Amid an extreme oversupply situation in the fourth quarter of 2008, suppliers of glass for the kinds of large-sized LCD panels used in televisions started cutting capacity to less than 50 percent of full utilization at the end of 2008, according to Sweta Dash, senior director, LCD research, for iSuppli. Some glass makers even shut down some of their glass-producing tanks.
Because of this, panel suppliers now are unable to increase their LCD panel production capacity despite strong television demand from China and other regions. Global prices for large-sized LCD panels are expected to rise for a fifth consecutive month in June.
However, this situation is not expected to last, with prices for nearly all sizes of LCD-TV panels peaking in September and commencing a decline that will persist through the remainder of 2009 and into 2010.
This will help pave the way for the customary round of price reductions and Black Friday deals that historically have driven LCD-TV sales during the holiday selling season.
“If the LCD-TV brands hope to come anywhere near their sales targets for 2009, they will have to offer aggressive pricing deals during Black Friday and the following weeks,” said Riddhi Patel, principal analyst, television, for iSuppli. “If the deals don't materialize, sales this year will fall well short of predictions.”
Pricing for 32-inch 720p (progressive) scan LCD-TVs are expected to decline to $480 by November, with Black Friday specials possibly as low as $299. This is down from an average of $634 in June.
For 42-inch Full High-Definition (HD) or 1080p sets, pricing in November will fall to $628, down from $856 in June. Black Friday specials could be as low as $499.
Fig. 1 presents the pricing trends for popular sizes of LCD-TVs.
Source: iSuppli, June 2009Priceless pricing
While LCD-TV buyers have increased their focus on factors like picture quality, pricing remains a critical element in influencing purchasing decisions.
The phenomenon has been apparent this month, when LCD-TV sales are softening due to the cessation of pricing deals offered in April and May.
“Once the price deals went away, demand went away,” Patel said.
Pricing is the key factor driving consumers to recommend an LCD-TV model or brand to their friends and family members, according to iSuppli’s US TV Consumer Preference Analysis Service, which uses surveys to determine American consumer attitudes.
Beyond reduced panel costs, television brands also are set to reduce prices by utilizing less expensive sales channels.
“Consumers are becoming more comfortable with buying LCDs from Internet retailers and mass merchandisers, and they have become more concerned about paying too much for a television set,” Patel observed. “These outlets offer TVs at lower prices than traditional electronics specialty stores.”
With the essential Black Friday deals expected to make their annual appearance, iSuppli recently boosted its forecast of 2009 LCD-TV sales to 123 million units, up from 110 million before.
iSuppli Fig. 2: Global LCD-TV Sales Forecast (Millions of Units)
Source: iSuppli, June 2009Pain in the glass
In the meantime, the LCD panel market will continue to struggle with the glass shortage issue.
Unlike some raw materials, whose production can be ramped up quickly to meet changes in the level of demand, it takes time for glass makers to restore manufacturing to previous levels.
Depending on the level of deactivation of a glass furnace, it may take from one to six months to restore it to full production. Because of this, iSuppli expects the glass shortage won’t be resolved until September, by which time panel suppliers will be able to increase capacity and expand supply.
Because of these challenges, glass makers traditionally have been very judicious in their capacity and utilization—which makes the oversupply situation seen this year as even more of rarity in the LCD glass business.
Fortunately, the process of relighting furnaces has begun, paving the way for a strong year in the LCD-TV business. iSuppli predicts global LCD-TV sales will rise 23.5 percent in 2009 compared to 2008.
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