TV Sets (Emerging Technologies) Market Tracker - Q1 2020

Key findings

• We have marginally increased our 2020 TV shipment forecast by 0.6 million,. However this total picture reflects vastly different moves regionally:
  
  • We have increased our 2020 forecasts in North America (+4.4 million) and Europe (+1.8 million). Consumers have enthusiastically bought TVs to entertain themselves at home during lock downs.
  • At the same time, we see that emerging regions (particularly Latin America and parts of Asia-Pacific) failed to contain the pandemic in its first phase. We expect that it will lead to a weaker Q2 and Q3’20.  We have reduced Asia-Pacific by 3.3 million in 2020 and Latin America by 2.3 million.

• Further out, we have reduced forecasts by 7.2 million in 2021 tapering to -0.9 million in 2024.

  • We expect that the pandemic will leave lasting weakness in emerging regions’ demand.
  • We have reduced our 2021 forecast for North America – the previous version factored a release of pent-up demand from 2020. With a firmer 2020 this is no longer needed.

1.0 Forecast outlook

Forecast factors

• Examining the longer data series for the television set business, large market swings are quite common. This year’s events have been unique, affecting all regions almost simultaneously with a common factor.
• For developed countries, TV purchase behavior is largely driven by a technology cycle (CRT replacement, digital broadcast) than the macro-economy; in emerging markets it is indeed linked to the economy and spendable incomes.
• Developed country shipments are historically not significantly linked to the overall GDP trends. 
  
  • TVs are more affordable as a share of spendable income. In recessions, consumers will replace a failed TV but may spend less on it.
  • Consumers act rationally: television is cheap entertainment, households that are economizing may spend more hours viewing.
  • We have been surprised at consumers’ enthusiasm to buy TV sets – however they appear to be a little smaller and cheaper than normal, suggesting that consumers are more price-sensitive and that many sets may be going to new locations like children’s bedrooms.
• A prolonged global recession will likely hit emerging region demand far harder than developed markets.
  
  • The development of the pandemic is hitting emerging regions hardest in late Q2 and Q3’20, while developed regions peaked in late Q1 and early Q2’20.
  • Several brands are now reviewing their strategies and may withdraw from some markets.

• Consumer buying behavior has shifted:

  • If consumers must buy sight-unseen online, they are more likely to buy from a recognized brand.
  • Many bricks-and-mortar retailers were already struggling—their decline is likely to be faster and internet retailing to grow further.

Comparison with last forecast (and previous scenarios)

• We have increased our forecast in Q2 and Q3’20 compared to last quarter.
• North America and Western Europe are seeing strong demand for TV sets in Q2’20 as many entertainment venues remained closed.
• However we see the situation worsening in emerging markets (especially Latin America and South Asia) where containment measures for the pandemic have failed to control infection. We expect that this will lead to slower recovery.

1.1 TV forecast overview

TV forecast overview

• We expect shipments to fall at least 20 million annually in 2020. The cause is of course the Coronavirus pandemic.
• Developed regions have seen robust demand around lockdowns: consumers have spent money on home entertainment. Many consumers will have spent far less (no meals out, entertainment or recreational travel) and reduced commuting expenses. As a result more cash is available to many. However we expect that this has brought some demand forward and the second half of the year will remain weak.
• We have reduced our forecasts in Asia-Pacific and Latin America as the pandemic appears to be spreading rapidly in these regions. This is likely to suppress demand in 2021 and beyond, with deep recessions resulting.
• The success of countermeasures to the pandemic by governments is the biggest determinant of the forecast. As countries’ responses have been extremely variable in effectiveness, we have low confidence in the forecast. It remains strongly dependent on country-specific factors.

TV forecast overview: short-term forecast

• With shipments in North America above Q1 forecast and brands reporting strong sell-through in Western Europe, we have increased our forecast for Q2’20 by 4.6 million.
• However, we have also reduced our forecasts in emerging regions (especially Asia-Pacific and Latin America) as the pandemic appears to be spreading rapidly. We expect significant disruption to demand in Q2 and Q3 2020.
• The effectiveness of countermeasures remains the key forecast factor. It is highly dependent on country-specific factors. Government effectiveness has been extremely variable.

