Glass Half Full?
Taiwan based LCD panel producer Innolux (3481.TT) indicated that while the ongoing chip shortage and a tightening of substrate glass supply would cause the industry to see reduced panel production, they remain cautiously optimistic about the 2nd half. Innolux management indicated that a glass substrate supplier would be cutting its utilization by 15% to 20% in order to do annual maintenance, tightening what has already been a tight glass market, and would lead to the reduction in panels being produced during the 3rd quarter. Their take on the 3Q panel squeeze was that the reduction in panel production would reduce supply and avoid a glut, although the company had not mentioned that an oversupply situation was a possibility in the past. Singling out IT products as the area where there was an imbalance between supply and demand, they indicated that the reduction should ease those concerns.
As we have noted a number of times in the past, LCD panel producers have been shifting production away from large panels (TV), where demand has weakened, and moved to IT products, meaning monitors, notebooks, and tablets. While logic holds that panel producers would follow those areas with the highest profit potential, capacity has increased relatively quickly while demand has stayed relatively flat, especially if one accounts for the potential component shortages that have limited deliveries or pushed out dates. This has caused buyers to ‘enhance’ ordering a bit by increasing numbers to encourage allocations and meet quotas despite possible shortages. As brand inventories get closer to real quotas, those orders become more realistic and panel producers are left with excess capacity, a situation they have not faced in over a year.
The TV panel space is already seeing some panel price weakness, however the IT space, where the capacity shift has been the greatest, has seen only less aggressive panel price increases and has yet to see real panel price declines. While the annual maintenance period during August is not unusual for glass producers, given the tight market and the high level of production at all of the glass producers that maintenance cannot be avoided and some shortages above the recent norm might be seen, but we have a hard time seeing this scenario as a glass half full one, rather than one indicating the potential for change., But then we are not sitting on billions of dollars’ worth of capital equipment that needs to be running at or near full capacity to produce profits. Just a difference in perspective.
As we have noted a number of times in the past, LCD panel producers have been shifting production away from large panels (TV), where demand has weakened, and moved to IT products, meaning monitors, notebooks, and tablets. While logic holds that panel producers would follow those areas with the highest profit potential, capacity has increased relatively quickly while demand has stayed relatively flat, especially if one accounts for the potential component shortages that have limited deliveries or pushed out dates. This has caused buyers to ‘enhance’ ordering a bit by increasing numbers to encourage allocations and meet quotas despite possible shortages. As brand inventories get closer to real quotas, those orders become more realistic and panel producers are left with excess capacity, a situation they have not faced in over a year.
The TV panel space is already seeing some panel price weakness, however the IT space, where the capacity shift has been the greatest, has seen only less aggressive panel price increases and has yet to see real panel price declines. While the annual maintenance period during August is not unusual for glass producers, given the tight market and the high level of production at all of the glass producers that maintenance cannot be avoided and some shortages above the recent norm might be seen, but we have a hard time seeing this scenario as a glass half full one, rather than one indicating the potential for change., But then we are not sitting on billions of dollars’ worth of capital equipment that needs to be running at or near full capacity to produce profits. Just a difference in perspective.
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