Sharp Corp. and LG Electronics Inc. warned that a glut of inventory for flat-panel display televisions will continue to pressure prices during the critical year-end holiday shopping period.
The build-up has filtered down the supply chain. The market for large-sized LCD panels, which was experiencing shortages several months ago, has now swung in the opposite direction, forcing panel makers to scale back output and slash prices to clear out inventory.The inventory build-up of liquid crystal display televisions is the result of a surge in production by global TV makers this year following a period of reduced output in the aftermath of the financial crisis, when consumer spending plunged. The flood of new models has heaped additional pressure on TV prices, which routinely experience 20% to 30% price declines annually.
LG and Sharp, which make both the finished televisions as well as the panels that go into them, face slow demand in North America. Meanwhile, Japanese manufacturer Sharp is feeling the pinch of a strong yen, which eats into overseas sales when repatriated back into yen.
On Thursday, Sharp, the world's No. 5 TV maker by revenue, cut its full-year net profit outlook by 40%, citing deteriorating LCD panel prices and the strong yen. Meanwhile, No. 2 LG said third-quarter net profit plunged 99.2% from a year earlier, hit by widening losses in its handset business and lackluster demand for consumer electronics from Europe and the U.S.
The rest of the top-five TV makers— Samsung Electronics Co., Sony Corp. and PanasonicCorp.—report quarterly results on Friday. Research firm DisplaySearch is forecasting TV shipments to rise 15% to 242 million units this year. LCD televisions are expected to outpace the broader segment with a 29% increase in shipments.
"The fall in TV prices is likely to persist amid the global economic weakness and toughening rivalry in major product segments," said David Jung, LG Electronics' chief financial officer, who predicted prices to fall 6% to 8% in the October-December period from the preceding quarter.
Sharp said it plans to ship 15 million LCD televisions in the fiscal year to March 2011. This would mark a 47% rise in shipments, but the company is predicting only a 26% rise in LCD television revenue for the same period.
LG's home entertainment division, which makes flat-panel TVs and plasma display panels and accounts for nearly 40% of the company's total revenue, posted a 46% decline in operating profit in the third quarter even though sales rose 9%.
While global demand remains strong in countries like China and India, Sharp says the U.S. market is a cause for concern. "In North America, the bad conditions are still continuing. We'd like to hope for a recovery for this Christmas season, but the situation remains murky for now," said Sharp President Mikio Katayama.
For the full fiscal year ending in March, Sharp lowered its net profit outlook to 30 billion yen ($369 million) from its April forecast of 50 billion yen. It also cut its operating profit forecast to 90 billion yen from 120 billion yen while keeping its annual revenue estimate unchanged at 3.1 trillion yen.
The Osaka-based company, like other Japanese exporters, is also feeling the pinch from the strong yen, which lowers the amount of revenue earned abroad when repatriated into yen. Sharp said its latest forecasts are based on foreign exchange assumptions of 82 yen to the dollar for the second half, compared with 90 yen for its previous estimates for the full yen. It also reduced its euro estimate to 110 yen from 123 yen.
Sharp, which doesn't break out quarterly figures, said it posted a net profit of 14.3 billion yen for the six months ended Sept. 30, compared with a loss of 17.72 billion yen in the same period a year earlier. Revenue rose 16% to 1.50 trillion yen, while operating profit surged to 43.5 billion yen from 1.57 billion yen.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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