• Average annual price erosion is expected to be continue in 2020. However, much depends on how quickly TV demand recovers and on brands’ response.
  
  • A price war over the reduced market is one possible outcome.
  • The exact supply / demand balance between TV sets and LCD panels is far from clear, especially as Samsung and LGE appear to have accelerated their exit plans from LCD panel manufacturing.
• TV sizes may grow slightly faster this year. If emerging market demand is badly hit, then this will tend to remove smaller sets from the mix, leading to a higher average.
• The extent of recessions in developed markets remains the biggest unknown for the forecast.

1.2 TV forecast by technology

TV forecast by technology – Sets

• 2020 LCD TV unit shipments will decline by approximately 20 million compared to 2019. This is 20 million below last year but an increase of 600k over last forecast.
  
  • The Coronavirus outbreak will lead to a collapse in shipments in Q2-3 in emerging markets. Developed markets have declined due to the pandemic but then rebounded sharply.
• Our current forecast is for recovery in 2021, helped by rescheduled sporting events (Olympics and Euro football championships).

• OLED TVs are confined to a premium category only, constrained by display cost. OLED shipments will barely grow in 2020, with severe damage to demand in key markets such as Western Europe.

  • OLED faces the challenge of keeping pace with declining LCD prices.
  • Already OLED is on the small size for North America; it is best suited to Japan and Europe.
  • 48-inch OLED is likely to be limited in supply. Production will share glass sheets with 77-inch. As a result it will be a by-product of demand for 77-inch.
  • OLED will require further capacity investments to grow.

OLED TV forecast

• The long-term forecast is reduced. While it remains capacity-limited, big increases swill come when new capacity becomes active in late 2020, with 2021 seeing the new Guangzhou fab active all year.
• Limited growth in 2020 is a direct result of the market disruption from the Coronavirus outbreak, which appears to have delayed the ramp-up of LG Display’s Guangzhou fab.
• OLED will have to prove its cost-competitiveness against LCD to grow, or risk following the same path as PDP. This year has seen the cost premium of OLED stretch as LCD prices collapsed. While the LCD prices are below cash cost and unsustainable, they have put severe pressure on OLED.
  
  • A 55-inch retailing at $999 is a critical price point for OLED to meet to stay competitive: already 75-inch LCD has been below that at entry level for more than two years.
• We are not forecasting any competition from BOE in OLED or Samsung’s emissive technology until investments are proven and capable of making displays at TV sizes in large numbers.

New OLED sizes, OLED screen size/resolution forecast

• 48-inch can run shared on the OLED fab mother glass with 77-inch, improving efficiency overall. It will effectively be a by-product, improving the profitability of 77-inch.
  
  • As a result it will only be available in limited quantities, approximately one for every 77-inch.
  • We expect it to be available in Japan and Europe.
  • 48-inch OLED has released by LGE in recent weeks with other brands to follow shortly.
• With a new G10.5 fab, we expect that LGD will optimise its efficiency and end production of 77-inch, making 75-inch on the new fab.
• 88-inch is a new product for 8K OLED, available in small quantities from late 2019. 

TV forecast by technology – Revenue

• TV revenues cannot escape the huge drop in shipments in the first half of 2020. 2021 will see yearly growth figures as the market rebounds.
• TV OLED TV revenues will grow slowly throughout the forecast. Growth from 2020 is dependent on further investment in capacity and the ability to transition effectively to even larger screen sizes.  
  
  • Investing in Gen 10.5 fabs will be necessary for more efficient production of 65- and 75-inch panels and to keep pace with price reductions in LCD TVs.
• For LCD the picture is bleak – hyper-competition and a lack of compelling new market drivers will cause revenues to fall at 6% per year, despite size growth.

TV forecast by technology – Price

• OLED TV pricing, related to limited supply and a different cost base, will remain restricted  to premium positions.

