February 17, 2010

Merger mania buzzes the LCD market

Converge LCD Update.

Hon Hai's (Foxconn) upward integration strategy to acquire CMO has moved along since the merger between CMO and Innolux was announced in November. To have the merger make sense, the new company, Chimei Innolux Corporation (CIC), is planning to take several cost-cutting measures on its future LCD production. One strategy to drive the costs down is to modify the mechanical design so that future products will be strategically configured to work with Foxconn's display applications across the line. This potentially will make CIC's future products less comparable with the mainstream offerings from other panel makers. Meanwhile, the new design will likely allow CIC to enter a niche market with improved profit margin. This also means that the open market will start seeing less liquidity on the CIC panels as a major portion of the new company's production output is allocated to its mother company, Foxconn.

In other areas of the market, the shortages on polarizer, driver IC and mother glass continue to hinder LCD productions globally. Many production plants throughout Asia are suffering from lowered capacities in February because of the weeklong Chinese New Year holiday. The shortage on desktop panels worsened because most panel makers underestimated the strength of the economic rebound. Stronger-than-expected demands from corporate clientele, in combination with those from various industries, have exceeded the overall production capacities allocated to desktop LCD by approximately 30% in the first quarter. In response, factory pricing rose again in February by 4%-6% (or around $4-$5) for mainstream sizes. Factory lead time stays at four to six weeks with deliveries often getting pushed back.

Television panel pricing stabilized this month with the only exception being 32", which goes up another $5, with an eight-week lead time quoted by the factories. The Chinese market remains an important consideration for panel makers when strategizing future pricing. The sales numbers during the Chinese New Year are expected to be relatively strong but not too strong. Many customers are taking a wait-and-see approach. This results in high inventory levels in the distribution channel despite the material shortage. It seems that TV panel pricing could be due for correction as we move into the second quarter.

Notebook panel pricing is again up by $3-$5, particularly for sizes between 14" and 17.3", with 17.1" and 17.3" being the most allocated. The 10.1" panels are also showing signs of shortage as manufacturers allocate some of the capacities to 15.6" and 17.3", where demand is among the highest. Production planning for notebook panels seems in line with actual demand. Panels featuring CCFL backlight are still among the most sought in the market, especially the 15.4" with matte polarizer. Of the most allocated, LG-Philips LP171WP4 and AUO B173RW series are two of the models in high demand in today's market.

The industrial panel market fluctuates little due to diverse usages and applications. Converge sees demand persist for STN models such as Sharp 6.4" and 8.4".

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