In the second half of 2011, the tablet market business has been slightly rocky. Aside from the dismal sales reported by most brand vendors in the third quarter, even No.1 leader Apple has lowered its projected sales for the fourth quarter. In light of the weaker-than-expected market sales, touch module makers have been especially keen in controlling costs. Needless to say, a product’s cost structure has a strong impact on a company’s profitability and pricing strategy. For 4Q11, based on the surveys conducted by WitsView, a research division of TrendForce, the cost structure of the touch module component used in tablet PCs is projected to drop by 4~5%. In particular, the controller IC component is expected to experience the biggest price drop. According to WitsView research director Eric Chiou, US-based IC controller makers recently released single chip solutions successfully to the market. In addition, the offered price quotes are considered very competitive. Specifically, the prices of these highly integrated chip products have been cut by more than 20%. This has thus forced other players to drop prices as well in order to maintain competitiveness. Although there is a big range in the controller IC price drop, which essentially depends on the agreed terms of the particular business deal, in general, controller IC prices are forecasted to fall by 8~10% in 4Q11. In addition to the controller IC, prices for touch sensor and cover glass components also continue to decline in 4Q11. As the bulk of the glass touch sensor orders are concentrated in the hands of TPK and Wintek, even with a lower utilization rate, a minimal monthly output must still be maintained by other makers. Moreover, with more players entering the market, the market is being filled with more excess supply, thus resulting in more intense price competition. In 4Q11, glass touch sensor prices are set to fall by 4~5%. As for the cover glass component, it too is experiencing sharper price drops in 4Q11. One of the key reasons is that the chemically strengthened glass currently faces two challenges. The first is the inventory adjustments being conducted by clients have driven down market demand. The second is the rising market supply, as NEG and Schott have also joined the competition. Therefore, despite Corning’s dominant position in this segment, the market changes have still forced it to cut prices to maintain its strategic lead. In addition, as the use of hole-punching and other complicated processing steps are no longer 100% mandatory during the manufacturing of the tablet PC cover glass, the overall yield rate is notably improving. Thus, amid the material price drop and simpler manufacturing processes, WitsView forecasts a 5~6% price drop for the cover glass segment in 4Q11. Due to the continued yield rate improvements on lamination used in attaching sensor and cover glass, manufacturers are now trying to find cheaper adhesive materials for replacement to further cut costs. For 4Q11, the adhesion process costs will only drop by a mere 2~3%, a relatively smaller decline when compared to other touch module components. WitsView believes that beginning next year, the focus in the touch module cost structure will shift toward a so-called “one glass” or “sensor-on-glass” solution. Production ramp-up via this approach is expected to begin in the first half of 2012. At the moment, the yield rate in the application of such technology on tablet PCs is still under 70%. The biggest obstacles come from the secondary strengthening and printing process. Nevertheless, it is believed that the current technological hurdles will gradually be resolved. Through this approach, it should provide a 7~8% quarterly decline to the touch module cost-down in the near future.