• Samsung’s QLED strategy has been highly successful. QLED now out-ships OLED. OLED’s battle is fiercest in Western Europe.

  • A strong shift to 65-inch remains critical for OLED to remain competitive, especially in North America, but 65-inch is an inefficient size at Gen 8. New capacity in China will enable efficient 65-inch OLED manufacturing, but its full effect won’t be seen until 2021.
  • OLED will need to respond to the continuing price compression of LCD. At present OLED’s percentage premium over LCD is increasing. For example, in Europe Samsung’s entry 82-inch QLED is positioned at similar prices to top-end 55-inch OLED.

Resolution share forecast

• As UHD resolutions ship in large screen sizes, there is a direct correlation between it and size forecast by region.

• Globally shipments were over 50% last year, expected to rise to 58% in 2020 and 69% in 2024.

• 2020 sees an odd, off-trend blip in North America as the lockdown boosted demand for smaller, cheaper sets, presumably for secondary locations in the home.

UHD TV shipment forecast by region

• The Coronavirus outbreak has totally altered the outlook for the TV market in 2020, and UHD is seriously affected.
• Our forecast is that UHD TV shipments will decline marginally in 2020, with North America and Western Europe already affected .
• We expect that China may see slight growth.

8K TV forecast

• We have increased the forecast marginally in later years.
• Severe price erosion in China has choked off enhanced features: price compression offers a size instead.
  
  • China will not drive 8K.
• The postponement of the 2020 Olympics removes the compelling purchase motivator this year.  With worsening economic conditions, 8K is likely to struggle to justify itself.

• 8K has to overcome several obstacles:

  • Japan is the only country with an 8K channel, broadcast on satellite. No other country has committed to launch 8K channels within our forecast horizon. China and Korea may do so.
  • Japan’s preference for small TV sizes does not offer a large opportunity for 8K TV sets.
  • 8K TVs outside of Japan have limited 8K decoding capacity and no guarantee that they will be able to decode any future services.
  • The forecast dynamic will remain supply-push, not content-pull, for all regions except Japan.

8K TV forecast in context

1.3 TV forecast by region

TV forecast by region – shipments

• All regions will see serious hits to 2020 shipments.
  
  • Japan is the sole exception as pre-Olympic promotions had started on Q1’20 and will be sufficient to lift shipments marginally above 2019. 
• We expect that 2023 will be weak in Europe as the World Cup (unusually in November) 2022 will distort seasonality and lead to a severe inventory correction in Q1’23.

TV forecast by region – Revenue

• Total revenues are expected to decline in all regions over the next four years, but 2020 will see extreme falls as a result of the coronavirus outbreak.  Note that the revenue growth in 2021 is relatively mild, despite unit shipments returning to 2019 levels.
• Clearly if there is a prolonged recession, revenues will be far worse.

TV screen size forecast by region

• We expect all regions to enjoy screen size growth.

• The Coronavirus pandemic will have different effects by region:

  • In emerging markets, the poorest consumers will be hit disproportionately. The result will be a sharp increase in average size.
  • In North America, lockdown has spurred purchases of smaller, cheaper sets, presumably for secondary locations. This dilutes average sizes.

TV average selling price forecast by region

• We expect all regions to enjoy screen size growth.
• The Coronavirus pandemic will have different effects by region:
  
  • In emerging markets, the poorest consumers will be hit disproportionately. The result will be reduced average price erosion.
  • In North America, lockdown has spurred purchases of smaller, cheaper sets, presumably for secondary locations. This dilutes average prices.
• Note China in particular, with the second-largest sets and yet also the lowest average prices.

TV average selling price per inch by region

• We expect all regions to enjoy screen size growth, however this is balanced by falling prices per inch.
• Note China in particular, with the second-largest sets yet also far below other regions on price per inch.

