Wedbush Morgan analysts Craig Berger and James Schneider sent a note to clients yesterday, waiving a 'yellow flag' on LCD production slowing. Key points:
* Channels checks show some softness at LCD panel manufacturers. Also, checks with European retailers show slightly weaker than expected LCD TV and monitor demand, potentially impacting Q2 orders.
* 2006 LCD TV market forecasts for 40-42 million units may be at risk given that LCD TV panel prices have not declined since at least May 2005, and we are concerned that prices can drop enough to stimulate sufficient market demand in 2H'06 to meet these forecasts.
* We believe that panel makers are now just beginning see the impact of holding panel prices flat for nearly nine months with consumer pricing elasticity of demand becoming a factor.
* We are sticking with sales expectations for 40 million LCD TVs in 2006, though we do note a heightened risk profile to this forecast, and thus to shipments for GNSS, TRID, and LCD panel makers. We believe GNSS has less downside stock risk than TRID if 2006 TV demand is short of expectations, given TRID's pure-play exposure to the LCD TV market and rich valuation. We will continue to monitor upcoming LCD industry shipment data for any further signs of weakness, or conversely any indications that TV shipments indeed remain on track for the year.