Connect with us


Anticipating rebound in demand

Looking out a bit further, the picture for 2021 will depend heavily on the path of the COVID-19 pandemic in 2H20, along with the corresponding economic impact. The supply/demand picture looks better for LCD panel makers in 2021.

The supply/demand situation in the display industry is more dynamic than ever amidst the disruptions from the COVID-19 pandemic and the associated economic impact. The COVID-19 impact on display-panel market size is projected to grow from USD 107 billion in 2020 to reach USD 152 billion by 2025, at a CAGR of 7.3 percent. According to MarketsandMarkets, the estimation for 2020 is down by ~26 percent compared to the pre-COVID-19 estimate.

Factors that drive the growth of the post-COVID-19 display-panel market include the growing acceptance of the work-from-home norm; rising focus of regional financial institutions to design fiscal policies for keeping the display market floating during the COVID-19 crisis; shifting manufacturing units to less affected regions; increasing demand for 4K and 8K displays with the availability of UHD content; and increasing investments for the construction of new OLED and LCD panel-manufacturing facilities.

North America and Europe are the markets where the demand for display panels is significantly higher owing to the adoption of products based on innovative technologies like OLED. However, with the severity of cases reported in the US and Europe, the demand for display panels has fallen significantly. A large number of companies in the US procure parts and components from China. Limited supply and high demand have increased the costs of components, with domestic components being priced at 30 percent higher than the Chinese components.

Panel quotes and revenue stabilization
As panel demand begins to rebound in 2Q20, panel quotes are expected to stabilize as a result. Therefore, panel makers are projected to see improved revenues in spite of the limited magnitude of cost reduction for upstream panel components in 2Q20, according to WitsView, research division of TrendForce.

TV panel prices underwent a significant wave of rebound in 1Q20, but the onset of COVID-19 led to disappointing shipment performances afterward. In addition to declining revenues, panel makers’ operating cost per square meter increased due to their declining panel shipment by area. As a result, several panel makers saw QoQ declines in their operating margins in 1Q20.

Although the magnitude of cost reductions from components is limited, as panel makers post QoQ increases in their panel shipment by area, they are expected to lower their operating cost per square meter, meaning panel makers may still be able to lower their cash costs. There is a 2.5–2.8 percent decrease QoQ in TV panel cash costs. With regards to 65-inch TV panels, their average cash costs may fall to as low as USD 160, which is close to their quoted levels.

LCD panel prices to exhibit volatility
LCD panel prices, which declined in 2Q20, are expected to rise in 3Q20, and fall in 4Q20, likely exhibiting volatility in the process. Having continued to deploy a strategy aimed at strengthening their technological competitiveness, China’s LCD panel makers should enjoy steady M/S growth.

In 2Q20, influenced by COVID-19, TV makers’ panel purchase activity weakened, leading to a drop in panel prices. In 3Q20, however, peak seasonality (Korean Black Friday) should serve as a catalyst for set makers to expand their panel purchases, with panel purchases by major TV set makers likely jumping 20 percent QoQ to over 40 million units. In addition, the utilization rate of global LCD TV panel facilities should improve from 82 percent in 2Q20 to 89 percent in 3Q20 on normalization at new Gen 8 and above LCD facilities in China. However, as demand growth is forecast to outpace supply expansion, panel prices are projected to rise. In 4Q20; panel prices will likely drop on a weakening in supply-demand dynamics.

32-inch LCD TV open-cell panel price rose 6 percent MoM in June
In a bid to expand market share amid the rise in demand, TV makers in Korea and China are expected to increase their purchase of LCD TV panels by more than 30 percent QoQ in 3Q20. As a result, price of a 32-inch LCD TV open-cell panel rebounded by 6 percent MoM to USD 35 in June. In 1Q21, global supply of Gen 8 or higher LCD panels is set to fall 9.7 percent QoQ in terms of total area. LCD TV panel prices are expected to continue upward through the end of the year. The trend is expected to continue and even cross 10 percent by the third quarter. The reason given is an increase in the production of more TVs in the second half of the year as the COVID-19 pandemic eases in some countries. TV manufacturers have been reported to have increased their inventory for panels for 2H following disappointing sales in 1H.

