The COVID-19 pandemic has caused major disruptions in the TV supply chain in 1H20, including work stoppages and deferred deliveries throughout upstream, midstream, and downstream companies. Various retail outlets have been forced to halt operations owing to pandemic-induced lockdowns, further affecting TV brands’ shipment performances.
For the past 10 years, TV brands have shipped approximately 46 percent and 54 percent of their shipment each year in yearly first halves and second halves, respectively. Due to the influence of the pandemic this year, however, the share of branded TV shipment in 1H20 was 4–5 percent less than the first half averages of 46 percent, as brands look to shore up their yearly shipment targets in 2H20 by betting on the momentum of the stay-at-home economy.
The shipment picture
TV shipments can be directly related to the changes in TV panel prices. The worldwide softness in TV shipments in 1Q quashed a TV panel price increase, and led to lower panel prices in April and May. The regional shipment picture shows some unusual relationships to the pandemic. In most regions, a surge in COVID-19 cases has been associated with weaker TV sales.
May shipments totaled 13.3 million, down just 1 percent YoY after 2 months of double-digit YoY percent declines in March and April. YTD May shipments are down 11 percent YoY at 61.4 million units. Looking at the YoY change by region, the shipment picture improved in every region.
Shipments were particularly strong in North America as well as Eastern Europe, respectively. China, which was hit hard by the pandemic in January and February, recorded the first YoY increase of 2020 in May. Western Europe and Latin America remain weak spots for TV shipments.
In the current scenario, TV shipments have improved from their pandemic-induced 1Q swoon. With this type of positive correlation, a recovery in Western Europe is anticipated as the number of new cases has fallen there, and China shipments are also expected to improve. North America remains an exception to the pattern, with YoY shipments increasing in April and May, even while the number of cases remained high.
In particular, Vizio, which has traditionally centered its sales strategy on the North American market, is expected to increase its TV shipment this year by 17.6 percent YoY. In addition, TCL and Hisense, which have been aggressively expanding their overseas market shares in recent years, remained undaunted by the pandemic and saw increased shipments against the downtrend by maintaining extremely cost-effective and comprehensive product lineups.
On the other hand, given the overall weakened global shipment in 1H20 and the aggressive effort at capturing market shares by Chinese brands and Vizio, the shipment performances of Japanese brands and minor brands in the second/third tiers plummeted from bad to worse.
LCD prices up and OLED production back to normal
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. The price of 32-inch LCD TV open cell panels rebounded by 6 percent MoM to USD 35 in June as a result.
In 1Q21, global supply of 8G or higher-generation LCD panels is set to fall 9.7 percent QoQ in terms of total area, with Samsung Display to discontinue LCD production from 2021. LCD TV panel prices should thus continue upward through the end of the year.
OLED TV panel production is now in full swing, with the OLED TV panel line in Guangzhou finally running at normal capacity after a year of delay. 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, and 12 million units in 2025.
Meanwhile, among global TV manufacturers, the number of TV makers in the OLED group is on the steady rise. In particular, four more companies–Vizio of the United States, Sharp of Japan, and Huawei and Xiaomi of China–have joined the OLED group this year, elevating the number of OLED group members to 19.
Japan and Taiwan seem to be at a standstill. Taiwanese panel manufacturers have turned their emphasis away from fab construction in recent years. As they have been effectively adjusting their current panel capacities, Taiwanese manufacturers are no longer looking to maximize their shipments as the primary goal. Case in point, Innolux’s management strategy is chiefly focused on product profitability, which involves limiting its supply of small-sized (such as 21.5-inch) monitor panels and raising their prices, as well as adjusting its production allocation of various application types, including TV panels, notebook computer panels, and monitor panels. Also benefitting from SDC’s exodus is AUO. The company is expected to see a strong panel demand from redirected orders for curved VA monitors in 2H20. Furthermore, with the cyclical peak sales season in the European and American markets occurring at the end of 2020, the corresponding panel shortage is projected to serve as an upward momentum for AUO’s panel prices. With TCL and BOE taking a dominant position in large-area LCD production, Samsung dominating the small/medium OLED market, and LG the only OLED TV panel maker, there is little room for Japan and Taiwan. The only new fab coming on-line is a Gen 5.5 IJP OLED fab in Nomi. All other plans are either suspended or delayed. There is no room for entities that are at a standstill and the question which door they open–consolidation, acquisition, or non-existence.
After a long delay, LG Display’s Guangzhou plant in China has started volume production of Gen 8.5 OLED panels. The Guangzhou plant can process 60,000 glass substrates a month. It will raise LG Display’s production capacity to 130,000 glass sheets per month, including its Paju plant’s capacity of 70,000 units a month. The Guangzhou plant’s mass-production of OLED panels was delayed owing to low production yield and the spread of COVID-19.
