Semiconductor M&A Accelerates in 2019
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Opportunistic buying can help an OEM, distributor or EMS take advantage of low prices. In fact, during the electronics markets heyday of the late 1990s brokers would buy components on the open market; hold them; and wait for prices to increase. This was a good model for brokers, but a bad model for OEMs that found themselves shorts of the parts they needed.
The overage of the early 2000s changed all that when billions of dollars of excess component inventory had to written down or written off. Holding any—let alone too much—inventory has become anathema in the electronics supply chain.
Components such as LCD panels are bulky and take up a lot of warehouse space. However, an overage in the LCD TV-display market could mean television prices could hit an all-time low before the holidays.
LCD TV panel makers’ inventory levels will be greater than normal in the second half of 2015, due to softening demand and increased output from new LCD panel manufacturing fabs, according to IHS Inc. (NYSE: IHS). LCD TV panels reached a peak of 4.7 weeks of inventory in December 2013. Since then, panel makers have sustained inventories at normal levels (i.e., less than four weeks); however, the situation recently changed, when panel makers did not slow production in the second quarter (Q2) of 2015, as the market shifted to over-supply. Inventory levels are, therefore, expected to stretch beyond the normal range to reach 4.9 weeks at the end of the third quarter (Q3) 2015, which may cause further decreases in panel prices in the second half of this year.
“Weak demand caused by the soft global economy, and supply increases following the initiation of mass production at three generation 8.5 (Gen 8.5) fabs in China, will likely further aggravate the LCD panel supply-and-demand imbalance,” said Ricky Park, director of display for IHS Technology. “Manufacturers maintaining current utilization rates at existing production lines also will also increase inventories.”
According to the IHS Display Production & Inventory Tracker, utilization rates at Gen 7 and larger LCD fabs have remained above 90 percent since April 2014. That’s because shipments of TV panels in terms of area surged more than 17 percent, due to robust demand for larger TVs in 2014. “Despite high utilization rates, TV panel makers have been able to control inventories at normal levels,” Park said. “TV manufacturers purchased too many TV panels in the first half of 2015, anticipating greater consumer demand in the second half of the year. However due to stagnant growth in the LCD TV market, TV manufacturers are likely to reduce their panel purchases in the second half of 2015.”
Yet, panel output from China is expected to increase further due to aggressive production schedules at new Gen 8.5 fabs at BOE, ChinaStar and CEC Panda. Also, some fabs in South Korea and Taiwan have been fully depreciated, which lowers panel production costs. This will allow the panel makers to provide panels at lower prices without losing margins, (while their competitors may suffer from falling panel prices). And thus, they will likely keep the utilization rates, despite softer demand. “LCD TV panel prices will continue to decline through the third quarter of this year; however, some models are still profitable, so panel makers do not necessarily intend to reduce their output,” Park said.
Panel manufacturers’ TV panel inventory levels are estimated to rise to 4.1 weeks at the end of July 2015 and to 4.9 weeks at the end of September 2015. Increased inventory levels are expected to compel panel makers to accept TV manufacturers’
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