Don't Expect LCD Prices To Recover Anytime Soon

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Includes: AUO, GLW, LPL, MC-OLD, SHCAY, SNE, TOSBF
by: William Trent, CFA

Paul Kedrosky’s Infectious Greed reports LCD Panel Prices Continue Freefall.

Slow seasonal sales and oversupply in the first quarter of 2007 will push prices to less than the $300 level for 32-inch LCD TV panels in March, which is below the manufacturing cost level, iSuppli believes. Many suppliers are continuing to cut their utilization rates at fabs that are producing these types of panels in order to stave off any further rapid price declines. Prices for 37-inch television panels are experiencing a stronger rate of reduction than the 40/42-inch television panels. Suppliers are cutting 37-inch pricing in a bid to boost demand. This may bring the 37-inch price closer to that of the 32-inch panels in the coming months….While iSuppli expects mainstream monitor and notebook panel prices to fall in the first quarter of 2007, pricing should stabilize by the end of the second quarter. This is because panel suppliers appear to be more cautious about capacity expansions and cutting utilization rates to control inventories. Most buyers have very low inventories, so any rise in demand may lead to increased panel purchases.

Where have we heard that before? Perhaps we are thinking of June 28, 2006 when DigiTimes reported:

Nevertheless, the ASP for 37-inch TV panels will stabilize once it reaches US$520-550 at the end of July or beginning of the August, said the sources.

Or possibly it was June 15:

Novatek indicated that present inventory levels are at 40-50 days, which is a reasonable level for the company. Although admitting the inventory value is higher than the first quarter’s NT$3 billion, Novatek anticipates that once panel demand resumes, inventory concerns will ease immediately. Source: DigiTimes.

As for iSupply’s estimates, on June 1 and June 9 they said:

Swelling inventories and disappointing demand from all applications caused prices for large-size panels to plunge in the first half of 2006, with no relief expected until the second half, according to iSuppli.

Of course, the second half came and went, with no relief found and still none on the horizon. Nonetheless, when we dared predict the industry was facing a supply crisis we got comments like:

LCD demand will have its ups and downs. The general trend though is up. There was this glass oversupply “Glut” last year and it did not stop the panel makers from expansion. Also China has not be tapped yet. Near term demand might be flat to slightly higher but as long as they keep finding ways to cut cost, lower ASP wont impact them as much.

For (and on) the record, we were negative going back to April 6, 2006. And unlike iSuppli, we are not expecting prices to stabilize by the end of the second quarter 2007.