Anil Khera, a TV industry veteran and currently the CEO of Videocon D2H, a leading Indian DTH service provider, has stated that he expects LCD TV prices to go up by at least 3% due to the devaluation of the Indian Rupee; on the other hand, DTH set top boxes, which have more domestic content, might see price increases of INR100.

With the overall television market showing stagnancy in India the increase in price will surely impact customer demand. The only silver lining for the Indian LCD TV brands could be the expected downward slide in panel pricing. If the panel prices decline as expected, manufacturers may be able to hold set prices constant, limiting any impact on LCD TV in India.

The tablet PC market has been dominated by 9 inch and larger tablet PCs, which made up over 60% of total tablet PCs shipped in 2012. In 2013, it is smaller tablet PCs that are expected to make up over 60% of shipments. The two leading screen sizes in the small size (<9 inch) tablet PC category are 7 inch and 7.9 inch with 35% and 15% share in Q1’13 respectively. While tablet PCs with 7 inch displays appear to be heading for the low end of the market (less than $200), Apple’s iPad mini with its 7.9-inch display has captured a significant share of the market, despite its starting price of $329. Brands are hoping to expand this “middle class,” gaining some share and slightly better margins than 7-inch tablet PCs.

Supply chain indications point to production of Android-based tablet PCs with 8-inch, 1280 x 800 displays in Q3’13. Brands including Acer, ASUS, Dell and Lenovo are expected to release 8-inch tablet PCs, according to our supply chain research. Initial panel production plans suggest that the 8-inch tablets will make up between 5 to 10% of the total tablet PC market by the end of the year. As notebook PC shipments continue to weaken while tablet PC shipments strengthen, brands are re-focusing their product strategies in response to a shift in consumer preference for tablet PCs.  Total notebook PC shipments are expected to decline 5% Y/Y, from 214 million units in 2012 to 203 million units in 2013. Tablet PC shipments are expected to increase 67% Y/Y from 153.6 million units in 2012 to 256.5 million units in 2013.

Apple is expected to refresh its iPad mini in the second half of the year. The new iPad mini will continue to use a 7.9-inch display with a 1024×768 resolution, but it will use the iOS 7 operating system and an A6 processor, in a slimmer design than the current generation. Another iPad mini is also planned for production but not until early 2014. That device is expected to feature a QXGA (2048×1536) resolution display and the iOS 7 operating system. On the larger tablet PC front, Apple is expected to release a new iPad in the third quarter featuring a 9.7-inch 2048×1536 panel, an A7 processor and iOS 7. Apple’s mix of tablet PC shipments is projected to be 60% iPad mini and 40% iPad in 2013.

Originally, the industry consensus was that the inventory adjustment would end in the first half of the year and panel prices would rebound in Q3. Certainly, the China market plays a key role in this kind of theory, as we discussed. However, the situation seems to be changing, with inventory adjustments and conservative panel demand forecast from TV manufacturers influencing the industry confidence for Q3’13. Among the reasons for an over-supply in Q3’13 would be:

