The TV LCD panel market has been in decline for a number of years, a function of a relatively saturated market and more recently weak macro-economic conditions.  That said, on a long-term basis Tv panel prices have been declining, and while those declines are less evident to the consumer, those price declines actually translate into an increase in ’value’, which means the consumer is able to buy ‘more TV’ for their money.  In most cases that translates to larger TVs, or in some cases TVs with more features, higher quality, or higher resolution, which gives some credibility to a flat TV shipment scenario, but less to the decline seen in reality (see Figure 3).  
In the shorter term, especially between mid-year 2020 and mid-year 2021, there was a large spike in TV panel pricing, a function of a modest increase in demand during the worst of the COVID-19 pandemic, and COVID related shortages that pushed panel prices higher as brands were willing to pay up for access to capacity, but as the worst of the pandemic passed, demand for TVs fell back to pre-pandemic levels and more recently to new lows.  As we have noted, panel producers have been facing a dilemma as TV panel prices reach cash costs and potentially material costs.  Do they continue to produce and lose money on every panel or do they cut production?  Either choice is an expensive one, and while panel producers were coming off a few very profitable quarters during the pandemic, profitability can dry up quickly for panel producers unless they are running fabs 24/7 at near capacity. 
Eventually panel producers gave in and began reducing utilization, but this took more than a few months of ‘wishing and hoping’ that saw TV panel prices decline at a pace rarely seen in the industry.  As the TV panel lower utilization rates began to eat through panel inventory, the rate of TV panel price declines has begun to slow (see Figure 5), and we have begun to hear that some Chinese panel producers are thinking about raising prices for certain TV panels. 
Price stability is a strong incentive for any high volume manufacturer, especially ones that have seen component costs rise significantly over the last year, and we understand that panel producers have likely been breaking even or losing money on some production projects in order to keep large customers happy, but perhaps it might be wise not to push buyers into an adversarial position so quickly, making sure that excess inventory has been eliminated and that there is some semblance of demand before increasing prices.
Much of the price talk seems to be rooted around 32” TV panels, essentially the smallest typical TV panel size, and understandably so, given that such panels are currently 10% below pre-pandemic lows and 69.7% below pandemic highs (see Figure 6) and likely a money loser for most TV panel producers, but even the slightest bit of success in raising prices on just these TV panels will begin to justify panel producers raising prices on other TV panel sizes and start the process of choking off the possibility of rescuing a dismal year for the TV industry during the upcoming holiday, that we believe can only be salvaged  with the heavy discounting that might stimulate consumers to buy TVs.
Behind our doubts as to the effectiveness of TV panel price hikes, is the fact that TV set sales during the heart of the pandemic ‘borrowed’ from the 2021 holiday season and  perhaps a bit into this year’s holidays, and a worsening economic environment will do little to stimulate incremental TV set sales this year.  With both of those factors in mind, we  see the potential for any TV panel price increases as a negative that has the potential to extend the low end of this panel cycle further into 2023, and given that the number of panel producers that produce TV panels has declined as Samsung Display (pvt) and LG Display (LPL) eliminate or reduce their LCD large panel capacity, such pricing decisions are more readily falling to Chinese panel producers, such as BOE (200725.CH), Chinastar (pvt), HKC (248.HK), and CHOT (pvt), and while the Chinese LCD panel industry shows a somewhat unified face to the outside world, there is intense competition among the players that could push TV panel prices lower if such increase attempts are rejected by TV set panel buyers.
