Looking ahead to the third quarter, the fast-changing dynamics of the TV-panel supply base will have an impact on TV makers’ buying plans during the next couple of months. These changes include the Chinese panel makers’ moves to manage their fab utilization and the scheduled restructuring of fabs by Korean panel makers.
Amid rising concerns over the intensifying trade war between the US and China, South Korean and Chinese TV makers have reduced panel purchases in the second quarter.
The reduction in panel demand is intended to cut inventory that was carried over from the previous quarters. The South Korean and Chinese TV makers are expected to stock up on display panels in the third quarter to prepare for the year-end shopping season.
In addition to concerns about TV demand and falling profit margins, the intensifying US-China trade war has made the TV makers more hesitant about issuing firm demand forecasts.
“There is an increasing risk of a demand correction in light of several negative indicators from TV brands, including rising inventories, order cuts, and increasing tariffs,” said Deborah Yang, director of display supply chain at IHS Markit, “These signs imply a slowdown in the market and a possible downward trend for panel prices.”
Korean orders decrease modestly. South Korean TV brands’ panel-purchasing volume is estimated to have declined modestly to 17.3 million units in the second quarter of 2019, down 3 percent from the previous quarter or a 1-percent decline from one year ago. This is indicative of weakness in panel purchasing, following a decline of 2 percent in the first quarter on a quarter-to-quarter (QoQ) basis and no change on a year-on-year (YoY) basis.
Chinese firms adopt more conservative purchasing plans. China’s top five TV brands had bought more panels than expected in the fourth quarter of 2018 after winning further price concessions for the first quarter of 2019 in exchange for placing volume deals with strategic panel suppliers. These brands had stronger-than-forecasted purchasing volumes in the first quarter of 2019, amounting to 20.6 million units – a decline of 13 percent QoQ or a 5-percent increase YoY.
However, after strategically over-building some inventories, these Chinese brands were in no rush to refill their panel stockpiles in the second quarter. Their purchases for the second quarter were more conservative, anticipating a decline of 17 percent QoQ and 8 percent YoY. This compares to the previous forecast of a decline of 11 percent QoQ and 2 percent YoY.
Fast-changing conditions prompt new buying plans. “The fast-changing dynamics of the TV-panel supply base will have an impact on TV makers’ buying plans during the next couple of months,” Yang said, “These changes include the panel makers’ moves to manage their fab utilization in order to maintain their supply-chain agreements and their financial performance. Another major development is the ramp up of the world’s second Gen 10.5 fab, which is operated by a Chinese panel maker. Furthermore, there’s the scheduled restructuring of fabs by Korean panel makers.”
In addition, the deals for upcoming promotional activities in the North-American, Chinese, and European markets in the second half of the year will represent an important factor influencing TV makers’ purchasing and pricing negotiations. TV makers will start to refill their panel inventories starting early July. These companies are taking all possible measures to enhance their competitiveness and win more business.
Third-quarter anxiety. Looking ahead to the third quarter, TV makers are very anxious about the demand outlook. As a result, they are unable to give a clear picture of their panel-purchasing plans. This is because the TV-display supply chain will be facing the new risk of tariffs on the TVs exported from China into the United States. TV makers have factored in the risk of a correction in panel demand.
“The competitive landscape of the TV-display market will be significantly changed this year, forcing supply-chain players to reset their business strategies,” Yang said, “Eventually, the supply-chain industry participants will need wiser strategies to find solutions that can minimize the impacts of potential tariff increases.”
Smartphone display market plunges too
Global smartphone-display shipments plunged by 20 percent sequentially during the first quarter and are poised to drop again in the second and third quarters, as the US-China trade war worsens the wireless market’s woes, according to IHS Markit.
Shipments fell to 409 million units during the first three months of 2019, down from 512 million in the fourth quarter of 2018. On a YoY basis, shipments declined by 9 percent compared to the first quarter of 2018. The second quarter is estimated to bring an 8 percent YoY decrease in smartphone display shipments, followed by a 12 percent drop in the third quarter.
While the smartphone business was already facing a number of headwinds in the first quarter, including market saturation and delayed replacement cycles, the drop in display shipments in the second and third quarters reflects mounting concerns about the impact of the trade dispute on global wireless demand.
“With its position at the forefront of the supply chain, the display business serves as an early indicator of smartphone market trends,” said Hiroshi Hayase, senior director at IHS Markit, “Right now, that indicator is flashing warning signs as smartphone OEMs and ODMs reduce their display orders. Although other factors are negatively affecting smartphone demand, supply-chain participants now are expressing specific concerns about the repercussions of the trade war and the United States’ move to ban Huawei.”
Displays represent the most expensive component within smartphones. As a result, displays are the first sector to experience order reductions when smartphone brands and manufacturers undergo a softening in demand.
In May 2019, IHS Markit reduced its smartphone demand forecast by 1.7 percent due to the US-China trade friction, particularly the Huawei ban. Huawei is a fast-growing player in the smartphone market, with the company in 2018 rising to take second place in the smartphone business, surpassing Apple. As a result, the ban is having an impact on the larger businesses of smartphones and their displays.
Despite the overall decline in smartphone-display shipments, the active-matrix organic light-emitting diode display (AMOLED) market is expected to continue to expand in 2019. The main smartphone AMOLED supplier, Samsung, will be unaffected by the US Huawei ban, allowing it to continue increasing shipments through 2019.
However, over a 10-year period, 2019 to 2029, the global next-generation display materials market is estimated to witness growth at a CAGR of 11.83 percent. This is for various end-use applications, such as televisions, smartwatches, smartphones, wearables, laptops, automotive displays, and others.
TFT LCD, OLED, and QLED materials are the backbone of next-generation display materials. Companies have invested in establishing their OLED and QLED production plants globally. OLED materials have evolved due to their advanced features, such as lightweight, ability to be shaped freely because of the thinness, 1000 times faster response time than LCD, wide viewing angle in comparison to LCD, power efficiency, and its eco-friendly nature. This advancement has led to bigger screens, higher resolutions, and power-efficient displays at a lower cost. Some of the companies that are using OLED-based display panels in their display devices are Samsung Display Corporation, LG Display Corporation, and Apple Inc.
Along with the technological advancements, exchange and usage permission of their patented OLED and QLED materials have also led to the significant increase in the demand of display technology. For instance, Universal Display Corporation has licensed their PHOLED series of material, and now has collaborated with companies such as Samsung Display, Sharp Corporation, Royole Corporation, BOE Technology Group, and PPG Industries, for mutual exchange of product license and its usage authorities.
OLED and QLED displays are further advancing with their flexible display property and companies, such as Samsung Display and Huawei Technological Co. Ltd., are promoting their rigid smartphone-display panels to flexible and rollable display panels. Companies developing quantum dots are shifting their interest and area of work to environment-friendly quantum dots after European government banned the usage of cadmium quantum dots in the market. Now companies are developing quantum dots that are cadmium-free and heavy metal-free.