• According to Quarterly TV Value Chain & Insights Report, the gap between panels and sets expanded to 22% in Q1’13, with LCD TV panel shipments at 57M and sets at 46.9M, including unknown or private label TV brands. The panel inventory cannot be consumed by TV makers in Q2 given the low confidence in market demand for 2H.
• As we analyzed recently, the termination of the subsidy program has made Chinese TV makers become conservative in purchasing panels, at least for June and July, and take a “wait and see” approach to how the termination influences sell-through.
• Some TV makers are facing unhealthy inventories in specific sizes, due to their promotional focus in the past several quarters, making them conservative in the purchase plan of these sizes. These sizes include 23.6”, 32”, 39”, 42”, and 50”.
• Other than China, global TV markets are not showing signs of growth, and TV makers are prioritizing inventory control over front-end fulfillment.
• Several panel makers have successfully executed a change in generation-fab production strategy, such as MMG (Multi-Model Glass) technology which enables 41.5” and 21.5” or 41.6” and 23.6” to be made in the same Gen 8 fab. Meanwhile, size competitions (such as 40” vs. 39”, 50” vs. 46”/47”/48”, 65” vs. 60”) are impacting panel prices.
• The notebook PC and LCD monitor markets are not showing strong growth,and panel makers are shifting capacity to either small-medium or TV.
• Some panel makers have aggressive LCD TV panel business plans, especially the larger sizes from Korean and Taiwanese panel makers, and 32” from Chinese panel makers. This might cause more panel pricing pressure for the larger size TV panel in Q3’13.
• Many TV brands have started to negotiate and pre-book panel allocations for the July through September for their TV production for Q4’13 promotions, including 2013 Black Friday. This is contrary to the situation in 2012, when panel buyers were struggling with panel supply constraints. TV makers, in particular those focusing on the North American market, are booking allocations for panel sizes such as 28”/29”, 32”, 39”, and 50”. However, while TV makers want to build panel allocation for seasonal demand, they still have the negotiating power to ask for price reductions to help them in year end promotions and market share competition. This causes an over-supply atmosphere overshadowing panel prices in Q3’13.

So how long will the over-supply last? According to the current LCD TV makers’ production plan shown in MarketWise – LCD Industry Dynamics , production plans for June and July are slow, but the TV brands are increasing their production in August, especially for the coming hot season. This might help to ease the over-supply situation earlier.

Source: MarketWise – LCD Industry Dynamics

Increasing numbers of newer brands are flooding the market, with prices as low as $69. Many low-priced tablet PC products, offered by unknown private label brands — mostly featuring 7-inch VGA TN-type display and priced at £55- £59 — have also recently become available in the European market.

While one can argue that the popularity of these very cheap, limited-feature tablet PCs could be short-lived, they could conceivably penetrate both emerging markets and more developed ones. Given that most consumers are focused on prices, the onslaught of white box brands is severely pressuring name brands, which are reacting with prices in the $159 to $199 range, such as Kindle Fire and Nexus 7. In Europe, Acer and Asus are competing in the £119 to £140 range.

According to our research, LCD tablet PC panel shipments reached 27 million units in March, an increase of 26% M/M, primarily driven by 7-inch panels, which accounted for 48% of total tablet PC panel shipments and grew 67% M/M. In Q4’12, 7-inch tablet PC panels accounted for just 33% of total tablet PC panel shipments. Non-name – or whitebox – brands accounted for 76% of the 7-inch panel shipments and 47% of all tablet PC panels, up from an average of 38% in the first two months of 2013. Apple is still the largest single consumer of tablet PC panels, at 30%, and Samsung accounted for 11%. Microsoft, Google, Acer, Asus, Amazon, Lenovo, HP, Barnes & Noble, and other name brands each only comprised 1% to 3% of March shipments.

Led by 7-inch panel sales, BOE was the world’s largest tablet-PC panel maker in January 2013; however, in February LG Display overtook BOE and retained its first-ranked position in March. Samsung Display also reported a clear increase in its 7-inch sized panels, with higher resolution WSVGA, thanks to business from its own tablet brands. At the same time, shipments of Samsung’s 10.1” WXGA dropped in March, falling to just about the half of its peak level in January.

The tablet PC market is growing rapidly, but at the cost of fast eroding prices. The market is just too new and crowded to find a simple value proposition. Some believe and hope private-label whitebox manufacturers are pressured badly in their finances, and there could be a shakeout in the future; however, it cannot be stated with certainty that these companies will be short-lived, as some manufacturers will eventually find ways to survive, along with panel makers and other supply-chain participants.

So, how will top-brands like Apple play in this market and react to the growth of whitebox players? Clearly top brands are putting great efforts to prove their value proposition and leverage the many resources they control, but the results are yet to be proven. We can most likely look forward to seeing more experiments, such as phablets, and possibly all-in-one tablet PCs and compatible notebook PCs equipped with dual OS.

But really … is anyone surprised?

Over the last year, as demonstrated in DisplaySearch TV shipment data, 3D has shown no real growth in the North America market. Meanwhile, in other parts of the world, 3D has continued to grow, although that growth has recently tailed off a bit.

