Looking back at the first half of the year, inventory building for major sporting events combined with rising memory chip prices led to better-than-expected shipments for TV panels. As the industry moves into the second half, the conflict between sluggish end-market demand and persistently high cost pressures is squeezing the operating margins of brand manufacturers, which in turn is impacting the TV panel market. Analysts believe that, despite the second half traditionally being the peak season for global TV panel inventory building, the market is expected to exhibit the typical characteristics of a "weak peak season" under the weight of multiple intertwined pressures.
Signal One: Overall Panel Demand Under Pressure, but Structural Upgrading Continues
The demand environment for TV panels faces challenges in the second half. Brand manufacturers' procurement strategies have shifted from the earlier proactive inventory building to a more cautious approach, yet the upgrade in screen size structure is expected to accelerate. This shift is driven by the convergence of multiple factors.
Firstly, weak end-market demand is the most significant "risk point" for panel demand. From a regional perspective, while the North American market shows relative resilience in maintaining scale, demand in markets like China, Europe, and Southeast Asia is anticipated to decline. Sluggish end-market sales are constraining the release of brand procurement demand. Looking at major promotional periods, events like major sporting tournaments and the "618" shopping festival in China have delivered lackluster performance, further dampening brand sentiment towards inventory building.
Secondly, the earlier inventory building rhythm in the supply chain has created a "demand pull-forward" effect. Influenced by factors like World Cup-related stockpiling and memory price hikes, procurement demand in the TV supply chain was significantly front-loaded. This early stockpiling has not only depleted later brand demand but has also affected the demand rhythm of channel distributors. Entering the second half, the negative impact of this "draining the pond to catch the fish" approach from the first half is becoming apparent, forcing channel and brand players to slow procurement and prioritize digesting existing inventory.
Thirdly, brand manufacturers are facing significant operational pressure. With memory costs rising substantially, the overall material costs for set manufacturers have climbed sharply. This increase has been more pronounced for the manufacturing costs of small and medium-sized sets, which in turn is accelerating the shift towards larger screen sizes. Furthermore, to secure more competitive cost resources, brand manufacturers are frequently adjusting their panel procurement plans to gain a stronger position in price negotiations.
Data shows global LCD TV panel shipments reached 121.4 million units in the first half. Shipments are expected to see a mild recovery to 60.7 million units in the third quarter, supported by seasonal brand inventory building. However, with the conclusion of the annual peak-season stockpiling and the effects of demand pull-forward, panel shipments in the fourth quarter are likely to drop to an annual low of 57.8 million units.
Signal Two: Upstream Material Cost Pressure Transmits, Panel Costs Edge Higher
In addition to weak downstream demand, the upstream cost side is also under increasing pressure in the second half. From a supply chain transmission perspective, the explosion in AI computing demand has led to tight supply for resources like memory chips. Coupled with rising prices for raw materials such as copper and oil, production costs for some upstream materials are increasing. A rising price trend for key materials like PCBA (Printed Circuit Board Assemblies), polarizers, and DDICs (Display Driver ICs) is gradually being established.
Under current conditions, the rise in cost pressure primarily stems from core material segments. Firstly, PCBA prices have risen by over 10% since the second half of last year, also affected by resource competition from the AI demand boom. This upward trend continued in the first half of this year, with quarterly price increases expected to remain stable above 5%.
Secondly, polarizers are also affected by tight supply and price increases for upstream raw materials. It is expected that the cost pressure faced by polarizer manufacturers will gradually transmit downstream to panel makers starting from the end of the second quarter. Additionally, other materials like driver ICs, photoresists, and certain specialty gases are also facing cost increase challenges. The sum of these varied cost items constitutes the main source of rising pressure for panel manufacturers.
Data indicates that, taking a 65-inch panel as an example, following a 3.3% quarter-on-quarter increase in BOM (Bill of Materials) cost in the first half of the year, the BOM cost in the second half is expected to see a further sequential increase of 2.9%.
Although the rigid increase in material costs adds to panel makers' cost pressures, their ongoing efforts in cost reduction and efficiency improvements can partially offset the rise. Furthermore, panel manufacturers are generally in a profitable cycle. Therefore, while cost increases may negatively impact profitability, the TV panel business remains a crucial profit anchor for panel makers.
Signal Three: Weakening Demand Shifts Supply-Demand Balance Towards Loose Conditions
The pressured demand environment is the primary factor leading to an anticipated oversupply in the global LCD TV panel market in the second half. Although panel manufacturers maintain flexible, demand-driven production strategies, differences in their strategic priorities lead to variations in the intensity and effectiveness of production control.
Chinese panel manufacturers are the main force in production control, but the intensity and scope differ. BOE's production control is mainly focused on its G10.5 fabs. Supported by short-term demand from applications like smartphones and IT, its G8.5 fabs maintain high utilization rates, with TV capacity gradually shifting to G8.6 and G10.5 lines. The intensity of G10.5 production cuts depends on its strategic priorities, and with its inventory at a relatively healthy low level, it has greater flexibility to adjust utilization rates in the second half.
The core strategy for TCL CSOT is profitability, leading to more decisive execution in production control. It is expected that production control efforts at its G8.5 and G10.5 fabs, which are strongly linked to TV panel production, will remain significant in the second half. Furthermore, its newer t9 and t11 fabs, still in the ramp-up phase, are less likely to see production cuts due to the need for investment efficiency and product optimization.
HKC's capacity strategy is profit-oriented, implementing a "one-fab-one-policy" approach to utilization rate adjustment. Affected by weak demand for small sizes, its H1 and H2 fabs are expected to be the main targets for capacity control in the second half. Demand for ultra-large sizes is likely to support relatively mild capacity fluctuations at its H5 fab, while its H4 fab's capacity allocation will consider demand from other applications like monitors.
Overall, the global TV panel market in the second half of the year is in a typical "weak cycle." The demand side is dominated by brand pressures and demand pull-forward, while the supply side seeks balance through differentiated production control by manufacturers. Under pressure from both supply and demand, data from a supply-demand model indicates that, influenced by both weakening demand and supply-side production control, the global LCD TV panel market's supply-demand ratio is projected to be 5.9% in Q3 and 5.8% in Q4, indicating a loose balance and downward pressure on panel prices.
For all participants across the supply chain, this presents both a challenge and a critical period to re-evaluate and adjust strategies to build competitiveness for the next market cycle. Brand manufacturers should leverage the window of falling prices to optimize procurement costs. Panel manufacturers need to address narrowing profit margins through product mix upgrades, refined operations, and supply chain collaboration. Only by taking proactive steps during this weak cycle can players position themselves to seize opportunities when the next upturn arrives.
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