The panel business is an easily unbalanced ecosystem, known for extremes, and while panel producers are feeling the wake-up hangover after a very big party, counting on ‘the hair of the dog’ to alleviate the pain, has little basis in fact, and drinking more, or in this case raising TV panel prices quickly, will likely only serve to extend the hangover…

Earlier this month we noted that it has been a difficult year for WOLED TV, with negotiations between Samsung Electronics and LG Display (LPL) for the purchase of ~2m WOLED displays failing, and overall TV demand falling below expectations as the global economy faced rising inflation and rising interest rates.  Our two demand scenarios yielded unit volume estimates of 7.77m units as the best case and 7.27m units as the worst case, with a ~3% over-supply in the best case and a ~17% oversupply in the worst case[1].  Since then it seems estimates for WOLED TV shipments have continued to erode with back half production being lowered at LG Display, the sole producer of WOLED panels for TV, and the lack of an agreement with Samsung, weak overall TV demand, and continuing LCD panel price declines, all contributing to lower expectations.
With our worst case estimate looking the more likely, we move our attention to 2023 for WOLED TV set shipments and look toward the possible scenarios that might develop next year.  While there are certainly many variable that could come into play during 2023 that would affect OLED TV shipments, we focus on two.  Fist, whether Samsung and LG Display can come to terms as to a deal for what would likely be ~2m WOLED units, and the price of LCD TV panels.  To some degree they are dependent on each other as the relative value of LGD’s WOLED panels to Samsung would be determined by Samsung’s alternative, which would likely be LCD panels with Mini-LED/QD backlighting, already a mainstay of Samsung’s premium TV business, so if LCD TV panel prices continue to decline, we expect Samsung will opt for the less expensive solution, LCD, and LGD will face more typical OLED TV demand.
As we have mentioned previously, TV panel prices, while still declining m/m, have at least slowed their precipitous declines, and could see at least a shot at stability toward the end of this year.  That said, we still believe it will be a rather difficult holiday season for the TV set market as inventories are coming into the holidays higher than demand might portend, and while some panel producers have reduced utilization rates substantially, others less so, reducing the drawn down of inventory levels.  If holiday sales are enough to deplete excess TV panel inventory, it could set the tone for at least a small TV panel price recovery in late 1Q ’23 and that scenario would, in our view, give Samsung more incentive to strike a deal with LG Display as the value of relatively fixed price WOLED panels would look more attractive.
All in, we see a best case scenario of 9.25m units next year and a worst case of 8.5m units as shown below, with both Samsung’s potential decision and LCD TV panel prices as the swing factors.  Samsung does have the upper hand in the negotiations, especially when it comes to negotiating prices for LCD TV panels, as they are the largest purchaser of LCD panels that has no internal large panel LCD production capabilities.  While there are no other OLED TV panel producers who could supply mass production level volume, other than LG Display, Samsung seems to have chosen the LCD alternative this year and could do so again next year.


[1] 10% oversupply would be the normal baseline.

If new rules in the UK are not changed, starting in March of next year 8K and Micro-LED TVs will no longer be available to consumers in the EU.  A series of energy-related rules will come into effect next year that set energy use requirements for televisions with more than UHD resolution (8K) and micro-LED based displays as part of a larger ‘ecodesign requirement for energy related products’ program initiated in 2019.  When the guidelines were determined, 8K television sets were barely a notion, other than as demos at trade shows, so the specs were written (pre-2019 release) before there were a reasonable number of 8K sets available on which to make typical efficiency and power consumption calculations.  The 2023 rules require that 8K television sets must consume the same amount of power as 4K sets or would be unable to be sold in the EU.
Based on a quick check of Mini-LED/QD and OLED TVs, 8K TVs consume 90% more power than their 4K equivalents, with 8K OLED TVs coming in at ~77% higher and the 8K Mini-LED/QD sets coming in ~102% above their 4K counterparts.  A further look by the 8K Association, a group with an obviously big stake in the debate, has indicated that they find that no 8K television sets currently in the market would meet the new specifications.  The regulatory committee that has set the guidelines is supposed to meet before the end of this year to review the guidelines, although no meetings have been scheduled to date.