The Guangzhou OLED panel plant will produce 48-, 55-, 65-, and 77-inch OLED panels with high resolutions. By maximizing the production capacities of its plants in Paju of Korea and Guangzhou in China, LG Display will be able to produce more than 10 million OLED TV panels per year, helping it strengthen its profitability through economies of scale.
Since announcing its plan to invest in QD technology in October 2019, Samsung Display has partially removed L8 manufacturing line for LCD screens for TVs and recently completed construction of clean rooms for QD lines. With the installation of Gen 8.5 vapor deposition machinery as a start, Samsung Display plans to complete the QD manufacturing line within this year and kick in commercial production next year.
The transition from LCD to QD is a strategic decision by Samsung Display to tackle the premium TV market in the coming years. The LCD market is now inundated with cost-effective Chinese products that erode business profitability, whereas QD is rising as the next-generation technology for high-definition TVs.
China-based panel maker China Star Optoelectronics Technology (CSOT) has decided to invest in Japan-based JOLED, in a bid to develop inkjet printing technology for production of OLED TV panels in the next 3 years.
CSOT and its China-based joint venture Guangdong Juhua Printed Display Technology showcased a jointly developed 31-inch flexible Full HD inkjet printing OLED display at 2020 CES. Of Chinese display panel makers, CSOT is the most active in developing inkjet printing OLED panels.
TCL seems to be the winner in the sale of CEC Panda’s LCD assets, and is doing due diligence on Samsung’s Suzhou, China Gen 8.5 LCD fab, which Samsung, will close by the end of this year. The Suzhou fab has an existing contract with the local government (30% ownership) that obligates it to run the fab until the end of 2022, which means Samsung (60% ownership) would either have to continue producing at the fab, likely at reduced levels, or transfer ownership, with the latter being the better solution.
TCL already has a 10-percent stake in the fab through a ChinaStar entity, and would likely strike a deal with Samsung that dedicated panel supply to its possibly former owner. TCL could wind up with both Panda and Samsung LCD assets, pitting it against BOE. Samsung will then become a buyer of large-size LCD panels, a direction it has been heading toward for over a year.
Innolux, AU Optronics, and Sharp will have to contend with Chinese competition and will continue to work toward reducing their focus on generic TV panel product that will compete directly with Chinese panel producers.
TCL is establishing itself as a formidable player in the LCD space, and while panel producers try to stake out claims on various display segments and push to develop new ones, the Chinese will have fulfilled their goal of becoming the ruling entity in the LCD displays space. Over the next year, this will likely be an enviable position and panel pricing will no longer be influenced by South Korean panel producers, other than from the demand side.
However, if panel pricing continues to increase over the next few quarters, there is a good chance it will choke off TV set production as margins are squeezed at the set level. If Chinese panel producers (and their respective government representatives) decide that share is still important, competition between Mainland suppliers could lower panel prices, and prove the TCL plan less effective.
One factory is not enough for North America. During the turn of this century, the display industry was driven out of North America by an emphasis on the next-best cheapest display. Sourcing at the lowest cost became the supply chain mantra.
Companies like Westinghouse, where the active matrix was invented, Electrohome, Zenith, and RCA gave way to Sony, Toshiba, Sharp, and Panasonic. As even lower-cost venues were sought LG, Samsung, AUO, and Innolux entered the market.
Today China dominates the LCD market with companies like BOE, CSOT, HKC, and CEC Panda. As Samsung and LG pioneered the OLED segment, China’s panel makers adopted the technology and will soon have >50 percent of the total capacity. There is not a single display manufacturer in North America.
While there are still a few specialized players like Kopin and eMagin that focus on micro OLED displays, but on a larger scale there is no one. The challenge is not just to rely on a one-off factory as per the Foxconn gesture, but to build an entire industry to support the end-product being a display.
TV brands are stepping up their panel procurement efforts in 3Q20 to raise their market shares, and to reach their yearly shipment targets, in turn driving up TV panel prices as well. As quotes for 55-inch panels in July 2020 return to July 2019 levels, they are now 25–30 percent higher than their low point at the end of the last year.
However, regarding the unit retail prices of branded TVs, prices for 55-inch UHD models in the North American market in June fell by more than 30 percent YoY, while there was a noticeable surge of sales discounts and promotions for high-end models.
Despite the proactive push by TV brands in 3Q20, skyrocketing panel prices mean the balancing act between shipment volumes and profit margins will remain an unavoidable challenge facing TV brands.
Total shipment of TV brands in 2020 is expected to reach a mere 214.11 million units, a 1.7 percent decrease YoY, but a 4 percent increase from the previous forecast in March, during which the outbreak’s spread was at its most aggressive. This increase in forecasted yearly shipment suggests that the stay-at-home economy generated by the pandemic is consistently gaining momentum. TVJ Bureau