By observing the operating margins of panel makers in the past 5 years, 2 major downslides can be spotted. One occurred between 4Q04~2Q05, while the other happened between 2Q06~1Q07.
1. Back 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 more than $100, resulting in significant losses during 4Q04~2Q05.
2. 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 share in Europe and North America. Yet, 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 2Q06, some panel makers began to incur losses. Despite the traditional high season in 2H06, which helped lift panel makers’ sales, by using a 5% operating margin as a benchmark, the TFT-LCD industry was still in the middle of a downturn. But in contrast to 2004, the losses were at least considered more moderate.
By the end of 2006, to prevent the market from deteriorating, panel makers reduced their production. This subsequently led to a rebound in 2Q07, where priced rose for 8 consecutive months. The earnings performance of panel makers also reached a new high. Since 2Q07, they have posted strong profits for 5 straight quarters, the longest period since 2004.
WitsView analysts pointed out that the duration for each trough or ridge is roughly 3~4 quarters. Although panel prices started to rise again in Apr08, it lasted for a mere two months. Beginning from 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 once again cut their output in easing 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 3Q08.
Jaya Sinha/ITvoir Network