As so often in the display business, Samsung has been the topic of much discussion this week.
The company is clearly being attacked in the TV market by Sony, which is looking to recover some of the market share losses that it has made in recent years. Sony, which radically restructured its European business model several years ago to start to move towards the kind of margin structure needed to compete in flat panel TV, has gone the next step and started to move its manufacturing to Foxconn. However, if it wants to make the business model work, it will need volume and so there has been a significant compression of Sony’s prices in the TV market, especially in the LED-backlit segment. Our data shows, that in some countries this month, Sony products are cheaper than Samsung’s.
Now, Samsung has a great brand image these days, especially in the markets which are newer to the consumer world, such as Eastern Europe and the Middle East. However, in the Western European markets, which are especially important for the more expensive LED-backlit products, there is still a strong trust in the Sony brand for TV. That means that, in some countries, Samsung cannot afford to be at the same price as Sony if it wants to maintain share. As Sony comes down, Samsung will have to follow, we think, and that will put huge pressure on everybody else. It’s made worse by the current problems of euro depreciation which mean that costs are going up. Brands are being squeezed ‘at both ends’ and margins were not easy before this battle!
In the monitor market, there is some build-up of inventory and that seems to be stopping the kind of price rises that everybody would like to see to take into account the weakness of the euro. Will somebody step forward and push up their pricing? For the health of the industry, it would be good if they did. (However, please understand Mr. EU Commissioner on Competition that in no way am I suggesting a concerted action by the industry to push up prices, which would clearly not be in the interests of the consumer!)
There was a time when I would have said that there would be a significant price drop around August for LCD panels, given the current conditions in the monitor market. However, this year, Q3 demand for TV panels for Q4 set sales and a robust market in China should stop this happening at that time, although we will be watching Q4 very carefully.
So, what I’m saying is that if you are a brand and it feels as though everybody is out to get you at the moment, you are not alone! Part of this is the traditional Q2 quietness in IT. I’ve seen nearly thirty Q2s since I came into the business and only in one year was Q2 a good quarter for monitors (and I could never find out if there was a reason for this!). I may have said before that, in years gone by, before the days of a global financial market, the saying among stockbrokers was ‘sell in May and go away’. The idea was that the summer didn’t see much action on the business front and much of the swings and changes would be based on rumour and small levels of dealing which made things unstable. It was considered best to put your money into cash in May and then enjoy yourself at the classic English events of the Henley Regatta, Wimbledon and Royal Ascot, with perhaps some cricket as well! Then come back in September to get business going again.
This year, that’s not going to be an option for the display business. Q3 will have challenges for the TV market after the Q2 boost in sales for the World Cup. The IT market is often more positive in Q3 than newcomers might think. There is the French ‘rentree’ or ‘back to school’ market and I always had a theory that bosses across Europe would say ‘I’m going away for August and when I get back, I want to see the new network installed’ which could boost IT sales. Windows 7 seems very good and is widely accepted. Consumers love the latest notebooks, netbooks and iPads, so lets hope for a boost to monitor sales in Q3!
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