The problems facing 8K TV power requirements is simple to understand.  8K TVs have to fit 4 times as many pixels into the same space as 4K TVs, which means each pixel has to be smaller.  As the electronics that control each pixel remains basically the same size in both 4K and 8K, the area available for the backlight to pass through becomes smaller as a percentage of area in 8K pixels.  In order to compensate for the lower amount of light, the backlight in 8K sets needs to be brighter and therefore requires more power.  Additionally, given the increased number of pixels in 8K sets, the processing done for each pixel is also multiplied by 4, requiring more transistors and more power to drive them.
Those in the 8K ecosystem stand against the new regulations citing the effects on EU consumers who will no longer be able to avail themselves of the latest 8K content and will ‘fall behind’ other regions, although we are hard pressed to find a regional competition toward establishing 8K as the day-to-day television media format.  Japan has the only (state-sponsored) 8K broadcast station, usually reserved for important events, travelogues, and nature specials, and while there are streaming services that supply 8K content, 8K TV sales have not been stellar, with ~350,000 8K sets sold last year, a less than 1% share of the TV market, and Samsung Electronics (005930.KS) holding a ~65% share.
While we understand both sides of the 8K argument, the broadcast industry is still grappling with 4K while some streaming services charge extra for 4K, so pushing the television industry toward reducing power requirements for 8K TV does not strike us as a bad idea, although one that has relatively little relevance to consumers at least currently.  At some time in the future 8K will become germane to the industry but pressing the industry over a product that was developed way before it became useful to consumers will serve to push set producers to improve 8K set power consumption or abandon the product until there is at least some consumer demand.  We doubt there will be much consumer lament over ‘falling behind’ other regions in the world of television technology…

OLED TV, continues to grow as a percentage of total TV sales and shipments, but in the ‘premium’ TV market, which, in theory, consists of OLED TVs, 8K TVs (all types), LCD TVs with Quantum Dots, which would include all with Mini-LEDs., OLED TVs face a more difficult share growth path as overall LCD capacity is vastly larger than  that of OLED TV capacity and the inclusion of a quantum dot layer does not require dedicated fabs, as does OLED TV production.  Given that LG Display (LPL) is the primary producer of OLED TV displays, with Samsung Display (pvt) recently joining with its QD/OLED offerings, maximum capacity for OLED TV is limited to the existing capacity of LG Display and Samsung Display, which is 190,000 Gen 8.5 sheets/month between the two.
While we expect Samsung Display to increase its QD/OLED capacity over the next 18 months, overall OLED capacity seems static for the remainder of 2022 and at least the first half of 2023, if not the entire year.  Estimates for display equipment spending overall have come down for this year as high inventory levels and declining panel prices have slowed expansion plans across the industry, and while spending for LCD will come down by 28.5% y/y spending for OLED (both large and small panel) is expected to increase by 21.9%.  Both categories are expected to decline next year but return to growth in 2024 for both categories, while in 2025 LCD equipment spending is expected to decline while OLED equipment spending is expected to increase as shown in Figure 1.  We are a bit skeptical as to by how much LCD and OLED equipment spending will decline next year and could foresee a scenario where some of the equipment spending currently estimated for 2024 and 2025 could find its way back into 2023, but for now the outlook for 2023 display equipment spending continues to look rather grim.
Along with the decline in spending this year and next comes the decline in TV set shipments overall, which have been declining yearly after peaking in 2020 during the early days of the COVID pandemic.  Both Samsung (005930.KS) Electronics and LG Electronics (066570.KS), the leaders in TV set sales, are expected to see declines in shipments this year, leading to a unit volume decline in set units this year of ~3%.  While we expect much of the unit decline will fall to generic LCD TV sets, the decline has put pressure on the overall TV market, including OLED TVs.  With estimates of ~10m units for WOLED panel shipments this year, we believe that the potential for LGD to miss this target has increased, particularly given that the negotiations between Samsung and LG Display for the purchase of ~2m WOLED panels this year seem to have evaporated. 
