May 12, 2010

LCD market ready for a storm of activity

Converge LCD Update.

The LCD market has been reasonably stable as we move deeper into the second quarter of 2010. Seasonal factors are a primary contributor to the recent downward slope of demand, following the holiday-crowded first quarter. A number of factories are not quoting firm pricing in May on TV panels that are 40" and larger. Instead, clients with forecasts are advised to negotiate contract pricing on a case-by-case basis. Pricing on sizes of 26" through 37" remains stable, with fluctuations in single-digit amounts. A high level of inventory in the distribution channel is another reason dictating the current market conditions. Overall, TV panels yield higher profits in comparison with notebook and desktop panels. As we approach the third quarter, when OEMs finalize their forecasts to meet the year-end demand, panel makers will be juggling to expand production capacities for TV panels at the expense of other product lines. Panel shortages and pricing instabilities may very well be in store in the near future.

The first product segment to feel the effect of shifting production capacities is notebook panels. Although not officially announcing the fact, factories are surely and quietly realigning their production lines to maximize profits in the third quarter. Given the ongoing material shortage and that Foxconn will be consuming a considerable portion of the Chimei-Innolux output, a shortage on notebook panels appears imminent. If such speculations become the consensus of the market, Converge expects to see upward pricing pressure in the open market in anticipation of the panel shortage as early as the second half of May. An estimated 3% to 5% price increase between June and July does not seem out of place at this point. The shortage will potentially spill over from the mainstream 15.6" and 17.3" to all other sizes. Meanwhile, the strong demand from the service industry for 14.1" with WXGA resolutions and CCFL backlight will likely stay center stage throughout most of the quarter, particularly for panels made by AUO and LG Philips.

The market for desktop panels is fluctuating modestly in May, with factory pricing largely unchanged for most sizes. Average lead time quoted by the factories is still in the four-to-six-week range. Little change took place in demand from April to May — although factory output volume as well as pricing may be due for adjustment amid the upcoming realignment of production lines. Like for panels for other applications, industrial panel supplies are also expected to be tighter as we approach the end of the quarter. For the month of May, Converge sees increased booking in preparation for the upcoming shortages. Despite a relatively quiet April and May, the LCD market seems to be staging itself for a busy third quarter. Stay tuned.

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