US-China trade war hits TV panel orders
Details
Rebecca Hawkes
| 31 May 2019

South Korean and Chinese TV manufacturers are cutting display panel orders in the second quarter due to the escalating trade dispute between the US and China, according to IHS Markit.

The reduction will cut inventory carried over from previous quarters, the market analysts said. South Korean and Chinese TV manufacturers are likely to stock up instead on display panels in the third quarter in readiness for the end of year shopping spree.

The trade war is also making TV makers more hesitant about issuing firm demand forecasts, IHS Market said.

“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.”

South Korean TV brands’ panel purchasing volume is forecast to decline a little to 17.3 million units in the second quarter of 2019, down 3% from the previous quarter or 1% from a year ago. This, said IHS Markit, is indicative of weakness in panel purchasing following a decline of 2% in the first quarter on a quarter-to-quarter basis and no change on a year-on-year basis.

China’s top-five TV brands already bought more panels than expected in the fourth quarter of 2018. They won further price concessions for the first quarter of 2019 in exchange for placing volume deals with strategic panel suppliers. The brands had stronger-than-forecasted purchasing volumes in the first quarter of 2019, amounting to 20.6 million units; a decline of 13% quarter-on-quarter or a 5% increase year-on-year.

Now their purchasing plans for the second quarter are more conservative as they anticipate a decline of 17% quarter-on-quarter and 8% year-on-year. This compares to the previous forecast of a decline of 11% quarter-on-quarter and 2% year-on-year, said IHS Markit.

“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,” added Yang. “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.”

Upcoming promotional activities in the North American, Chinese and European markets in the second half of the year will be an important factor in influencing TV makers’ purchasing and pricing negotiations. TV makers will start to refill their panel inventories starting at the end of June or in early July.

The TV display supply chain will be facing the new risk of tariffs on the TVs exported from China into the US by the third quarter. TV manufacturers are therefore very anxious about the demand outlook and are unable to give a clear picture of their panel purchasing plans for the third quarter. They have factored in the risk of a correction in panel demand, said IHS Markit.

“The competitive landscape of the TV display market will be significantly changed this year, forcing supply-chain players to reset their business strategies,” Yang said. “Eventually, the supply-chain industry participants will need wiser strategies to find solutions that can minimise the impacts of potential tariff increases.”