MarketWatch Commentary

According to iSuppli, "Global revenue from shipments of large-sized LCD panels [...] is set to rise to $49.2 billion in 2010, up 40 percent from $35.2 billion in 2009."

A trend we have been watching is the precedence that manufacturers are giving to TV panels because of the increased profitability of these panels over others.  As a result of the TV panels having manufacturing preference, the labor shortages ongoing (roughly 10% labor shortage in Asian manufacturing facilities persists), and the component shortages for LEDs and driver ICs, non-TV panels are experiencing shortages and extended leadtimes.  For example, the CCFL notebook panels are very short for two reasons: (1) these CCFL panels are being replaced with LED models; and (2) manufacturers are not putting CCFLs, especially for notebooks, into production schedules because of the focus on TV panels first, then LED notebook panels (particularly the netbook and 15.6" panels), and finally monitor panels.  It is very unlikely that we'll see room on the lines for any CCFLs.

Looking at the larger market revenue picture for panels, at the root of the 2009 revenue decline was the 32" panel's loss of profitability.  The thrust for the resumed market growth is the larger TV panel sizes (that is China's preference for the 36" through 44" models presently) and the improvements in production efficiencies coupled with reduced costs thanks to upgraded production fabs.

New production fabs for TFT LCD makers are the main display news story this week: while Korea had loosened legislation for its companies to begin fabs in China, Taiwan only did so this week.  Each government imposed different constraints on the builds: Korea did not regulate the generation of the fab, but did mandate the use of domestic equipment; Taiwan did not specify equipment, although did impose quotas (limit of three) and other requirements, such as the "N-1 rule: The fab generation has to be to [sic] one generation behind the highest generation in Taiwan," as reported by DisplaySearch.

These new TFT LCD fabs are being quickly bid on by the major panel makers and with Chinese demand so strong in addition to global 2010 forecast upticks, this will be a developing story to watch.

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The lynchpin necessary to avoid such a double dip is not the US, but China.  It is the Chinese monetary and fiscal policies that are critical to the continued forward momentum for the global economy, as seen expressed by The World Economic Forum, which held it's annual meeting last week in Davos, Switzerland. 

The Davos Forum was a critical event not just for the global economy but also for semi: China reaffirmed that it is committed to "continue with accommodating fiscal and monetary policy, and make sure we have smooth macro-management, [...]. We are shooting for roughly 8% or 9% GDP growth rates," according to Zhu Min, Deputy Governor of the People's Bank of China as quoted in this transcript from the Davos Forum.

It is China's continued stimulus policies that support the broader trends in the global economy presently.  Particularly important is the driving role of emerging markets such as China and India with their significant consumer demand for handsets, computers, networks, and the infrastructure that promotes increased overall semiconductor demand, according to yesterday's SIA release.  As George Scalise, President of SIA, stated, "with improving consumer confidence and signs of economic recovery around the world, the semiconductor industry is well positioned for growth in 2010." (Ibid)

For more information and Smith's perspectives on these topics, including our recently  released MarketWatch Quarterly, consider our discussion of the semiconductor industry and the latest news about the global economic rebound here in this MarketWatch Commentary section.  In the last issue of MarketWatch Quarterly, we provided a more detailed review of China's geo-economic policies and role in the semiconductor industry here, and in this earlier piece, a review of the US stimulus policies.  Finally, we considered the role of new consumers and new electronics products for consumers in the latest MarketWatch Quarterly released last week to subscribers and next week to the public here. 

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Yes, traditionally in the West, one thinks about China as an export heavy nation.  Based on that perspective, some analysts marvel at China's economic recovery.  It is important to note that while China was hit with negative numbers across the economic board, as almost every other nation, the underlying reason that China was able to rebound quickly and strongly is not due to strong exports. 

How was China able to recover so quickly and sustainably, i.e., show resiliency in the face of global economic meltdowns?  As discussed in the Quarterly article, there are many reasons.  One important reason is the significant government stimulus packages aimed at the Chinese consumer and targeting China's most critical industries, semiconductors and electronics, in particular.  Herein lies the oft forgotten critical variable: the Chinese consumer.  The Chinese consumer has been and will increasingly be extremely important to China's GDP and to most major global industries (cf. also here for a broader Asian perspective).  China is not as heavy an export nation as many assume, and the Chinese consumer is responsible for roughly 33% of China's GDP today and set to expand to 50% over the next 5 years, according to The China Market Research Group.

With a current GDP for 3Q09 growing by 8.9%, and set to continue to rise, understanding the importance of the Chinese consumer is vital to business success.  As a result of the Chinese consumers' positive response to the government stimulus packages, the Chinese semiconductor market, while down 6.7% from 2008, is still almost 10% better than the global semiconductor market, as estimated by iSuppli.  Furthermore, the ability to curtail the economic fall through the stimulus packages, a "recovery in semiconductor demand [...] limited the decline in 2009 and set the stage for a return to double-digit percentage growth in 2010," according to Kevin Wang, Director, China research for iSuppli.

Of importance for the entire semiconductor and electronics industry is that China's resiliency is based on an increasingly active domestic consumer hungry for products across all markets, from automotive, personal electronics, white boxes, and mobile devices.  While there is variability in the 2009 rates of rebound among these sectors, the 2010 forecasts are all double digit.

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