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China tech

Subsidized Chinese makers squeeze Asia's LCD industry

BOE helps push 65-inch panel price below $220, down 30% over past year

Prices for LCD panels used in 65-inch TVs, the main money-maker for manufacturers, have fallen by nearly a third over the past year and continue to slide.

TOKYO -- Prices for liquid-crystal display panels for TVs are tanking amid a fierce price war led by Chinese manufacturers that receive subsidies from local governments.

Prices for high-volume LCD panels for 32-inch TVs have stopped falling because panel makers have cut output as prices have fallen below production costs. But the price of panels for 65-inch TVs, suppliers' cash cow, have fallen 30% over the past year and continue to sink despite surging demand in North America and China.

The downtrend follows big increases in capacity by Chinese manufacturers, including BOE Technology Group. Backed by generous handouts from local governments, Chinese suppliers have built factories that can churn out large panels cheaply.

Aggressive pricing by Chinese producers has sparked a battle for market share that is pummeling the earnings of their South Korean and Taiwanese competitors.

Prices for half-finished, "open-cell" LCD panels without backlights and other parts settled around $41 for large-lot sales in February, little changed from the previous month. Prices have stopped dropping after four consecutive months of declines through January.

The rapid weakening of the market has depressed the bottom lines of companies such as South Korea's LG Display and Taiwan's AU Optronics.

As prices for 32-inch panels have fallen to the point where it is difficult to produce at a profit, suppliers have slashed output. Some analysts now predict that as supplies tighten prices will rise again.

But larger displays are a different story. Prices for those products show no sign of hitting bottom, with 65-inch panels fetching around $215 in February, down 2% from the previous month. Over the past year, prices for these panels have slid nearly 30%. Prices for 55-inch screens are also on a downward trajectory, slipping 3% to around $139 in February.

Industry analysts point out that big Chinese producers are getting better at turning out products from their state-of-the-art plants.

BOE's "10.5th generation" plant in Hefei, 400 km west of Shanghai, is highly efficient at turning large glass substrates into LCD panels. China Star Optoelectronics Technology has also started full-scale operation at its own 10.5th generation plant.

Because prices for large panels, such as 65-inch models, are thought to be considerably above the break-even point, Companies benefiting from Chinese government largesse appear to believe they can mark down prices further. Their rivals elsewhere complain the subsidies give Chinese suppliers an unfair advantage.

Analysts warn that even prices for 65-inch and 75-inch panels could fall to the level of production costs by the end of the year. If profit margins are squeezed on panels for large TVs, which are growing more popular in the U.S. and China, suppliers' earnings will take a massive hit.

Prices for 32-inch panels stopped sliding only because of production cuts by manufacturers, not because demand rose. With market conditions still unfavorable for manufacturers, many analysts forecast that prices for 32-inch models will start trending down again in the second half of 2019.

The rise in prices for 32-inch panels will give suppliers a temporary respite. But their prospects for the long term look gloomy.

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