US-China trade disputes prompt TV makers to cut display panel demand

Thursday, May 30th, 2019
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US-China Trade Disputes Prompt TV Makers to Cut Display Panel Demand, IHS Markit Says

LONDON — Amid rising concerns over the intensifying trade war between the U.S. and China, South Korean and Chinese TV makers are cutting panel orders in the second quarter, according to IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions.

The reduction in panel demand is intended to cut inventory that was carried over from previous quarters, as reported by the IHS Markit TV Display & OEM Intelligence Service. The South Korean and Chinese TV makers are expected to stock up on display panels in the third quarter to prepare for the year-end shopping season.

Omdia - China TV Maker Flat Panel Display Purchases - 2017-2019

In addition to concerns about TV demand and falling profit margins, the intensifying U.S./China trade war has made the TV makers more hesitant about issuing firm demand forecasts.

“There’s an increasing risk of a demand correction in the second quarter in light of several negative indicators from TV brands, including rising inventories, order cuts and increasing tariffs,” said Deborah Yang, director of display supply chain at IHS Markit. “These signs imply a slowdown in the market and a possible downward trend for panel prices.”

Korean orders decrease modestly

South Korean TV brands’ panel purchasing volume is forecast to decline modestly to 17.3 million units in the second quarter of 2019, down 3 percent from the previous quarter or a 1 percent decline from one year ago. This is indicative of weakness in panel purchasing following a decline of 2 percent in the first quarter on a quarter-to-quarter basis and no change on a year-on-year basis.

Chinese firms adopt more conservative purchasing plans

China’s top-five TV brands already bought more panels than expected in the fourth quarter of 2018 after winning further price concessions for the first quarter of 2019 in exchange for placing volume deals with strategic panel suppliers. These brands had stronger-than-forecasted purchasing volumes in the first quarter of 2019, amounting to 20.6 million units, a decline of 13 percent quarter-on-quarter or a 5 percent increase year-on-year.

However, after strategically over-building some inventories, these Chinese brands are in no rush to refill their panel stockpiles in the second quarter. Their purchasing plans for the second quarter have become more conservative, anticipating a decline of 17 percent quarter-on-quarter and 8 percent year-on-year. This compares to the previous forecast of a decline of 11 percent quarter-on-quarter and 2 percent year-on-year.

Fast-changing conditions prompt new buying plans

“The fast-changing dynamics of the TV panel supply base will have an impact on TV makers’ buying plans during the next couple of months,” Yang said. “These changes include the panel makers’ moves to manage their fab utilization in order to maintain their supply-chain agreements and their financial performance. Another major development is the ramp up of the world’s second Gen 10.5 fab, which is operated by a Chinese panel maker. Furthermore, there’s the scheduled restructuring of fabs by Korean panel makers.”

In addition, the deals for upcoming promotional activities in the North American, Chinese and European markets in the second half of the year will represent an important factor influencing TV makers’ purchasing and pricing negotiations. TV makers will start to refill their panel inventories starting in the latter part of June or early July. These companies are taking all possible measures to enhance their competitiveness and win more business.

Third-quarter anxiety

Looking ahead to the third quarter, TV makers are very anxious about the demand outlook. As a result, they are unable to give a clear picture of their panel purchasing plans. This is because the TV display supply chain will be facing the new risk of tariffs on the TVs exported from China into the United States. TV makers have factored in the risk of a correction in panel demand.

“The competitive landscape of the TV display market will be significantly changed this year, forcing supply-chain players to reset their business strategies,” Yang said. “Eventually, the supply-chain industry participants will need wiser strategies to find solutions that can minimize the impacts of potential tariff increases.”