This represents a slight improvement compared to the first half of 2019, when utilization lagged far behind levels seen in 2018. In 2019, utilization amounted to 82 percent in the first quarter and 83 percent the second quarter—down from 88 percent and 87 percent in the first and second quarters of 2018.
Suppliers cut production in the first half in response to slower demand and a build-up of inventory that was carried over from 2018.
“In response to limited price increases at the beginning of the second quarter, panel makers had expected LCD-TV panel prices to start rebounding at that time,” explains Alex Kang, senior analyst at IHS Markit. “However, the flare-up of the US-China trade dispute and the increase in inventory levels prevented suppliers from sustaining the price hikes. As a result, panel prices started eroding sharply, prompting panel makers to cut production starting in the middle of the second quarter.”
Though the slash in production and the reduction of glass input resulted in an increase in manufacturing costs—an unsustainable situation for panel suppliers. Panel makers carry extensive fixed costs that they must pay regardless of their utilization levels. Thus, with lower revenue and reduced utilization, the suppliers incur higher manufacturing costs as a percentage of revenue.