makers can buy more, securing allocation in a tighter market, while still lowering their bill of materials costs, Hsieh said.
The open cell + BMS model is increasingly being used by vertically integrated TV makers including Samsung, Funai, TPV, Foxconn, BriView, Wistron and others, he noted. DisplaySearch quarterly report data shows open cells accounted for 55 percent of LCD TV panel shipments in Q4. While China remains the largest LCD TV market, with the greatest potential for growth, there’s a consensus among those in the TV supply chain that panel inventories in China “are at an unhealthy level,” Hsieh said.
Hsieh gave several possible reasons why Chinese TV makers continue to demand more panels despite the oversupply situation. One is size proliferation in LCD TVs. With Taiwanese and Chinese panel makers launching 28-, 29-, 39-, 50-, 58-, 60- and 65-inch sizes, the new SKUs require additional inventory, Hsieh said. The increased number of sizes leads to new SKUs, which adds to existing inventory, he said. Also, with a tighter supply/demand balance projected for the second half of 2013, panel buyers may feel the need to buy ahead of a tightening market and build inventory, Hsieh said.
Other reasons for the panel supply buildup are consumer-driven, with Hsieh saying strong Chinese New Year sales, estimated by DisplaySearch to be up 14 percent year over year, have encouraged Chinese TV makers to build inventory for the coming Labor Day holiday in May. In addition, China’s energy subsidy program will end in June, prompting Chinese TV makers to buy more panels and make a final marketing push with promotions prior to the end of the program, he said. Finally, he said, Chinese TV makers may attempt to use cost competitiveness to enter overseas markets and aggressively grow market share, he said. He cited DisplaySearch’s quarterly report showing that the top six Chinese TV makers -- TCL, Hisense, Skyworth, Changhong, Konka and Haier -- are projected to sell more than 55 million LCD TVs globally this year, “ambitious growth plans” that could lead to more panel purchases.
"It is certain that China’s inventory adjustment, panel buying behavior, and adoption of new technologies will have a growing influence on the global LCD TV supply/demand balance,” Hsieh said.