Market share of Chinese LCD panel manufacturers to rise
Aiming to increase their market shares, Chinese LCD panel makers are predicted to continue expanding production capacity, concentrating on Gen 8 and above LCD facilities. The global number of Gen 8 and above LCD production facilities is expected to come to 25 in 2019 27 in 2020 26 in 2021 27 in 2022, out of which the portion of Chinese manufacturers is projected to widen from 56 percent in 2019 63 percent in 2020 69 percent in 2021 74 percent in 2022, with China eventually claiming a leading role in the market. The technological competitiveness of Chinese LCD panel makers will continue strengthening, noting that Chinese manufacturers kicked off 8K LCD panel production in 2019. China’s share of the 8K LCD panel segment is anticipated to expand from 0.4 percent in 2019 to 33.1 percent in 2020.

OLED TV panel production back to normal
OLED panel revenues will increase by 14 percent in 2020 to USD 31.8 billion, and will grow to USD 51.2 billion by 2025, according to DSCC, as OLED continues to take a larger share of smartphone and TV shipments.

TV revenues will increase steadily, though, as innovation to push OLED TV is expected to continue to be a success in the premium TV space. LGD’s expansion of their white OLED products, Samsung’s introduction of QD OLED, and CSOT’s launch of inkjet-printed OLED are expected to lead revenues to grow from USD 2.5 billion in 2019 to USD 8.5 billion in 2025.

In unit terms, TV panel shipments are expected to increase from 3.4 million in 2019 to 16.8 million in 2025. OLED TV panel output will jump 41 percent YoY to 4.81 million units in 2020 and 65.7 percent YoY to 7.97 million in 2021.

Regional analysis
With Korean manufacturers LGD and SDC shutting down significant LCD capacity in 2020 and 2021, and/or converting it to OLEDs at a lower volume as they retreat from subsidized China competition, regional dominance is clearly shifting once again in the display industry and it may be for good.

While Japan dominated the display industry in the 1980s and 1990s, Korea dominated in the 2000s and for much of the 2010–2019 period. Taiwan emerged in the 2000s taking significant share but remained below Korea. China emerged in the 2000s and really boosted its position over the last 5 years relative to its competition as China’s Made in China 2025 plan led to significant, some may say excessive, investments in the LCD and OLED markets to create more jobs for Chinese workers.

The result, Korean manufacturers LGD and SDC are retreating from their Chinese-subsidized competition despite enjoying fully depreciated fabs. The lower-cost labor, materials, land, various forms of subsidies, and tax credits have proved too much for LGD and SDC, which are quickly leaving the LCD industry. LGD’s LCD capacity is falling 24 percent in 2020 and 31 percent in 2021.

SDC’s LCD capacity is falling even faster, down 27 percent in 2020 and 70 percent in 2021. Japan Display is also reducing its LCD capacity in 2020 through closing an LCD fab. As a result, while LGD and SDC led in LCD capacity in 2016 with 20 percent and 19 percent capacity share respectively in 2016, by 2022 they will both be out of the top five, and account for just a combined 9-percent share. LGD’s LCD capacity share is falling from 16 percent in 2019 to 7 percent in 2022. SDC’s LCD capacity share is falling from 12 percent in 2019 to just 3 percent in 2022.

This sharp decline at LGD and SDC also has implications for LCD supply and demand and leadership in China. LCD capacity is expected to fall 3.1 percent in 2021. This is the first decline in LCD capacity since TFT LCDs emerged in the 1990s. With demand likely to rebound in 2021 while supply is shrinking, the LCD surplus will narrow significantly. Total display capacity is expected to fall 1 percent in 2021 with OLEDs included.

Looking at LCD and OLED TV optimized fabs, capacity will fall 2 percent in 2021, and the surplus will remain in the mid-single digits for some time. Any supply disruptions could challenge the TV industry to meet demand and lead to sharp price increases.

BOE became #1 in LCD capacity in 2019 and is expected to widen its advantage on 5 percent CAGR in LCD capacity from 2019–2025. China Star is expected to rise to #2 from 2022 on a 9-percent CAGR. Innolux, AUO, and HKC will round out the top five from 2022. Any additional shutdowns will further tighten the surplus.

