Amid rising concerns over the intensifying trade war between the US and China, South Korean and Chinese TV makers are cutting panel orders in the second quarter, according to IHS Markit.
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.
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 per cent from the previous quarter or a 1 per cent decline from one year ago. This is indicative of weakness in panel purchasing following a decline of 2 per cent 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 per cent quarter-on-quarter or a 5 per cent 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 per cent quarter-on-quarter and 8 per cent year-on-year. This compares to the previous forecast of a decline of 11 per cent quarter-on-quarter and 2 per cent 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 utilisation 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.