Screen size forecast: 2019 vs. 2024

2.0 Analysis and implications

2.1 Forecast influences

Forecast influences: North America

• We see two distinct phases developing to the Coronavirus outbreak: 
  
  • Lockdown which has triggered a surge in sales, especially of smaller, cheaper models.
  • Aftermath, with the effect of reduced spending as economic slowdown effects become clear.
• We expect that there has been some acceleration of demand and that this will slow in the second half of the year as consumers shift spending away from TV sets.
• The forecast assumes that the extent and effectiveness of stimulus measures remains high. TV sales historically  in recessions have proven very robust, and TV sets are cheap in the US. Shipments in 2021 should show healthy recovery over 2020 and be similar to 2019.
• US Tariffs
  
  • The US Tariffs on television sets from China was increased by 15% to 18.9% on 1 September 2019. It was lowered to 11.4% in Jan 2020
  • Brands have already started to diversify supply bases into Southeast Asia, Vietnam in particular.
  • The Coronavirus outbreak further reduced Chinese exports in early 2020, although we do not have reports that retailers were short of inventory.
• More sourcing is now from Mexico than in past years. With Mexico now being seriously affected by Coronavirus, supply is at risk of disruption.
• In the long term, there is no broad driver of volume growth or an accelerated replacement cycle in North America. We expect the number of sets per household to fall gradually as consumers shift personal video consumption to mobile devices.
• ATSC 3.0 services are launching now, but against a background of low usage of terrestrial and increased usage of streaming services by consumers. Terrestrial TV is being marketed in a pay-TV like package branded as NEXTGEN TV (similar to the proven Freeview business model in Europe, Australia and New Zealand). There is little urgency felt by brands to accelerate  ATSC 3.0 reception and no government action to drive uptake.

Forecast influences: Japan and China

• Japan
  
  • TV demand has been slow in recent years after the 2010-2011 bubble. With such sets now reaching the end of their lives and exciting new TV services (in 4K and 8K UHD), there  was an acceleration in demand in the run-up to the 2020 Olympics in Tokyo. 
  • While the Coronavirus outbreak is controlled, shipments have suddenly stalled due to the postponement of the 2020 Olympics until next year. As a result the entire promotional calendar now resets. We expect that next year’s promotions will be less effective, but that 2021 will still exceed 2020 levels.

• China 

  • The Coronavirus quarantine measures appear to have removed sales of around 2.5-3 million sets from the market. We are forecasting that China will bounce back relatively rapidly as life returns to normal.
  • There is room for a second shock if there are further serious outbreaks in China.
  • A broader slowdown happened in 2019 for consumer spending on major purchases, for example the automotive market also fell.
  • Despite rapidly falling prices, size growth was slow in 2019 while shipments fell in the first half of the year.
  • China has the lowest ASP per inch of any region worldwide. Hyper-competition means that any fluctuations in LCD panel prices are passed on rapidly to consumers. The result is more closely-coupled to demand in China than most other regions. With brutal competition and no overall market leader to impose pricing discipline, Chinese brands are likely to continue to pass cost savings to consumers as lower prices.
  • With a shift in panel manufacture to China, its domestic market is likely to be more favored in any future supply shortages. This is a fundamental change in future supply dynamics

Forecast influences: Europe

• Western Europe
  
  • Late Q1 and early Q2 2020 saw the continent enter lockdown as it became the epicenter of the Coronavirus outbreak. All aspects of daily life have been disrupted with the population generally only allowed to leave home for food or essential work.
  • Governments are responding differently but all are offering money to bridge the economically inactive Q2’20. Provided the actions are effective, we see a return towards normal from Q3’20. TV shipments historically have been very resilient in recessions.
  • We have seen extreme falls (by 40%) during lockdown periods – in most countries physical retailers were closed. Internet deliveries have surged.
  • On loosening lockdown sales have boomed, despite a lack of headline sporting events. Consumers unsurprisingly value television viewing more highly in the current circumstances. We also imagine a little release of pent-up demand.
  • There will be extreme seasonality on the next three years, with the rescheduled Euro20 and Olympics in mid-2021, then the World Cup in November 2022. As a result, early 2023 will see all the post-World Cup inventory adjustment and model transitions and be very weak.

