LCD TV 2011 Second Half Forecast

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Most LCD TV set makers are reducing 2011 panel demand forecasts in order to trim costs and maintain low inventory levels. Panel prices are becoming more negotiable due to the concern over weakening demand, and falling prices will encourage panel makers to cut capacity utilization in 2H’11. This is likely to persuade panel makers to set conservative shipment targets. This is abnormal for second half shipment targets, which typically aim for strong growth.

Reducing the cost of LCD TVs involves not only a lower-priced LCD TV panel, but also streamlining the external and internal industrial design, supply chain, manufacturing, and distribution. Areas where most TV brands are not so good at. The reason why it is so difficult to streamline the design, manufacturing, and distribution of TVs is because most brands have literally dozens of models. Take a page out of Apple: reduce the number of models down to the bare minimum. You need a wholesale change in how you design and sell TVs; you don’t reduce LCD panel demand forecasts to reduce costs.

Falling prices do not encourage LCD panel manufacturers to reduce capacity utilization. LCD panel prices fluctuate because the supply and demand balance ebbs and flows, all the time. There is even a name for this: The Crystal Cycle. Even when LCD panel prices fall below the marginal cost of manufacturing LCD panels, suppliers will continue to build. The strongest determinant for reduced capacity utilization at LCD manufacturers is when inventory builds up with no visibility of when it might clear out.

The LCD panel demand in the second half of 2011 will depend on whether or not world economies recover. More specifically, will the U.S., Western Europe, and Japan start building a solid foundation for longterm sustainable growth and convince their citizenry? I have my doubts.

In the meantime, LCD TV brands should focus on the basics. Few want to wear glasses, deal with potential headaches, and even the possibility of longterm side effects with 3D. Just as few want to hold a keyboard and mouse while watching TV. Most just want to settle into a comfy sofa and watch TV. So focus on building experiences for TV viewers that help them relax and be entertained. A perfect motto would be: “Sit back, relax, and enjoy the show.”