Digital Frame Demand Has The Ability To Alter The Market Landscape
The shortage continues as we head into the traditional holiday build schedule. Some sectors are feeling the effects more than others and demand for digital frames has the potential of upsetting the balance of the market. Manufacturers are much more focused on allocating capacity to more profitable products.
Notebook
In comparison to the other market verticals that consume panels, the laptop market has stayed stable. The shortage that developed in Q1 has now carried into Q3. It is still being driven by three primary reasons. 1) Following the excess capacity situation that led to the oversupply situation of Q4 2006 manufacturers cut back capacity by shuttering capacity or diverting capacity to other verticals such as TVs and monitors. As a result, they are reluctant to ramp up capacity or divert capacity from less profitable panels and find themselves again in an excess capacity situation. 2) We have seen an unanticipated increase in demand from the third world, which is quickly soaking up the supply. 3) We are approaching the peak build season for the holidays, and manufacturers want to hold firm on pricing in the face of increased demand.
We expect to see prices firm in the month of September and stabilize as we move into October. Horizon expects to see an increase in direct pricing for tier one manufacturers. We expect it to increase from 2% to 3%. Tier OEMs should expect to pay around $100 for 15.4” wide sizes, $98 for 14.1” wide sizes, and $113 for 12.1” wide sizes. When buying in the open market, depending on make and model, an OEM can expect to pay a premium, of 15% to 20% with limited supplies on hand. We have seen strong demand in the open market for 15.4” sizes, LG panels LP154W02-TLA1 and AU 15.4” panels B154EW02.
Monitor
The monitor panel shortage going into September is becoming acute. The 15", 17", 19", 20" and 22" sizes are in severe shortage. Factories have announced that direct pricing will increase $3-$5 for each panel. Expect to see the popular 22” size under the greatest pressure. If authorized distributors have not provided a forecast to the factory in advance, they are getting lead times in excess of 12 weeks to 14 weeks. Manufacturers seem reluctant to fortify capacity to support demand due to the low large margin business and limited growth opportunity of the monitor business. Further adding pressure to the monitor segment is the many industrial users that are using monitor panels for production, due to the monitor's high brightness and lower price. We have seen OEMs turn to the market for larger volumes of panels with very limited supply. Two panels that have been very active in the open market are Samsung’s 15” panel LTM15 0XO-L01 and their 22” panel - part number LTM220M1-L01.
IPC
The industrial customer’s business model has more flexibility in absorbing extended lead times created by shortages because it is not driven by new product introductions. In turn, they are not under pressure to be first to market with new products. However, with the unanticipated demand for the 7” to 10.2” Digital Photo frames for the holidays, manufacturers have been stealing capacity from industrial customers to meet the spike in demand for these sizes. Word on the street is that LG announced to their distributors that they are no longer accepting new orders. Detailing the severity of the shortage is LG’s monthly output of 7”sizes which is estimated to be from 400k to 500k panels per month. With digital photo frames in strong demand (1 million plus units) we could potentially see a shortage of roughly 500-600k panels in the market. We have yet to see the impact, but we believe we will see continued supply chain restrictions above and beyond for those that can not wait the 5 to 8 weeks for standard production orders already placed. It is difficult to assign an anticipated price increase with such a spike when buying in the open market. A good estimate is 20% to 40% above direct, depending on make and model.
TV
A shortage continues in the TV panel market. The shortage continues to push pricing for 20", 26", 32" and 37" prices upward again in August. Expect to see manufacturers continue to push direct pricing upward another $5-$10 in September.
Due to the heavy promotion of name brand TV companies in the media for the upcoming holiday season, secondary TV companies are expected to launch a price war at $699 for 42" LCD TVs. In the North American market, some brands of the 42" LCD TVs are already selling for under $1,000, and we expect to see a price of $299-$399 for 32" size LCD TVs coming soon to the market place. Due to the price difference of $200-$300 between 37" sizes and 42" sizes, and the fact that not all homes can accommodate 42” sizes, we expect to so see 37" sizes to sell well, putting pressure on supply. Currently we are seeing an open market demand for the LG 42” panel, part number LC420WX7 and AU’s 37” panel, part number T37XW01 V.1.