While Samsung Display’s QD/OLED shipments will be modest this year, likely under 1m units, they will also impact what might have been potential WOLED panel shipments from LGD, which adds to the possibility of a shortfall.  On the positive side of the ledger, we expect Sony (SNE) to increase its presence in the OLED space, although they will be a QD/OLED customer, along with Samsung Electronics, which could lessen the positive impact of the Sony OLED expansion this year.  Recently there have been rumors that utilization rates have dropped at LG Display’s E4 fab, the larger of LGD’s South Korean OLED fabs, which could indicate that like LCD panel producers, LGD is trying to work down some excess inventory.  With 79 days until the unofficial start of the holiday season a slowdown in WOLED production does not bode well for the full year target of 10m units, however as long as the potential shortfall is not greater than 2m units, there will be some, albeit small, growth in the OLED TV business this year. 
The bigger risk is that LGD continues to produce at a rate that gets it near or to its target of 10m panels as this will create an even larger inventory issue going into 2023.  We expect production to decline by over 18% q/q in 3Q and by ~15% in 4Q, along with a modest (6.8%) increase in demand over the worst case scenario, which would create a 13.0% panel excess.  Given a safety level of 10%, the best case scenario would set the stage for a better 2023, while the worst case scenario would create a ~27% excess in panel stock, making 2023 another difficult year.  Much will rest on LGD’s production decisions and brand demand, but we expect TV brands are ordering on an almost day-to-day basis to try to gauge how consumer demand is flowing.

​According to the Chinese trade press, Samsung is planning to resume ordering TV panels from suppliers after halting those orders in mid-June.  While no sources were named or quoted the gist was that Samsung’s TV inventory, which ballooned to 16 weeks in June, was now at a more normal 8 weeks and the company was ready to place orders with its panel suppliers, BOE (200725.CH), Chinastar (pvt), Innolux (3481.TT), and AU Optronics (2409.TT).  The sources go further in that they blame Samsung, the share leader in the TV market, as the reason for the downturn in the display space, as they ‘did not notify their supply chain for over a month’ when inventory levels became too high.
While we expect Samsung, as did most other brands, was want to acknowledge that the demand side was weakening, but to be accurate, the best indicator that TV demand was weakening would be the price of TV panels, which peaked in July 2021, and was certainly a visible sign to the entire display supply chain, including panel producers, who decided to continue to produce at levels that would maintain positive gross margins despite the obvious signs that something had changed.  Additionally LCD capacity additions and greenfield expansion projects continued to be announced, financed, and constructed through much of the downturn and utilization rates that should have been cut in March, were maintained by almost all panel producers until they were forced to make those cuts in June.
It would be wonderful if Samsung was able to reduce 16 weeks of TV inventory down to 8 weeks in what amounts to 9 weeks during a highly inflationary period, but with the lower demand seen for many CE products in recent weeks, making that assumption still seems to be a bit of a stretch.  More likely Samsung is doing what all TV brands typically do in late August and that is to begin ordering enough components to meet expected demand for the holiday season.  Jumping to the conclusion that everything is back to normal in the TV space is ignoring what really caused the problem in the first place, over capacity and over-ordering, along with the assumption that the COVID induced out-performance of late 2020 and much of 2021 was the ‘new normal’.  Optimism is OK but being overly optimistic carries the same number of potential negatives as does being overly negative.
 

2021 was a difficult year for TV brands.  Panel prices continued to rise through the 1st half of the year, and while they began to fall in July other component costs, including transportation and logistics, continued to rise along with the overall rate of inflation, slowing consumer demand.  This has continued through the first half of this year making y/y comparisons difficult, despite declining TV panel prices, which tend to be the largest part of BOM.  On a comparative basis Chinese TV set unit volumes declined by 6.12 y/y in 1H ’22 but more importantly TV set sales declined 10.6% to $7.87b against last year’s $8.8b, reflecting lower set prices and the lower volumes.
