Since the first half of April TV panel prices have dropped as follows:
- 32" panels are down 27% ($140) to $375
- 37" panels are down 23% ($170) to $570
- 40" panels are down 18% ($155) to $720 - good news for Samsung, the only supplier in this format
- 42" panels are down 24% ($235) to $750
Televisions with these low priced panels will be reaching the stores well in time for the holiday season. Traditional wisdom says that high end TVs have a high elasticity of demand. Price drops of this kind are indicative of average price reductions to the consumer by the end of this quarter of ~$700 for 42" LCD TVs and ~$400 for 32" LCD TVs.
This should lead to much higher sell-through. The current pricing levels are well below the assumed panel prices for which the annual forecast of 42M TVs was made by leading industry analyst Display Search.
The second half of this year is therefore the moment of truth for the LCD industry:
- Will prices stabilize later this quarter as brands ramp up for the holiday season? Probably they will, and while 32" prices might rise a little, it's hard to imagine 42" prices going back up. It's going to continue being tough for panel manufacturers to achieve attractive margins.
- Will these rockbottom prices really cause demand to jump? Probably. But, if not, inventories at the end of Q2 are going to be lookiing modest compared with what's coming. And if not, AU Optronics (NYSE:AUO) and Chi Mei Optoelectronics (Taiwan-traded) are going to be particularly vulnerable since they are not the main suppliers of volume to the biggest brands in the market.
- Will the consumer purchase 42" LCD TVs, now that they are going to be more or less equal in price to plasma? LG Philips LCD (NYSE:LPL) has its investment in a Gen 7.5 fab riding on this segment. They were stuck with high 42" inventory at the end of Q2.
- Will the Consumer Electronics brands see higher than expected revenue from this segment? In principle, the decrease in margin per unit should be more than compensated for by the increase in volume that should flow through. Or will the second tier and third tier brands selling through the discount channels be the main beneficiary of the open wallet of the cost sensitive customer, with the traditional brands suffering from the drop in revenue/unit?
More questions than answers, but go visit your local consumer electronics store once a month. See what products are on offer and at what price. Have a chat with the salespeople. And you'll know the answers before the next quarter's reporting season starts.