It is just me or does there seem to be some unusually positive expectations for LG Display? It might be just me, but I think the financial community needs to curtail its expectations just a bit. For instance, John Soh, an analyst at Goodmorning Shinhan Securities, stated that “LCD TVs and notebook computers are becoming widespread globally, leading the trend. LG Display should see its best results ever this year.” That is a grand statement. I think 2008 will be at best a difficult year for most LCD manufacturers because of an uncertain US economy that will no doubt have negative reverberations throughout the rest of the world. Trust me, I would like to see results that show a strong global LCD economy and data-backed indicators that point to a strong 2008. But I don’t think that will happen. We are already seeing a weaker than expected Q1 for LCD TVs.
If LG Display indeed posts the best quarter ever in CYQ1′08, that would mean that the supply chain is overloaded with LCD panels. An overloaded supply chain would in turn indicate that there are unhealthy levels of inventory building up around the integration (Taiwan), distribution (US and other regions) and retail channels (especially US). You don’t want to see the best ever quarter in the first quarter since demand is weak through the second quarter of each year, at least that is the case regarding demand from the US. For LCD TVs, roughly 33% of the market is in the US with another 33% in Western Europe. The best quarters are usually in the third and fourth quarters of each calendar year, especially when there is a shortage of LCD panels.
There is a supply chain lag from LCD TV panel manufacture to sales at retailers. This lag continues to shrink but can take up to 6 months. If we see record sales in Q1, and if the US economy continues to limp along, we are in for a real nasty surprise around June when inventory builds up to a point that will dry up demand for LCD panels.
Source: Reuters
[tags]LCD Manufacturer, Display Manufacturer, LG Display, LPL[/tags]
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A breath of fresh air from someone who actually has no axe to grind. I’ve been following the LCD industry for ~6 yrs as an analyst, and its interesting to note that analysts in panel producing countries tend to be the last to acknowledge any incremental change in the LCD environment until they have been hit over the head with it. Chinese New Year, the last time OEMs ordered for an event, was a disaster. We will never know whether they ordered incorrectly, or whether it was due to the snowstorm, however its a known fact that inventory levels escalated from the normal 3-4 weeks to at least 6-7. With slowing demand in the TV space, it remains a question as to how much of that is gone, and how aggressive the OEMs are being, or will be in anticipation of the Chinese Olympics, another event, particularly one where we have very little local Chinese LCD TV buying habit info.
Another poor set of decisions, meaning over ordering or less demand than anticipated, would be dangerous to the 3rd quarter build period and put a major crimp in the year for the panel producers.
It all means that the risk level for the panel guys is higher than it was last year, when we saw rising prices, no capex, and strong demand. I don’t need to rethink my numbers, but I agree whole haeartedly with Jin. While I might be a bit on the pessimistic side, always waving the flag does every investor a disservice.
I can’t believe I have not responded to your comment! First of all, thank you for your comment! I think a similar situation in the LCD market is happening today. Inventory levels are slowly climbing in the US for LCD TVs and in general demand for high-tech goods are lukewarm. Will it get any better? It is anyone’s guess, but I wouldn’t expect a miracle to happen where all of the sudden everyone goes out and spends thousands on LCD TVs, LCD monitors and notebook PCs.
It is to everyone’s benefit for the LCD supply chain to be smooth and without hiccups. But with LCD manufacturers loading 32″ LCD TV panels at their G8 and G7 lines in addition to putting more focus on IT panels, their profit margins are at stake. Will really low prices for LCD TVs and monitors get consumers to buy in 2H’08? To some extent, but we need credit and disposable income to do that; two things all of us are wanting more of these days.
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