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CONSUMER ELECTRONICS

LCD TV panel prices are on a surge

Large LCD panel prices have been continuously increasing for last 10 months due to an increase in demand and tight supply. This has helped the LCD industry to recover from drastic panel price reductions, revenue and profit loss in 2019. It has also contributed to the growth of QD and miniLED LCD TV. Strong LCD TV panel demand is expected to continue in 2021, but component shortages, supply constraints, and very high panel price increase can still create uncertainties.

It was earlier anticipated that price increases would decelerate in 2Q, but now the price increase is accelerating compared to 1Q, according to a research by DSCC. Panel prices increased by 27 percent in 4Q20 compared to 3Q and slowed down to 14.5 percent in 1Q21 compared to 4Q, but the current estimate is that average LCD TV panel prices in 2Q21 will increase by another 17 percent. The prices are expected to peak sometime in 3Q21.

There has been a surge in prices across the board from a low in May 2020 to a high point in June 2021 which does not represent the peak. There have been multiple inflection points for this cycle: the first inflection point, the month of the biggest MoM price increases, was passed in September 2020, and the price increase slowed down, then started to accelerate again in January 2021, and there is another slowdown starting in May 2021. Prices in May 2021 have reached levels last seen in July 2017.

Prices increased in 1Q21 for all sizes of TV panels, with double-digit percentage increases in sizes from 32- to 65-inch ranging from 12-18 percent. Prices for 75-inch increased by 8 percent as capacity has continued to increase on Gen 10.5 lines, where 75-inch is an efficient six-cut. Prices for every size of TV panel will continue to increase in 2Q at an even faster rate, ranging from 12 percent for 75-inch to 24 percent for 32-inch. The prices are expected to continue to increase in 3Q.

LCD TV panel prices
January 2020 – June 2021

The current upturn in the crystal cycle has seen the biggest trough-to-peak price increases for LCD TV panels, and the recent acceleration of prices has further extended this record. Comparing the forecast for June 2021 panel prices with the prices in May 2020, there is a trough-to-peak increases from 34 percent for 75-inch to 181 percent for 32-inch, with an average of 111 percent. In comparison, the average trough-to-peak increase of the 2016 to 2017 cycle was 48 percent, and prior cycles saw smaller increases.

Before the current upswing, the largest panels sold with an area premium, but the current cycle has flipped that upside down. Whereas in May 2020, 75-inch panels sold at an area premium of USD 77 per square meter higher than the 32-inch panel price, as of May 2021, they are selling at a USD 65 discount on an area basis. This means that those Gen 10.5 fabs could earn higher revenues from making 32-inch panels than from 75-inch panels. The pattern for 65-inch is even more severe, and 65-inch is now selling at a USD 69 per square meter discount (alternately, a 22% area discount) compared to 32-inch.

Monthly area prices per square meter for TV panels
October 2016 – June 2021

The improved pricing for LCD TV panels has already improved the profitability of panel makers. It will continue to drive their profits even higher, especially the two prominent Taiwanese players, who have Gen 7.5 and Gen 8.5 fabs but no Gen 10.5 fabs. Chinese panel makers HKC and CHOT have a similar industrial profile and stand to benefit greatly as well. The leading companies with Gen 10.5 fabs (BOE, CSOT and Foxconn/Sharp) stand to benefit less because the price increases on the largest sizes are more modest, but every LCD panel maker is doing well.

TV price index has increased from its all-time low of 42 in May 2020 to 87 in May 2021, and it is expected to reach 89 in June and over 90 in 3Q21 before declining in 4Q. The YoY increase has surpassed 100 percent in May 2021. It will remain at elevated levels throughout the second half of 2021.

TV panel price index and YoY change
January 2015 – June 2021

In addition to being an exceptionally large upcycle, the current upswing matches some of the longest stretches of increasing prices ever seen, more than a full year from trough to peak. The length of the upswing can be attributed to several factors: glass and driver IC shortages, the pandemic-driven demand or the potential for Korean fab downsizing.

TV makers continued to make strong profits in 1Q21 despite increasing panel prices. The TV market typically slows down in 1Q and 2Q. TV maker revenues declined seasonally in 1Q but less than usual, and the operating margins for both Samsung and LGE increased sequentially. Samsung’s CE division operating profits exceeded USD 1 billion for the quarter for only the second time ever. With demand remaining strong, TV makers have weathered the increase in panel prices and remained very profitable.

LCD CapEx is up
There is a surge in LCD equipment spending to respond to dramatically improved market conditions in the LCD market. DSCC sees LCD revenues rising 32 percent in 2021 to USD 112 billion on strong unit and area growth with prices and profitability rebounding to or even exceeding the 2017 levels. With LCD suppliers able to sell everything they can make at attractive margins; it should be no surprise that most LCD manufacturers are looking to expand capacity.

