Low pricing for notebook panels is putting pressure on panel makers to maintain fab loading and gain market share, according to a new IHS Inc. report. In addition, low prices coupled with oversupply is hurting their profitability.
“Panel cost structure has become crucial in the struggle to stay competitive,” said Jason Hsu, supply chain senior analyst for IHS Technology, in a statement. “Continuous panel oversupply not only hurts profitability, but could also confuse the real panel market demand in the fourth quarter of 2015 and the first quarter of 2016. It’s time for panel makers to revise their production numbers, and curb capacity utilization, to keep pace with actual market demand.”
WitsView recently reported that some panel makers were shifting their notebook capacities to other applications, but analysts don’t expect it to alleviate the inventory glut hurting the notebook market. “Sensing that demands are slowing, panel makers have recently started to adjust their product mixes,” said Eric Chiou, WitsView’s senior research director, in a statement. "Panel makers have limited options, such as shifting notebook panel capacity to produce monitor panels, since notebook panels have the highest inventory level. Panel makers can also switch from producing for IT applications, which have the weakest demand, to producing TV panels.”
Prices for 15.6- and 14-inch panels are expected to moderate while prices for 11.6-inch notebook panels are expected to continue to decline due to the “constant market disruption by white-box module houses that offer extremely low prices,” said WitsView. The market researcher expects 11.6-inch notebook panels to have an average price drop of $1.
“As the oversupply problem continues, panel makers will be forced to choose between price and volume and their negotiations with product vendors will become more difficult,” said WitsView.
However, thanks to affordable pricing, global consumers are shifting their computer purchases to smaller 11-inch range devices like the Chromebook away from conventional notebooks with 15-inch displays. In the first half of 2015, panel shipments in the 15- to 15.9-inch range dropped 14 percent year over year, from 44.5 million to 38.4 million units, while notebook display shipments in the 11-inch range rose from 8 million units to 11 million units, according to IHS.
“Thanks to affordable prices, and a completed ecosystem with a host of hardware and app choices and a user-friendly cloud environment, Chromebook has expanded its customer base from small and medium-sized businesses and the education market to general users,” stated Hsu. “The Chromebook sales region has also expanded from the United States to emerging countries, where more local brands are launching Chromebook product offerings. There are also more products set to debut in the 12-inch range, thanks to the success of the Microsoft Surface Pro 3 and rumors of Apple’s upcoming 12.9-inch tablets.”
The IHS Notebook and Tablet Display Supply Chain Tracker shows that the total notebook panel shipments to Lenovo and Hewlett-Packard fell 27 percent month over month from 6.4 million units in May to 4.7 million units in June, while overall set production increased by 13 percent from 5.4 million units to 6.1 million units. Both Lenovo and HP have taken steps to regulate panel inventory to protect against excess product pre-stocking, said IHS.
“The currency depreciation in Euro zone and emerging counties earlier this year jeopardized consumer confidence and slowed the purchase of consumer electronics, including notebooks,” Hsu continued. “Moreover, in April, Microsoft leaked the announcement of its new Windows 10 operating system. Despite Microsoft’s claims that a free upgrade to the new operating system would be available to Windows 8 users, many consumers still deferred purchases, which increased the brands’ set inventory. Notebook manufacturers could decide to lower set production in the third quarter, after the end market becomes sluggish in May and June.”