Shipments of large-sized Liquid Crystal Display (LCD) panels vastly exceeded end-market sales of televisions, monitors and notebook PCs, spurring a major buildup of inventory of the LCDs and ?nished products, including LCD-TVs, according to market research firm iSuppli Corp.
Coming amid fears of a slowing economy and the possibility of a double-dip recession, the inventory increases are raising concerns throughout the display supply chain—from panel suppliers to contract manufacturers and brands, to retailers. The oversupply situation was exacerbated by a significant cut in orders in July from LCD panel buyers. To be sure, the large-sized LCD panel market was already in oversupply for most of the second quarter of 2010, but the order cuts in July pushed the market further into oversupply as inventories expanded to even higher levels.
An example of the inventory buildup situation facing the supply chain can be found in the LCD-TV market, where 46.8 million panels shipped in the first quarter of 2010, even though LCD-TV set shipments equaled only
- 37.5 million units—an overage of 24.5 percent. In the second quarter, large-sized LCD-TV panel shipments grew to
- 52.0 million units, but actual sets that were shipped amounted to only 38.7 million units. This gap of 36.4 percent, higher than anything seen in 2009, has pushed the market to further levels of oversupply, especially in the face of an uncertain outlook in the second half of 2010.
The oversupply has persisted in the first few months of the third quarter as buyers cut orders in July and August.
Falling Prices Aren’t Helping Matters
Inventory levels on the side of both suppliers and buyers have caused a ripple effect on pricing as large-sized LCD panel pricing dropped again in July, taking some panels down to the manufacturing cost level. In August, prices dropped another 4.4 percent because of the continuous inventory adjustment, with a further decline expected in September. Some low-priced panels were already reaching the cash cost level—and the oversupply situation is not helping matters, electronic display research from iSuppli indicates.
Such developments have prompted a series of production cuts by some panel suppliers in order to bring panel supply and demand back to balance.
For their part, branded vendors are slashing production targets and inventory in the third quarter, putting mounting pressure on panel suppliers to further reduce prices in order to move the inventory.
However, because many fifth-generation fabs and some sixth-generation fabs are fully depreciated, panel suppliers have less cost pressure to deal with and are able to reduce output more aggressively. Room for further price reduction is limited, especially among notebook and monitor panels, as they already are close to cost. Meanwhile, some TV panel pricing is also near the cost level, and panel suppliers are unable to slash production too much due to higher depreciation costs at newer-generation fabs.
Inventory levels at both suppliers and buyers are expected to remain an issue in September. Panel price pressure also will remain high. Nonetheless, severe cuts in panel production in August and September will help to mitigate the oversupply situation by the end of September.
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