Leading TV brands now more reliant on Chinese manufacturers

Leading TV Brands More Reliant on Chinese Manufacturers in 2015, IHS Says

• TV manufacturing outsourcing is forecast to reach a record high of 43 percent this year

EL SEGUNDO, Calif. — TVs made by outsourcing specialists are expected to reach an industry record of 43 percent of LCD TVs shipped globally in 2015, according to IHS Inc. (NYSE: IHS), the leading global source of critical information and insight. Outsourcing manufacturing has become one of the most important business strategies for TV brands, because it can improve supply-chain cost management and increase time-to-market business opportunities.

“A major driving force behind TV outsourcing is the constraint on TV panel supply, which can cause TV brands to increase their outsourcing from vendors who are able to secure a stable and competitive panel supply,” said Deborah Yang, director of display supply-chain analysis at IHS.

LCD TV panel supply was tight in 2014, particularly for the mainstream 32-inch size, so top TV brands used TV subcontract manufacturers in China. BOE and TCL were chosen for their semi-set outsourcing and original equipment manufacturing (OEM) TV production in the first quarter (Q1) of 2015. “Both BOE and TCL have direct access to 32-inch panel supplies from their captive panel makers, which is welcome news to Chinese TV makers looking to not only grow their branded TV businesses, but also to expand their businesses with TV brands globally,” Yang said.

According to the IHS Quarterly LCD TV Value Chain & Insight Report, leadingSouthKorean TV brands plan to maintain or lower their in-house backlight-module-system (BMS) capacity and production in overseas factories, as they use their captive capacity for more mainstream products and for the production of 4K resolution, curved screens, wide-color gamut (WCG), and other high-end product features.

“Most TV brands selling low-cost entry-level products plan to increase their outsourcing from vendors in Taiwan and China,”’Yang said. “Japanese TV brand business models are more complex, as they also license their brands to subcontract manufacturers. It is likely that other struggling TV brands may copy Japanese business models, in order to survive in the market.”

Since late in the third quarter (Q3) of 2014, leading global TV brands have been lowering TV retail prices to aggressively pursue market share. They are therefore wielding greater influence over the panel supply, causing panel makers to list them as first-priority customers.

Samsung Electronics, LG Electronics, Sony, and other leading TV brands with a captive panel supply and a competitively strong panel-supply base continuously gained market share last year. While concerns have been raised about another panel shortage in 2015, top TV brands have been able to secure the TV panel allocations they need, in order to meet their ambitious annual targets. “This situation has put pressure on profit margins throughout the TV supply chain, which will also stimulate the LCD TV subcontract manufacturing business,” Yang said.

The IHS Quarterly LCD TV Value Chain & Insight Report maps the relationships between LCD TV brands, OEMs and panel suppliers with actual shipment and business plans as well as LCD TV supply chain intelligence information.

TV market declines again in 2013

Following a dismal third quarter, the outlook for global TV shipments appears even dimmer in 2013, with shipments now forecast to fall by 5%, marking the second consecutive year of decline.

Global shipments of televisions are set to slide to 226.7 million units in 2013, down from 238.2 million in the previous year, according to the latest Worldwide TV Tracker from IHS.

Every type of television will suffer a decline, including the major categories of liquid-crystal display (LCD), plasma TV, cathode-ray tube (CRT) and rear projection.

This follows a 7% decline in 2012, when shipments fell from 255.2 million in 2011, as presented in the attached figure from the IHS TV Systems Intelligence Service.

Shipments previously were expected to decline by 2% this year.

“A wide range of factors are conspiring to undermine television shipments in 2013, from economic weakness and market saturation of flat-panel TVs in mature regions, to plunging CRT sales in developing countries,” said Jusy Hong, senior analyst for consumer electronics & technology at IHS.

“This is all adding up to a second consecutive year of decline for the television market.”

The dominant LCD TV segment will see shipments decline by 1%. The smaller plasma segment will suffer a sharp 27% decline.

The moribund CRT segment will decline by 40%. Meanwhile, the already infinitesimally minute rear-projection TV segment will dwindle to nothing this year.

Shipments in the third quarter of 2013 declined by 7% compared to the same period in 2012. While shipments rose 12% compared to the second quarter, this came during a time when TV set shipments normally grow as the Christmas season approaches.

With shipments also having declined on a year-over-year basis in the first and second quarters, the third quarter decrease ensured the global TV market would drop again for the full year of 2013.

The biggest reason behind the shipment decline this year is the continuing global economic recession and maturity of the TV market in advanced regions.

The Western European and Japanese TV markets have been declining for three consecutive years since 2010. The North American market has been shrinking as well, dating back to 2011.

Meanwhile, the TV markets in Asia-Pacific, Eastern Europe, and the Middle East and Africa, which are regarded as emerging regions, have also been contracting since 2011—but for different reasons than the mature countries.

In the emerging regions, CRT TVs are disappearing from the market, causing overall shipment to decrease. Because CRT sets are the cheapest option, this disappearance is having a major impact on overall sales. Low-income consumers in these regions often cannot afford more expensive LCD TV sets.

Television vendors are increasingly reluctant to sell unprofitable, cheap sets, such as CRTs, or LCDs that use the older cold-cathode fluorescent tube (CCFL) backlighting technology. This is narrowing the choices for cheaper televisions among consumers in emerging economies. As a result, consumers in these regions are holding off on television purchases until pricing for other types of television sets decline to affordable levels.

Following the two-year decline, IHS forecasts a return to marginal growth for the worldwide television market next year.

The global television market in 2014 will grow to 229 million units, up 1% from this year. CRT and plasma will face another big decline in demand, but the 5% growth of LCD TV will compensate for the shortfall and allow the overall television market to grow.