If China Star acquires CEC Panda excluding CHOT as expected, China Star’s share will rise from 12 to 14 percent in 2021–2025 to 18 to 20 percent with BOE at 22 to 23 percent. As a result, those two companies will control nearly half of the LCD market, and enjoy extensive leverage with customers and suppliers.

China is now reaching a 66-percent share in display capacity from 2023 to 2025, up from 62 percent. China is the only region growing from 2019 to 2025 rising at a 9 percent CAGR, with Korea down 13 percent, Taiwan flat, and Japan down 1.3 percent. Korea’s share shrinks to 9 percent as it exits LCD TVs in Korea. Taiwan’s share drops to 20 percent as its capacity remains flat.

In just LCDs, China’s share is expected to be even more dominant reaching 69 percent from 2023 to 2025, up from 36 percent in 2017. Korea’s share is expected to fall from 21 percent in 2019 to just 2 percent in 2025 on a 31 percent CAGR. Taiwan’s capacity and share will remain relatively flat.

Korea is still seen leading in OLED capacity, but its advantage will shrink considerably over the years. All regions are expected to enjoy healthy growth, with China growing at a 42-percent CAGR from 2019 to 2025, Japan 21 percent, and Korea at a 10-percent CAGR. Korea’s share is expected to shrink from 90 percent in 2018 to 51 percent in 2025, with China’s share surging from 8 percent in 2018 to 47 percent in 2025. Although there is still a lot of uncertainty regarding China’s OLED TV investments, China’s subsidies are expected to be focused there in the near future, now that they have accomplished their goal in LCD TVs.

Panel makers are optimistic about 3Q20. They have become more positive about prospects for 3Q20, thanks to strong pull-ins for panel orders from the TV sector. TV panel prices went slightly higher in June and a price increase in 3Q is underway, which will be a welcome news for beleaguered panel makers.

The industry saw a brief price bump in 1Q after the two Korean panel makers announced capacity cuts, but that price increase was cut short by the COVID-19 pandemic. Prices in 2Q dropped back down to roughly the same levels as 4Q19, with certain sizes hitting all-time lows and other sizes slightly higher than their 4Q19 trough. In June, there was another price bump, bringing prices back to roughly the same levels as 1Q20.

DSCC now expects prices to increase in 3Q for all sizes of TV panels except 75-inch, with the strongest gains in the efficient sizes made on Gen 8.5 fabs: 32-inch, 49-inch/50-inch, and 55-inch. The long-term downward trend will resume in 4Q and TV panel prices will end the year at new all-time lows, but the situation remains dynamic, and with the pandemic raging, it seems like an eternity between now and the end of the year.

The only exception to the 3Q price increases, as noted, are 75-inch panels, which are made efficiently on Gen 10.5 fabs. These largest TV panels sell at a premium price in terms of area. The gap in price per square meter between 75-inch and 65-inch is still very wide at USD 45 per square meter in June, and is expected to decline only slowly in the 2H to USD 42 in December 2020, when it will represent a 32-percent difference.

Viewed another way, Gen 10.5 fabs can generate USD 1632 of revenue per substrate, making 75-inch panels 6-up at June prices, compared to USD 1240 of revenue, making 65-inch panels 8-up, or USD 1152 making 43-inch panels 18-up. Thus, the big fabs still have a generous incentive to make 75-inch, which will lead to continued price pressure on those larger sizes.

The bellwether 32-inch TV panel typically shows the fastest drops to the lowest area prices in times of oversupply, and pattern repeating itself can be seen in 2Q and 3Q. In May 2020, 32-inch panel prices matched their all-time lows, but these panels will get a 9-percent increase QoQ in 3Q, before falling again in 4Q.

Looking out a bit further, the picture for 2021 will depend heavily on the path of the COVID-19 pandemic in 2H20, along with the corresponding economic impact. The supply/demand picture looks better for LCD panel makers in 2021, though, since LCD capacity will be lower in 2021. Next year has the potential for rising LCD TV panel prices, as long as COVID-19 does not extinguish the long-term growth rate of TV. 

Click to comment

Notice: Undefined variable: user_ID in /home/cloudpanel/htdocs/ on line 49

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2021 TV Veopar Journal

error: Content is protected !!