Samsung Electronics and LG Electronics' TV businesses, which had been struggling due to weak demand and intensified competition, have managed to catch a breath for now. The skyrocketing panel prices have been alleviated due to the slowdown in demand from China, one of the largest TV markets. However, there are evaluations that there are many challenges to overcome, such as the tariff risk stemming from Trump.
According to market research firm Omdia on the 30th, the price of LCD (liquid crystal display) TV panels, which account for 90% of the global TV market, peaked in March this year and has been rapidly declining since June. The price of the most popular 55-inch UHD (ultra high definition) panel has dropped unusually by $7 in just one month this month. The price of the panel, which was $130 in May, is expected to fall to $118 in August, marking a 9.2% decline over three months.
The stop in the rise of panel prices is due to the slowdown in TV demand in China, which has been driving the market since last year. As the Chinese government provided subsidies for the consumption of energy-efficient appliances to boost the economy, the explosive demand for TVs began to cool down. Until the first quarter of this year, Chinese TV companies like TCL and Hisense aggressively secured panel inventory to meet the increased demand, resulting in a rise in global panel prices.
However, Korean TV companies have not been able to benefit much from the special circumstances in China that led to the rise in panel prices. Due to the strong patriotic consumption tendency in the Chinese market, the subsidies largely benefited domestic brands. In reality, the combined market share of Samsung Electronics and LG Electronics in the Chinese TV market is less than 2%. Domestic companies are burdened with rising panel prices without enjoying the sales increase benefits from the demand in China.
In this situation, the decline in panel prices is seen as a much-needed relief for the domestic TV companies that are struggling to achieve solid performance. The MS business division at LG Electronics, which is responsible for the TV business, returned to a loss in the second quarter due to weak demand and intensified competition. The operating profit margin in the second quarter for the TV business fell to -4.4%, a sharp decline from 2.5% during the same period last year. Samsung Electronics is also struggling as it loses market share to Chinese companies in the premium TV market. IBK Securities estimates that Samsung Electronics' second-quarter operating profit for its TV business was 315 billion won, a 24% decrease compared to the same period last year. Since panels account for the largest portion of the TV manufacturing cost, the price decline should directly lead to an improvement in profitability.
The practical impact of the adjustment in panel prices is expected to be reflected in performance starting around the end of the third quarter. A representative from the domestic TV industry noted, "The nearly 10% decrease in panel prices is encouraging," adding that, "Considering that panel supply contracts are typically made on a quarterly basis, price negotiations may turn favorable for TV manufacturers in the next quarter's contracts." The vice president of TrendForce's panel research division also stated, "TV brand customers now have greater leverage in price negotiations with panel manufacturers," and that "panel manufacturers, who need to support demand, are ultimately accepting TV brands' requests to reduce prices."
However, industry experts are observing the situation closely, as the benefits of stable panel prices could be offset by tariffs stemming from Trump. Samsung Electronics and LG Electronics produce a significant portion of their TVs in Mexico, and if the U.S. imposes high tariffs on Mexican products, the benefits gained from falling panel prices could be diluted. In the worst-case scenario, manufacturers might pass on the tariff burden to consumer prices, leading to an increase in TV sales prices, which could further dampen already weak demand in a vicious cycle. An industry representative stated, "There will be a juggling act for a while to balance defending year-end performance based on lower panel prices while managing the current tariff risks which are in a state of suspension."