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Pricing Out Competition

The Indian FPD organized segment market is heading to 12.5 million sets in 2018, with 45 percent of its sales in H1. This is a 13.6 percent increase over 2017. However, with major price erosion, the market may see an increase of only 3-4 percent by value, which may be attributed to the discerning customer opting for a larger screen. At the moment, this can only be a back-of-the-envelope calculation, as there has been total turmoil in this sector for the last 10 months.

The leading brands are seeing their margins erode; profits and sales decline as an altogether different set of brands gain ground. Competition is getting intense as brands such as Xiaomi, Skyworth, Vu, Mitashi, Gome, Thomson, TCL, Kodak, and Blaupunkt, to name a few, plan aggressive presence in the Indian market. E-commerce players too are pushing hard with their respective private labels offering the entire spectrum of products, for instance MarQ from Flipkart. In response, the established makers are hesitating to increase prices, while confronted with shrinking margins as the rupee depreciates further directly impacting import bills.

The smaller brands have their own set of challenges. There is a flood of imported sets, where the LED panel, declared as glass has been imported by the unorganized players at a 3 percent customs duty as against 15 percent. A 32-inch TV set is available for Rs 6700, against the organized segment’s Rs 8800. Alternatively, a one-year warranty is offered, the set packaged in a Samsung/Sony carton, and sold for Rs 11,000. New Delhi may be the hub, but the sets are available nationally. For instance, they are seeing good traction at White Mart’s 250 outlets in the states of Kerala and Tamil Nadu.

Xiaomi provides a good case study. In India, the brand overtook the leader, Samsung, when it accounted for 25 percent of Indian smartphone sales in the last quarter of 2017, compared to 23 percent for Samsung. The South Korean company had dominated India’s smartphone market for the last six years, but Xiaomi had been gaining ground steadily since it entered the country in 2014. Xiaomi’s sales grew a whopping 259 percent in India in 2017. Xiaomi maintained its lead in the first quarter of 2018 with a record 31.1 percent market share, ahead of Samsung’s 26.2 percent. However, the quarter ending June 2018 indicated a big comeback for Samsung, when the brands each sold nearly 10 million smartphones in India in the three months. They accounted for a combined share of 60 percent in the quarter. Xiaomi, in partnership with Foxconn and Hipad Technologies, has six lines dedicated to smartphones assembly in the country.

After its success in the mobile phone market, Xiaomi made its debut in the smart TVs market in February 2018, announcing its plans to disrupt the market with the world’s thinnest LED TV offering, competitors being Samsung, Sony, and LG. It has sold 500,000 LED sets since then. It tripled its shipments in the second quarter.

The company sells five models in the price bracket of Rs 14,000–Rs 50,000. It had made an entry with the 55-inch Mi LED TV 4 PRO, retailing at Rs 39,999. A few months after, Xiaomi launched cheaper models, the
32-inch Mi LED TV 4A and the 43-inch Mi LED TV 4A at 
Rs 13,999 and Rs 22,999 respectively. Finally, Xiaomi also added the 32-inch Mi LED TV 4C PRO and the 49-inch My LED TV 4A PRO to its range.

The television sales were restricted to online sales (apart from in brick-and-mortar Mi Homes, the company’s exclusive stores, in a few cities). As it gained momentum, it decided to expand into the offline market. This was possible only if sets were sourced locally. This would help maintain the price advantage too. As all the sets were imported, Xiaomi paid 20 percent duty for importing its televisions as completely built units, attracting a further 2 percent surcharge. Local assembly in the open cell route attracts just 5 percent import duty, with 1 percent additional surcharge.

It partnered with Dixon Technologies to make about 55,000 television sets locally every month at the OEM’s Tirupati manufacturing facility. Production has commenced with the 32-inch and the 43-inch models. The factory will soon be able to bring its production capacity to 100,000 Mi LED TV units per month. Negotiations are on with Foxconn for the manufacture of 55-inch and above models at its Chennai facility. Xiaomi wants to ensure local output for more than 90 percent of the television sets it sells in India.

Global scenario

The flat panel TVs market has achieved over 85 percent penetration of global households, resulting in growth slowing expectedly. In the first half of 2018, total sales were recorded to be USD 58 million for the global market for televisions. That is about 1 percent more than in the same period last year, spurred by this year’s FIFA World Cup in Russia. Global sales of a total of 238 million devices are expected for 2018, which translates to a 2 percent increase compared to 2017. Furthermore, the main trends contributing to this growth are top-notch devices with high average prices, smart and connected TVs, and the recovery of emerging markets.

In the first half of year 2018, above 50-inch TVs accounted for half of the total sales value globally. These TV sets can achieve prices of up to more than USD 4605.88. These premium devices feature contrast enhancing HDR or OLED, the winning display technology in the premium price tier, with a sales value increase of more than 100 percent. Western Europe mainly drove the trend toward OLEDs, but almost all regions show three-digit growth rates. The downside of this trend is that UHD resolution and larger screens are affecting the annual power consumption of the TVs negatively.

