Global Sources
EE Times-Asia
Stay in touch with EE Times Asia
?
EE Times-Asia > Optoelectronics/Displays
?
?
Optoelectronics/Displays??

WitsView warns of low-profit cycle for panel makers

Posted: 02 Sep 2008 ?? ?Print Version ?Bookmark and Share

Keywords:LCD industry cycle? TFT-LCD industry? economic pressure?

Based on observations on the operating margins of panel makers over the last five years, two major downslides occurred: first, between Q4 04 to Q2 05 and second, between Q2 06 to Q1 07. This is according to WitsView, a subsidiary brand of DRAMeXchange.

In 2004, the application for LCD panels centered mainly on IT displays. As the market demand could not keep up with the supply growth, panel prices declined persistently. During that year, prices dropped by over $100, resulting in significant losses during Q4 04 to Q2 05.

As for 2006, there were high market expectations of the World Cup stimulating the market demand, particularly the LCD TV segment. Thus, panel makers ramped up production. TV brand vendors aggressively geared up for the event as well in further strengthening their market shares in Europe and the United States. However, the actual TV sales were not as strong as originally expected. Coupled by the ramp-up of the G6 and above, a serious oversupply occurred, resulting in plummeting panel prices. By Q2 06, some panel makers began to incur losses. Despite the traditional high season in 2H 06, which helped lift panel makers' sales, by using a 5 percent operating margin as a benchmark, the TFT-LCD industry was still in the middle of a downturn. But unlike 2004, the losses were considered more moderate.

By end of 2006, panel makers reduced their production to prevent the market from deteriorating. This subsequently led to a rebound in Q2 07, where priced rose for eight consecutive months. The earnings performance of panel makers hit a new high. Since Q2 07, they have posted strong profits for five straight quarters, said to be the longest period since 2004.

WitsView analysts noted that the duration for each trough or ridge is roughly three to four quarters. Although panel prices started to rise again in April this year, it lasted for a mere two months. In June, prices trended downwards, as buyers performed inventory controls. Even more severe drops were witnessed in July and August, rendering them to fall past the panel's fully loaded cost, and nearing the cash cost level. In response, panel makers have again cut their output to ease the situation. However, the latest panel price plunge is already exerting a lot of pressure on panel makers. The Tier 2 makes may see a negative operating margin in Q3 08.

Whenever a downturn appears, the next three to four quarters will be difficult for panel makers in running their business, WitsView analysts said. Whether this will occur again between 2H 08 and 1H 09 rests on two main factors: First, can the production output cutbacks ease the current supply and demand imbalance and second, when panel prices reach near the cash cost level, panel makers will have little willingness to continue producing panels. Whether this will stabilize panel prices remains to be seen. But one thing is certain: the current macroeconomic woes are causing panel makers to face bigger pressures in sustaining their profits, concluded WitsView analysts.





Article Comments - WitsView warns of low-profit cycle f...
Comments:??
*? You can enter [0] more charecters.
*Verify code:
?
?
Webinars

Seminars

Visit Asia Webinars to learn about the latest in technology and get practical design tips.

?
?
Back to Top