Much has been said about how the increase in TV set size portends continuing growth in TV set sales under the theory that larger sets carry a higher margin, but that growth, at least in terms of units was muted this year, with share growth of only 2.1% in the 65” and larger category, while units declined by 4.1%.  As we expect at least some 2H half/half growth for TV sets in China for this year on a seasonal basis, there should be a bit of additional unit growth in the 65” and over category, but with the continuing decline in panel prices we expect the value of those sales to decline again h/h.

Way back in 2007 SMPTE (Society of Motion Picture & Television Engineers) began to set standards for what is known as 8K resolution, a format that the Japanese Public Broadcasting system began to research in the mid 1990’s to help Japanese CE companies maintain a leading share as LCD TVs began to become popularized.  Sharp (6753.JP) released an 85” 8K LCD TV at the 2012 CES show, soon to be followed by Panasonic’s (6752.JP) 145” 8K Plasma demo at IFA in the same year, and the 2014 Winter Olympics and the World Cup were broadcast in 8K.  By 2018, while forecasters were relatively conservative, predictions that 8K would be ‘mainstream’ by 2023 and would sell over 11m units were appearing along with 8K sets from almost all major TV brands and in 2020 Samsung Electronics (005930.KS) noted that the Samsung Galaxy S20 smartphone would be able to record in 8K, although it required 600MB/minute of storage capacity.
But things have not been going well for 8K recently, despite the support from TV set manufacturers, who generate premium prices for a resolution that is 4 times the resolution of the 4K TVs that are becoming the standard globally, as US TV brand Vizio (VZIO) has decided to drop the format from its TV lineup and rumors that early 8K cheerleader Samsung might be cutting back on offerings going forward, although we expect they will maintain some 8K representation in the Mini-LED/QD lines.  But it gets worse in that OMDIA has just cut its 8K forecast again, after cutting it late last year, as it seems that less 8K TVs were shipped in 2021 than in the previous year, with Samsung, the share leader at ~65% seeing 18% less units y/y.  The latest cut puts the number of global 8K households at 2.7m by 2026, down from 9m by 2025 in last year’s forecast (here are 596.97m households in just the top 10 largest countries), only 0.15% of all TV sets shipped last year.
Of course there is the fact that there is very little native 8K content, which would be the real reason for owning an 8K set, and a distrust of upscaling techniques that have always been sold to the public as ‘enhanced’ versions of 4K content (see sidebar), but it has always been our view that buying an 8K set to ‘anticipate’ content would cause one to own an outmoded set when that content finally comes around.  Those issues, along with the significant expense broadcasters would have to incur to air 8K content (Streaming services can but it takes considerable bandwidth even with compression), seem to have put a real dent in 8K, at least for the time being, and adding the difficult macro environment seems to have tapped off any residual COVID-19 related consumer interest.  Now it is up to TV brands, who will be looking to rein in costs, whether they can support an 8K format with such small unit volumes in such an environment, but we expect 8K will be back again when consumers are less burdened by inflation and TV set brands can try to squeeze out that extra bit of margin on 8K product once again.

Most 8k upscalers fill in the missing pixels by interpolating image content around the target pixels.  If there is consistency, such as a red background, the system will assume that it can fill in the extra pixels with that color, but when it comes to fine detail, each upscaler has to use its algorithm to make a determination of what would look best and place that image on the additional pixels.  AI techniques can be used to better understand an image based on what the system has seen in the past, but all upscalers make assumptions as to what ‘might have been there if it was taken by an 8K camera’.  TV set brands and retailers will show you a 4K and an 8K set next to each other to point out the skill of the upscaler, but most of the difference is actually the number of pixels on an 8K set displaying a higher resolution image, as no upscaler can create ‘better’ images than were captured natively, they can only attempt to fill in the blanks with something close.
​

​Samsung Electronics (005930.KS) is said to have suspended orders for LCD TV panels from its suppliers for between 30 days and 45 days according to a number of sources in South Korea.  This comes after it was widely noted that Samsung had reduced its TV set shipment plans for the year a 2nd time, from an original 53m – 54m units to 45m units and then to the current 40m units, as inventories grew to  2x pre-pandemic levels while demand slowed.  The original estimations would have built in an increase over last year’s 50m units, which was 10% above the shipment rate in 2020.
