Times Running Out
As we have noted, Chinese LCD producers have been reticent to cut production levels this year and with large LCD panel pricing at or near cash costs, one would expect utilization reductions that would tighten the market. At least that is what one would expect, especially given that inventory levels at panel; producers are higher than normal, but thus far utilization rate cuts from Chinese panel producers have been almost negligible, and the rhetoric remains basically the same as it has been for the last 6 months, with “…panel prices are at cash costs so they cannot go much lower…”, and “…the 2nd half will be better…” (by how much would be the real question), and some panel producers continue to build inventory to gain share as Samsung Display (pvt) makes its final exit from the large panel LCD business.
Demand does not seem to be a driver behind these statements, as target cuts in the TV, smartphone, and notebook markets have already been registered and components, such as display drivers, that were in desperate short supply last year, are now seeing price pressure and production reductions, so where does this end? Will it continue throughout the rest of the year with Chinese panel producers hiding their heads in the sand until they are forced to unload excess inventory at even lower prices to avoid showing y/y levels 50% or higher than last year? Hopefully not, as the impact on the display industry under that scenario would be profound, and the best suggestion were have heard was that Chinese panel producers should drastically cut utilization in June and July to bring inventory levels down, and then return to higher utilization levels for the remainder of the 3rd quarter. While this seemed a good idea, the mindset of Chinese panel producers would likely not allow such a move, as the risk of a competitor lowering utilization by less and gaining share, is foremost currently.
Whether the need to gain share and show positive growth is strong enough to offset the lack of profitability and the extent of the downturn in panel pricing is still an unknown, but the fact that Samsung Display is finally ending its large panel LCD display business, and parent Samsung Electronics (005930.KS) is playing the long game by becoming a beneficiary of LCD panel price reductions as a net buyer, should be some indication of how those with the most experience view the situation. More than likely it will not be the force that will change opinion as the immediate response to SDC’s large panel termination scenario has been to look to gain share by increasing production and capacity. You can lead a horse to water but you can’t make him drink…
Demand does not seem to be a driver behind these statements, as target cuts in the TV, smartphone, and notebook markets have already been registered and components, such as display drivers, that were in desperate short supply last year, are now seeing price pressure and production reductions, so where does this end? Will it continue throughout the rest of the year with Chinese panel producers hiding their heads in the sand until they are forced to unload excess inventory at even lower prices to avoid showing y/y levels 50% or higher than last year? Hopefully not, as the impact on the display industry under that scenario would be profound, and the best suggestion were have heard was that Chinese panel producers should drastically cut utilization in June and July to bring inventory levels down, and then return to higher utilization levels for the remainder of the 3rd quarter. While this seemed a good idea, the mindset of Chinese panel producers would likely not allow such a move, as the risk of a competitor lowering utilization by less and gaining share, is foremost currently.
Whether the need to gain share and show positive growth is strong enough to offset the lack of profitability and the extent of the downturn in panel pricing is still an unknown, but the fact that Samsung Display is finally ending its large panel LCD display business, and parent Samsung Electronics (005930.KS) is playing the long game by becoming a beneficiary of LCD panel price reductions as a net buyer, should be some indication of how those with the most experience view the situation. More than likely it will not be the force that will change opinion as the immediate response to SDC’s large panel termination scenario has been to look to gain share by increasing production and capacity. You can lead a horse to water but you can’t make him drink…
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