Figure 1 – 3D Share of TV Shipments (DisplaySearch)

The reason for the poor adoption in what many considered to be the best market for 3D? I believe there are a multiple reasons for the low interest:

1. 3D, as a feature, one that is often offered with other features, still carries a hefty premium and US consumers have been very unwilling in recent years to spend more for features when they can get a large size instead. The average 3D premium for a 55” TV in North America was more than 40% in Q1’13, almost exactly the same as it was in Q1’11. US consumers seem to be far more price sensitive than other regions.
2. Burden of 3D glasses. Consumers have cited the expense and inconvenience of having to use 3D glasses, of any type, in order to view 3D programs. Given a choice, most consumers would prefer glasses-free 3D TVs, but the technology is a long way from being consumer friendly.
3. Demonstrations at retail are often not functioning properly.
4. Consumers in the US have been exposed to 3D at home many times in the past (anyone remember red/green anaglyphic glasses that used to come in cereal boxes?) and the experience has been poorly received. This time around, there is a fair bit of skepticism. In other parts of the world, 3D at home is a fairly new experience and the level of wonder and optimism for content is probably sustaining demand.
5. Finally, content has been very limited, even 3 years after the launch. Few live programs are available in 3D and most of what is available (exclusive of 3D Blu-Ray releases) is from a limited range of material that is re-run often.

It’s understandable that content creators are hesitant to continue investing in costly new technologies if the viewer base is not growing at an attractive rate. However, this move by ESPN might signal that the momentum has shifted away from 3D in the US and TV manufacturers and retailers would be wise to take note.

The XMM7160 platform, announced earlier this year at the Mobile World Congress, is an upgrade of its XMM6360, which only supports up to DC-HSPA. 7160 promises multiband LTE support and is backwards compatible with HSPA and EDGE. However, Intel did not announce any upgrades to 7160 at Computex, and only showed slim modems – no applications processors with integrated WWAN. The lack of a mobile processor with LTE multi-band support can be contrasted with the approach by Intel’s competitors, namely Qualcomm and Nvidia.

Qualcomm owns the majority of the LTE market with its integrated LTE modem and applications processor. The advantages of the integrated solution are smaller size and cost. Along with a reference design, the integrated solution saves brands time on testing and helps to reduce LTE device prices. Similarly, Nvidia officially introduced its first LTE integrated application processor, Tegra4i, at MWC, utilizing technology gained from its acquisition of Icera in 2011.

Intel was a pure applications processor player in the mobile industry until its acquisition of Infineon in January 2011. After two and a half years, Intel has still not released an LTE integrated application processor. Perhaps they have a design in development, but by this time next year, Qualcomm and Nvidia are likely to have LTE-Advanced integrated solutions to showcase. As discussed in our new Smartphone Quarterly report, integrated solutions will be key to meeting the price/performance targets in several smartphone market segments.

In 2009, Samsung was only supplier to provide a SNB (super narrow bezel) LCD panel with 7.3 mm gap (in tiled displays, the key metric is “active to active,” measured by the spacing between the closest active pixel to the bezel of one display to the closest active pixel on the adjacent display, rather than the bezel gap). Now, Sharp, LGD and AUO are also developing SNB LCD products. For example, LG Display will begin mass production of a 47” LCD with only a 5.2 mm gap in the 2^nd half of 2013, and is expected to showcase a new product with less than a 4 mm gap at InfoComm 2013.

LCD is actually a follower in SNB design, with plasma displays showing a 2.2 mm gap in tiled displays in the past. However, plasma display production is declining and we forecast that shipments of “commercial-grade” PDP used for public displays will fall below 100,000 units next year. At the same time, DLP projection and direct view LED are still viable technologies for video walls. Traditionally, DLP projection technology enabled a 1 mm mullion (border or seam) but advancements in the technology have resulting in a zero mullion, which Prysm’s laser phosphor display technology also boasts. A new technology in direct-view LED displays has enabled 1.5 mm pixel pitches, which will enable LED to compete with SNB LCD not only based on pitch but in terms of brightness and color uniformity.