On a regional level, LATAM fueled the global growth heavily. Those countries contributed in the first half of 2018 with a sales value growth of 25 percent toward the global turnover increase in the TV market. The region accounted for 11 percent of the global TV sales and recovered successfully from substantial losses in recent years. The regions of Europe and APAC developed in a corridor between –5 percent to +4 percent.

Shipments by technology panels

Area shipments of large TFT LCD panels – larger than 9-inch – increased by 11 percent YoY and unit shipments by 7 percent in the first half of 2018. The growth was led by an increase in larger size panel production capacities and rapid LCD TV panel price erosion. TV panel shipments, which increased by 11 percent by area, accounted for 78 percent of total large TFT LCD panel shipments by area in the first half of 2018. Unit shipments of 55-inch and larger TV panels, including LCD and OLED, increased by 20 percent YoY. Unit shipments of AMOLED TV panels reached 1.4 million, up 104 percent YoY.

OLED TVs beat QLED LCD TVs in unit sales. Last year it was predicted that quantum dot-equipped LCD TVs (QLED) would race past OLED TVs, but the opposite appears to be happening. Today’s prosumers expect more and are voting with their wallets. As such, sales of QLED LCD TVs that are relatively easy to mass-produce are on a downward trend, whereas sales of OLED TVs are trending up. For the past two consecutive quarters, sales of OLED TVs surpassed those of QLED. This trend can be attributed partly to the number of manufacturers launching OLED TVs.

Voice-enabled smart and connected TVs. With the enormous success of movie streaming platforms, and younger customers losing interest in linear TV programs, smart TVs are almost the standard today. From January to June 2018, these devices obtained a sales value share of 85 percent, up from 79 percent in 2017. On a regional level, LATAM saw 93 percent of the sales value coming from smart TVs. Only the Middle East and Africa region is lagging behind with around 66 percent value share for smart TVs.

4K TV sales pick up as 8K looms on the horizon. As prices for 4K TVs have dropped significantly over the past few years, global sales of UHD TV sets have really taken off. Despite the fact that true 4K content is still hard to come by in many countries, more and more consumers are making the switch to the next level of HDTV. Global 4K TV sales could reach nearly 100 million units this year, up from just 31 million in 2015. Now that 4K TV has reached mainstream adoption, the industry has already set its eyes on the next big thing. Major manufacturers all unveiled their first forays into the age of 8K TV at the consumer electronics show IFA in Berlin, giving consumers a first glimpse of what they are expected to raid their savings accounts for in a couple of years.

Panel makers update

After a high price level in 1H17, the TV panel prices have been decreasing since 1Q18, which pushed brands’ panel purchases. Panel makers also offered special deal projects to increase the shipments, which further lowered the panel prices. Despite the growing production, panel makers have maintained the utilization rate and instead tried to push out panel shipments by lowering panel prices in the first half of 2018. That is one of the reasons that panel shipments are continuously growing.

For the first half of 2018, Chinese panel makers still allocated considerable capacity to 32-inch panels, which accounted for 32.4 percent of the total shipments. This size recorded a YoY shipment growth of 26.2 percent in H1 2018, and will boost the whole year’s shipments to a new high of 277.1 million pieces. However, the large share of 32-inch panels will also restrain the average panel size growth. For 2018, the average size is estimated to be 45.2-inch, a marginal growth of 0.6-inch from last year.

New facilities from China, such as BOE’s Gen 10.5, CHOT’s Gen 8.6, and CEC-Panda’s Gen 8.6, started mass production in the first half of this year. The production at the fabs has increased since the second quarter of 2018 as their glass inputs and production yield rates have improved. Panel makers suffered from high TV panel inventories in the first half of 2018 due to growing production capacities. Panel prices have been weak for a year and panel makers’ profit margins have plunged. Therefore, panel makers wanted to clear up the inventory before the third quarter, high-demand season, when they aim to raise the panel price back again. That has led to the fast growth in TV panel shipments lately.

South Korean panel makers still lead the TV panels market in terms of unit shipments. Being key panel suppliers to global top-tier TV brands that are focusing on larger TV screens helps them maintain the market lead position. However, as Chinese panel makers just began their Gen10.5 fabs, the competition will be more intense between Chinese and South Korean panel makers.

Online retail disrupts the global TV market

In total, 18 percent of the global TV sales value came from online sales in the first 6 months of 2018, up from 15 percent in the same time frame in 2017. Western Europe and emerging Asian countries contributed with 17 percent and 22 percent online share, respectively. This increase is also reflected in the peak times throughout the year: 2015 was the last year to show a real Christmas effect, and from 2016 on the demand peak changed to November as a result of online retail sales initiatives like Black Friday. This development becomes more obvious in countries with large online retailers and their agenda of shopping festivals through the year.

Way forward

Manufacturers are expected to join the game in the second half of 2018, adding some more dynamics in the TV market. In terms of the display resolution, 4K is still on the rise and the first 8K models have been showcased at this year’s IFA already. The next step is voice-controlled TVs with more and more manufacturers coming on board and thereby increasing the reach of the digital home assistants. For now, not all voice assistants are integrated in the TV and rely on an external smart device to be voice-controlled indirectly. Time will tell whether this solution will prevail or whether it is just a bridging technology.

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