However, unlike previous upturns when many new fabs were built, in this upturn panel suppliers are looking to stretch their capacity through smaller investments, simplifying their processes and debottlenecking. Having said that, there will be two new Gen 8.6 mega fabs being built. The result versus last quarter is a 10 percent or a USD 2.2 billion increase in 2020-2024 LCD spending from USD 21.8 billion to USD 24 billion. The 2021 LCD equipment spending forecast is up 15 percent versus last quarter’s forecast to USD 10 billion, with 2021 LCD equipment spending up 125 percent versus 2021. In addition, 2022 was upgraded by 28 percent to USD 3.5 billion.

Although there is a healthy upgrade in LCD equipment spending in 2021 and 2022, the outlook for 2022-2024 spending is still significantly lower than in previous years, resulting in tighter capacity and slower price reductions in the next downturn. In addition, with Korean LCD suppliers expected to reduce their LCD capacity and convert to potentially higher margin OLEDs, the outlook for LCD pricing and profitability looks quite healthy, which may result in even more equipment spending, especially as miniLEDs gain acceptance.

 

Panel manufacturers see TV supply shortages
An unfortunate and untimely string of accidents has created a historic tight glass market and caused a very unusual industry average price increase of several percent. In last few months top glass suppliers Corning, NEG, and AGC have all experienced production problems. A tank failure at Corning, a power outage at NEG, and an accident at an AGC glass plant all resulted in glass supply constraints when demand and production has been increasing.

In March 2021 Corning announced its plan to increase glass prices in 2Q21. Corning has also increased supply by starting glass tank in Korea to supply China’s Gen 10.5 fabs that are ramping up. Most of the growth in capacity is coming from Gen 8.6 and Gen 10.5 fabs in China.

Besides glass there have been other component shortages including driver ICs and polarizers. The lack of investment in polarizers and base films in 2019 caught the industry off guard when demand turned around in 2020. Multiple other materials are also in tight supply and are affecting different makers in different ways, supporting inflationary price trends.

Widespread component supply shortages could impact availability on LCD TV panels from CSOT and Innolux. The display panel manufacturers have warned that supplies of panels are expected to be tight throughout the year.

According to Li Dongsheng, chairman, TCL, panel shortages will continue in 1H21, following conditions already hampered last year during the start of the COVID-19 pandemic. The situation for 2H21 remains to be seen but for 2021 overall panel supply will be tight.

James Yang, president, Innolux, has warned of a shortage in LCD panels caused by strong demand for LCD coming out of the global crisis and the conditions are expected to continue through 2021. Innolux has seen shortages in LCD components including power semiconductors, driver ICs and glass substrates that have kept production below capacity. Shortages of ICs and semiconductors could continue right up to the 1H22.

Ironically, prior to the run-on LCD panel supplies, manufacturers were faced with the dilemma of overproduction causing a glut in inventory, which was driving prices artificially lower. This was the result of giant new LCD fabs coming online in China and other areas of Asia.

Panel makers, being cognizant of that threat, are expected to produce panels at a more tempered pace to keep margins healthy. LCD panel prices continued to rise in March after moving up in February.

Almost all Chinese panel makers are doing everything they can to incrementally increase their current factories’ capacities through productivity enhancements and new equipment purchases for debottlenecking or capacity expansions. For the same reasons, South Korean panel makers continue to delay shutting down their domestic LCD TV factories.

TV manufacturers have been moving aggressively to replenish inventories of LCD panels to meet strong sales of TVs and other devices to meeting escalating demand, particularly in the United States and Europe.

Outlook
An increase in demand for larger size TVs in 2H20 combined with component shortages has pushed the market to supply constraint and caused continuous panel price increases from June 2020 to March 2021. The panel price increase resulting in higher costs for TV brands. It has also made it difficult for lower priced brands to acquire enough panels to offer lower priced TVs. Further, panel suppliers are giving priority to top brands with larger orders during supply constraint.

For 3 years, from 2017 to 2020, LCD panel makers suffered through a continuous pattern of price declines interrupted only with brief respites. With the COVID-19 demand surge assisted by shortages in glass and DDICs, panel prices are spiking. Korean, Taiwanese, and Chinese panel makers are reporting robust margins in 1Q 2021 and the good news is anticipated for panel makers to get even better in 2Q.

Although multiple caveats remain about how both supply and demand will trend over the coming months, the modeled glut level is a leading indicator that the next cycle is now on its way, which implies falling prices, utilization, and profitability. Industry players should consider the implications when planning business strategies for the next 2 years.

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