While the impact will be different for each of Samsung’s suppliers, we expect Samsung’s monthly order rate to be between 3.3m and 3.75m panels, which would represent between 5.8% and 6.6% of monthly panel production based on most recent data, and with an average price of $76 (TV panel ASP) a value of between $250.5m and $285m, would represent between 5.0% and 5.6% of large panel sales on a monthly basis.  Given that the 5 suppliers most likely affected would represent ~69.2% of monthly large panel industry sales, we expect the impact to be significant for BOE (200725.CH), Chinastar (pvt), HKC (248.HK), AU Optronics (2409.TT) and Innolux (3481.TT), but again, specific impact by company would depend entirely on order concentration and the type and price of the panels ordered as we are using an average price across all panel sizes.  Those with orders for 65” and larger panels, which carry a price considerably above the average would see a greater impact.  We expect BOE and Chinastar, both of whom have Gen 10.5 LCD panel fabs which specialize in large panel production would see the biggest impact.
As we have noted previously, much will depend on how quickly TV panel and set inventory can be reduced to more normal levels, which would entail a period of watching demand in a steady state environment (June) and then gauging how much discounting is necessary to bring those levels in line.  As raw material and component prices have risen, offsetting some of the declines in panel prices, TV set brands will likely tread softly when it comes to discounting, at least at the onset, but we suspect if normal levels have not been reached by the end of July, we will see even more aggressive discounting and the potential for Samsung’s cuts to extend into the first two weeks of August, exacerbating the potential impact to LCD large panel producers.  That said, we expect at least a modicum of stability by September but worry that at the first sign of even modest demand improvement at the set level, panel producers will increase utilization to bail out what is shaping up to be a weak 3Q.

​The concept of Micro-LED TVs is an exciting one, using ultra-small LEDs as emitting devices, especially as LED technology has been in large scale mass production for many years and production techniques are standardized and mature.  That said, moving from LEDs that are currently being used for TV backlights, which are about 1mm (1,000 um) to Mini-LEDs, ~200um, and then to Micro-LEDs (~2um to 20um) carries some production issues that complicate the transition.  LEDs in standard LCD TVs are used as a backlight, which generates the light that is controlled by the liquid crystal (the LC in LCD), which then passes the light to a color filter which creates the individual color dots that make up an LCD display.  In a 4K TV there are 24.883m of these colored dots, all of which need to be illuminated by the LED backlight.
Since there are typically a few hundred LEDs in such backlights, designers came up with a way to dim groups of LEDs to reduce the light leakage across those dots that are supposed to be turned off, although leakage does occur causing what are called halos and other artifacts that reduce contrast.  In order to compensate designers continue to reduce the size of backlight LEDs and add more, to give more precise control over what areas are light and dark at any given moments, with Mini-LEDs and extension of this process, using thousands of LEDs that can be controlled in small groups or individually.  Taking the backlight concept further however means that LEDs must continue to shrink, allowing more LEDs to be packed behind LCD displays, and at a point that becomes some burdensome that display engineers decided to use the LEDs themselves as the light source, rather than liquid crystal, and Micro-LED displays became a concept.
Such displays are targeted to contain the 24m individual Micro-LEDs indicated above, which is the reason for their even smaller size, but there are many current constraints limiting the production of such displays, particularly the large number of very small LEDs that need to be moved from a die to a substrate and the necessity to test and replace any of these very small LEDS before finishing the display.  Currently, most Micro—LED displays are large, which allows for the LEDs to be a bit larger and less densely packed, and gives designers the ability to create Micro-LED modules that can be connected together to form such large displays.  In most cases these modules are based on PCB boards which make them bulky and relatively expensive, but Samsung is trying to reduce at least one cost point issue by moving from PCB backplanes to TFT (Thin-film transistor) based substrates, which are similar to those used in LCD displays currently.  In fact Samsung is working toward using LTPS (Low-temperature Polysilicon) backplane technology, similar to that used in most smartphones.