Next week at InfoComm in Orlando, we expect to see continued competition between these technologies, and at our FPD Conference at InfoComm13, we will be discussing these and other issues in great detail.

However, despite speculation that the government is planning to introduce a higher mandatory standard on the Energy Efficiency Index (EEI) and raise the subsidy, the party did not go on as many expected. On the last day of May, the government officially announced that the Energy Efficiency Subsidy is terminated and it is not known whether there will be a new one. But at least there will be no subsidy in the next few months.

So what will be the impact? Will LCD TV demand in China crash and LCD TV panels swing to oversupply and impact panel prices again?

Our analysis is that there will be short-term impacts as panel buyers for TV set makers become conservative in the next couple of months, at least they want to wait and see how the retailers and consumers react to the situation. They will prioritize inventory control rather than building inventory. This will lead downward adjustments to panel prices, especially for some key sizes that have benefited from the Energy Efficiency Subsidy, such as 32”, 39”, 50”, 42”, 46”, and 55”. Panel makers will reduce their utilization as well.

However, for the longer term, the termination of the subsidy is likely to push the market mechanisms back to normal. Economics textbooks will tell you that any kind of subsidy has a distorting effect on a market. The Energy Efficiency Subsidy has been propping up TV ASPs, rather promoting China TV volume growth. We can see how the game is played in the figure.

The Energy Subsidy in China: Pros and Cons

Source: Monthly Large-Area LCD and PDP Pricing Report

In order to meet the strict EEI (Energy Efficiency Index) standard, the TV makers have to do some re-engineering (such as adding a DBEF film in the backlight) and administrative tasks, serving the governments’ requirements. This increases their cost. On the other hand, the promotion and marketing cost also go up due to the execution of the subsidy. All of these costs are added to the ASP of the TV set before the subsidized discount is shown to the consumers. In other words, the TV makers slow down the price cuts, or raise prices in some cases, and then discount, to create the space for the subsidy. Government uses the subsidy to encourage energy saving, rather than to stimulate TV purchases, while the TV brands use using the energy subsidy as a tool for keeping up ASPs and gross profits.

So the termination of the subsidy means that the government thinks their short term mission is done. But TV set makers have been using the energy saving as a tool for promotion and marketing, so without it, they will have to find new promotion points (such as 4Kx2K, Smart TV or reduced retail prices), and end users, with or without the Energy Saving Subsidy, will still buy LCD TVs as long as they need them (for example, households moving from rural areas to cities, those renting a new apartment, etc.). The termination of the subsidy means the market will go back to the normal demand elasticity; demand will come from consumers as well as TV price erosion (and sometimes, panel price erosion). By this, we see the short term impact on demand, but in the long term, the TV market will be healthier.

The short term impacts expected are as follows:

• TV makers become conservative in purchasing panels, at least for June and July, and take a“wait and see”approach to how the termination influences sell-through.
• Panel makers face declining panel demand and reduce prices to cope; they will also face some pressure to clean out their inventories.
• Panel makers reduce capacity utilization in Q2’13 and Q3’13.
• TV makers take some actions, such as retail price reduction, to clean out their energy saving product inventories in the pipeline; this might help some sell-through.

While Apple connoisseurs might crave an Apple TV set (and afterwards an Apple car, house, etc.), the business case is far from clear. Obstacles include the high retail price, low margins and logistic complexity of high-end TV sets compared to the small high-value boxes at which Apple excels.

It is often forgotten that Apple made a brief foray into audio equipment with the iPod HiFi, something which it quietly discontinued in 2007. The company correctly discerned that the differentiation lay in the iPod, not the speakers – and a fertile market for audio systems in time strengthened the value of iPhones’ audio capabilities. In short, Apple gained more from encouraging a diverse world of audio systems than going it alone.