• Eastern Europe

  • Like Western Europe, the region has lockdowns and this will disrupt the Q2 TV market severely. However, we expect that provided it does not turn into a broader depression, demand should return quickly.
  • Russia continues to see falling living standards, made worse by another currency fall after its oil price war started with OPEC. We expect a market reset (independent of Coronavirus) like 2014-15. A lower oil price also reduces the budget balance of the government.

Forecast influences: Emerging countries

• Asia Pacific
  
  • Shipments of TVs to India were fragile before the Coronavirus. Given that India drives up to 40% of the Asia Pacific shipments, the effectiveness of its containment of the disease will have a major impact on the forecast.
  • We have reduced our forecast for 2020, largely due to the rapid growth of Coronavirus in India. This will suppress demand as incomes fall and consumer confidence weakens.
  • With the rest of Asia-Pacific transitioning to digital broadcasting and analog switch-off, the fundamentals remain strong, particularly later in the forecast period.
• Latin America
  
  • We have reduced our forecast for 2020, as the pandemic is now spreading rapidly in the region especially the largest countries Brazil, Mexico and Chile. it will suppress demand with falling spendable incomes and a loss of consumer confidence. The most seriously-affected countries are also the manufacturing centres: supply disruption is also possible.

• Middle East and Africa

  • The forecast factors 10% reductions in Q1 and Q2’20 lined to the Coronavirus outbreak.
  • The oil price fall also threatens spending in oil-producing states.

2.2 Changes from previous forecast

Changes from previous forecast: short term

• We expect the bulk of the Coronavirus impact to be in Q2’20 in developed regions, with emerging regions hit hardest in Q3.
• North America has its Q2 forecast increased at the expense of Q3-4 2020 and 2021.
• China is on a different timeline, with a recovery rebound later in the year. 
• We have revised our long-term forecast downwards for Latin America and Asia-Pacific as severe pandemic effects are likely cause long term demand weakness.

Changes from previous forecast – longer term

• The Coronavirus outbreak will continue to weigh on future demand, in particular to consumer spending in emerging markets.
  
  • We have revised our forecast as the outbreak appears to be worsening in key emerging countries.
• Developed markets are generally resilient in TV demand. Sporting promotions for rescheduled events are likely to be aggressive.

2.3 Areas of opportunity 

• The Coronavirus outbreak overshadows all views of market opportunities, with successful management of the pandemic and normality being the biggest positive factors. Therefore prospects are fundamentally at a country level.
  
  • At present we do not see supply being the limitation. The Americas appear to be most at risk, being heavily reliant on Brazil and Mexico for manufacturing. Current duty structures would allow other regions to supply the US market and substitute for Mexico.
• We see the future as being re-shaped in the following ways:

2.4 Upside/downside potential to forecast 

• So far there has been no significant supply shock to the television market. However with emerging regions (especially Latin America) seeing worsening outbreaks while demand remains robust in developed countries there is a growing likelihood of shortages, especially in North America which is largely supplied by factories in Mexico.
• Upside looks likeliest in North America and Europe; downside risks concentrate in Latin America, Asia-Pacific (especially the Indian subcontinent) and MEA.
• Upside factors:
  
  • TV viewing has increased in value to consumers as a result of lockdown measures.
    In developed markets demand has surged as a result: entertainment away from home (cinemas, live sport) is less available.
  • Government stimulus action across the world improves consumer confidence, employment recovers rapidly. This will be heavily country-dependent.
  • Rescheduled Olympics and Euro’20 in mid-2021 are supported with strong promotional effort by brands.
• Downside factors:
  
  • We factor the following for a negative scenario:
  • Quarantine programmes fail and Coronavirus outbreak continues to spread in emerging markets.
  • Repeat outbreaks occur with subsequent quarantines and lockdowns in some developed markets
  • Government stimulus action fails to restore business and consumer confidence fully.
  • Unemployment rises rapidly, with a drawn-out recession
  • Weak promotional effort by brands for 2021 sporting events
  • Widespread retailer closures as a result of lockdown, also by consumers shifting more to online
• Assessment: overall we see significant upside in developed markets, but emerging regions appear to be worsening.