Low demand for televisions is killing manufacturers.
For the past few months, LCD TV prices have been falling at a very fast rate. According to research firm iSuppli, LCD panel prices fell by around 4% in September 2011, and even lower in November 2011. With shrinking margins and decreasing profit levels, LCD panel makers are stuck between a rock and a hard place.
Japanese conglomerate Sony
That was the last straw. Having seen enough of red, Sony decided to end its joint venture with Samsung in manufacturing LCD TVs and sold its entire stake to its partner for an equivalent of $940 million.
Besides Sony, Panasonic also tasted losses in its third consecutive quarter amounting to $1.3 billion due to asset writedowns amounting to $1.8 billion. LG Display, the LCD panel maker, is going through rough times as well, having reported losses amounting to $580 million in the third quarter.
Television retailers haven't been in much better shape. Best Buy's
So what's causing the bloodbath in the LCD space?
First, an increase in manufacturing capacity has led to the oversupply of televisions, causing prices to fall. Secondly, the already weak demand situation worsened due to poor economic conditions. But these developments aren't deterring the technology giants.
Google, Apple hungry for TV pie
Rumor has it that Apple
So what's in store for the future?
Even after witnessing the carnage in 2011, research firm DisplaySearch believes that price drops for LCD TVs would be less pronounced in 2012. While LED TV prices would continue to fall, ordinary LCD TVs could witness stabilization in prices or even a gradual increase by the second half of 2012. Nevertheless, I fail to derive any comfort from this as the prices of the newer LED TVs might go south in the same way as LCDs. This, in turn, could continue to put pressure on manufacturers as they shift toward making more LED TVs to cash in on the premium price they attract.
The Foolish take
Poor demand coupled with cutthroat competition will definitely see television makers scramble to cut costs in order to shore up revenues. While the outlook for the U.S. seems to have brightened lately, the eurozone debt crisis continues to negatively influence emerging market economies. Therefore, television manufacturers may continue to face the heat; however, if analysts are to be believed, price drops might be less significant by the second half of 2012. Even then, I'd prefer to stay away from this sector for the time being.
Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Best Buy, Apple, Google, Amazon.com, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Apple, Wal-Mart Stores, Google, eBay, and Amazon.com.
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