So maybe we are reaching that point again – how about an iOS-compatible TV? It would give an instant boost to set makers struggling to find relevance and uniqueness in their smart TV platforms. Apple could take a licensing fee – a no-risk strategy which would also strengthen iTunes’ hand in future content access negotiations based simply on its installed base. Apple could closely guard and specify the user experience (which it does best) while select TV brands focused on the manufacturing and logistics, at which they still excel. The only companies left out of this would be Samsung, who remains focused on beating Apple at their own game, and Google, whose TV hardware ambitions still seem stuck in neutral.

Apple’s corporate DNA has been extreme independence: its first instinct is to exclude rather than cooperate with partners. But the lock that the iPod connector exerted is weakening rapidly, as wireless streaming replaces physical links. Miracast and Bluetooth audio mean that hardware accessory makers no longer have to choose between Apple and Android compatibility. Apple is also deeply wedded to hardware – iTunes and the App store are well-executed way to boost hardware sales, not independent businesses.

Apple’s problem is how to keep its platform big, while avoiding competing with itself. Apple has used its combination of hardware, content and services to drive the business and become the default choice for developers, but its platform strategy has to change if it is to continue to drive iOS device sales. With the smartphone market moving toward entry-level price points, the matter of its platform staying attractive to developers becomes important. TV is the obvious choice, as opposed to smartphones, where a low-cost iPhone might prove all too attractive to many existing customers.

Since then, the cycle has become much shorter and now that markets have matured, competition has become fierce. Production has moved several times to tap into lower costs, and prices have eroded significantly. The markets for some display categories have matured and a few are in decline – even the LCD TV market fell in 2012. In order to make a profit, to say “strike while the iron is hot” is an understatement.  Today, the iron cools off much more quickly than in the past.

With the shorter product cycles, the challenge today is that many products have either become so low-priced that some traditional vendors and channel members do not want to bother manufacturing or selling them or the products themselves have become commoditized (neither option offering attractive returns on investment). Note that the products are not pure “commodities”, since there are still elements of differentiation including branding and design, amongst others.  However, pricing, positioning, and most importantly their perception in the marketplace resemble that of a commodity.

Take the desktop monitor business for instance.  There aren’t many displays available that help end users surf the Internet, e-mail, word-process, use spreadsheets, etc. any better than the next.  It is difficult to convince a buyer to pay 10-20% more for a “similar” product, especially in this economy. There are a few financial reasons including reduction in energy consumption resulting in lower total cost of ownership; however, when the corporate buyer calls the reseller for these types of products, the sale usually comes down to price (or whatever is the deal of the day). Some vendors still play in this marketplace, but their strategy is to sell to a wide range of customers and to make up profits with increased volume. Margins are thin and any disruption in the supply chain or if sales decrease ever so slightly, the margins disappear.

So where are today’s opportunities to make higher profits per unit without taking all the risk of the supply chain and without the daily pressure moving high volumes? They are in the same place they have been for years: vertical markets, consisting of customers with specialized needs, who will pay more for a product that allows them to do their job better, faster, easier, or more efficiently. These customers do not want products “off-the-shelf,” they want “customized” products, or at least the perception and performance of custom products. Sometimes, this customization only requires minor tweaks or enhancements to the product; in other cases it takes knowledge and understanding of the end user and their market to deliver a solution to their problems.

The industry is starting to pay attention to these vertical markets. At the DSE show this year, there were 40 “industry vertical discussion groups”; we can expect to see a similar focus at InfoComm13.

Many vendors have been paying attention to verticals for years, successfully carving out niches, for example by designing in specialized features and addressing unique or semi-unique end-user challenges.  Some of the recent “specialized” display trends are super narrow bezels for video wall applications, high brightness displays for outdoor and sunlight readability, touch for interactivity, and high resolution for medical diagnostics. Not coincidentally, all of these features are tracked in NPD DisplaySearch’s Monthly Large Format Commercial Displays Sell Through Report.

How can vendors and other industry participants identify vertical markets that are growing and develop strategies for entering them? At the NPD DisplaySearch FPD Conference at InfoComm on June 11 in Orlando, industry experts, end users, distributors, and integrators will present and participate on panels addressing vertical market applications and solutions, in addition to NPD DisplaySearch analysts presenting expert data and analysis of the display market.