LCD TV panel prices are expected to soar in Q3, as the makers of TV panels struggle to fill demand caused by aggressive panel buying from both Samsung and TV manufacturers in China. Prices are projected to increase especially for panel sizes like the 32-, 40-, and 43-inch, as well as for the 55-inch UHD.
Samsung has been increasingly worried about issues that have caused panel supply to fall short relative to its demand, according to the TV Display Intelligence Service from IHS Markit.
In Q1 Samsung had requested Taiwanese panel makers along with Samsung Display, the South Korean maker’s internal supplier, to start shipping panels by air. The air shipments, which continued in May and June, were meant to minimize impacts caused by the panel supply shortage and to shorten lead time. Those arrangements will end starting in Q3 when panels are expected to be transported mostly by shipping vessels, even though a few new models may still be sent via air.
Samsung is currently busy refilling panels for its television line in order to manufacture TV sets at the company’s regional factories. Yet panel availability and delivery schedules from suppliers have fallen short of the Korean giant’s Q2 and Q3 targets. Adding to Samsung’s woes are quality-related issues on panels made by its suppliers from China, the third source for Samsung’s panels besides Samsung Display and Taiwan.
To safeguard its year-end 2016 shipment targets, Samsung started negotiating with TV panel suppliers on its Q3 purchasing target—a massive amount totaling over 16 million units. None of its panel suppliers, however, can fulfill this aggressive demand, which is far higher than the panel makers’ capability to meet. From Q3 onward, how Samsung gets its share of TV panel supply will depend on price negotiations with its suppliers, as well as on the business outlook for those suppliers and overall market demand.
The following chart shows Samsung TV panel purchases and set shipments by quarter. The South Korean giant plans to buy 15.0 million units in Q3, compared to 12.2 million in Q2 and 9.8 million in Q1.
Supplier limits affect Samsung's pipeline
Like Samsung's foreign suppliers, the company's own internal provider of panels—Samsung Display—has been unable to meet demand. Recently, Samsung, the parent customer, asked Samsung Display for more TV panel support, equivalent to about 5 million units.
On the whole, TV panel makers are strategically shifting capacity or allocation to gain the most favorable terms as they negotiate with TV manufacturers, their customers, during this time of tight panel supply.
For late 2016 and in 2017, negotiations will be critical for Samsung to secure TV panel supply in the 40-, 43-, 45-, and 49-inch sizes, as well as in the big 50-, 55-, 60-, 65-inch and even larger sizes, in order to remain competitive. In particular, Samsung remains concerned about the product quality and reliability of 49- and 55-inch panels made by its Chinese suppliers.
For its part, Samsung Display is considering shifting from 32- and 40-inch panels to focus on 55-inch and larger panels while planning its allocation. Still, any changes in the panel purchasing of Samsung, its parent customer, is bound to affect the subsequent strategies of Samsung Display.
Among larger sizes like the 55- and 65-inch in particular, UHD panel supply is falling short of what is needed by most TV makers, based on data from the IHS Markit TV Display Intelligence Service. Given the shortage in supply, panel makers are carefully prioritizing allocation in these sizes as they attempt to get the best pricing possible from eager customers.
Some panel makers, like Taiwan’s AUO, plan to phase out the 65-inch FHD and focus instead on 65-inch UHD panels in the near future. However, shifting to UHD will require new investments in equipment, such as for COA (Color Filter On Array) as well as for a copper process. Even so, the yield rate for UHD panels is not as attractive as that for FHD.
Also in the 65-inch, Samsung Display has been suffering production issues by adopting thinner glass, creating difficulties for it in meeting 65-inch demand. Samsung Display is experiencing capacity constraints at its Gen 8 fabs in its native South Korea, and is also affected by the slower-than-expected Phase 2 ramp-up of its Gen 8 fab in China.
David Hsieh is Director of Analysis & Research within the IHS Technology group.
Posted 21 July 2016