By shifting away from expensive PCB boards and ‘returning’ to what would be standard LCD production techniques, Samsung (005930.KS) is hoping to further reduce the cost of its Micro-LED TV line starting with an 89” model and moving the technology up to 101” and 114” models, with the 89” model expected to be released sometime this year.  That said, the cost is still expected to be over $75,000, making it more of a one-of-a-kind item than a residential consumer product, but shifting to LTPS will certainly help to move the technology closer to a price that is commercially viable.  Au Optronics (2409.TT) is expected to produce the first LTPS TFT glass substrate iteration, although Samsung itself will likely become its own supplier if there is a necessity for volume production in the future and the Micro-LED chip itself is produced by PlayNitride (see above) for the TFT models, while Sanan (600703.CH) produces the Micro-LED chips for the PCB based models.  There is still a long way to go before Micro-LED can find its way into the competitive display market, but with each step that becomes a bit closer to reality.  Time brings all things to pass – Aeschylus.
 

We have noted that a number of CE manufacturers, particularly in the smartphone space, have reduced targets and orders to suppliers as global inflation leading to weak demand has led to inventory levels that are no longer justifiable.  While both upstream and downstream producers and suppliers have seen some weakness, major CE companies have responded slowly, at least publicly, and have expressed optimism as to the better prospects for 3Q.  Last month Samsung Electronics (005930.KS) was said to have continued to provide suppliers with what was said to be a relatively ‘healthy’ view of the rest of 2022.
According to Japanese Tech press, Samsung has now halted issuing new purchase orders and asked a number of suppliers to reduce component shipments for the rest of this month and the full month of July.  While no product specifics were given, smartphones, TVs, and home appliances were the primary product categories, with semiconductors, packaging, and a number of other components were said to be involved.  Samsung is said to have told suppliers that it needs to closely review component and final product inventory, and while suppliers have not stopped shipping to Samsung, some suppliers indicate that shipments to the company have been cut by as much as 50%.
It would seem that with Samsung’s change of heart, much of the public optimism that CE companies had been expressing about a better 2nd half, regardless of whether it was seasonal or otherwise, has begun to evaporate, although there are still many suppliers, particularly those producing more specialized products, that are optimistic and see orders on the books through 3Q or the remainder of the year.  Our concern is that the current cuts being made by Samsung and other TV and smartphone brands are coming a bit too late to salvage the remainder of the year, inclusive of the holiday season.  Inventory levels in many CE products have been building since the beginning of the year, along with the higher costs associated with rising raw material and transportation costs, making it more onerous to offer the steep discounts needed to get consumers to use what remains of their buying power.
Our hope is that many CE companies will bite the bullet quickly and begin discounting aggressively to burn off excess, high-cost inventory, and the lack of new production allowing some reductions in component pricing, all of which would allow a somewhat more profitable holiday season.  That said, given the global macro and geo-political environment, the odds against such a scenario playing out are low, which means we should more likely expect a more ‘wait-and-see’ attitude from CE companies, who will maintain said reduced levels until August when the seasonal build period begins, and hope that even a seasonal increase foretells a better holiday season and likely begin inventory building.
It is hard not to be pessimistic when only a few CE companies were willing to look at markets like smartphones or TVs and project that the effects of COVID-19 on consumers that led to rising prices and component shortages had already become unglued early this year.  Rather, many assumed that this was to be the ‘new normal’ and the CE boom-bust pendulum would never swing back again.  Yes, it is easy to be a Sunday mooring quarterback, but the data has been pointing to progressively weaker results for at least two quarters, despite record 1Q results for many.  Now suddenly the CE space has a dark hue and concern over excessive inventory levels is now a major driver, which to us is the first step toward a better CE space in 2023.