A V-shaped recovery is in the charts for 3Q20. Panel manufacturers will likely consolidate in advance via capacity reduction, M&A, or fab acquisitions, leading to a more comprehensive and well-integrated panel industry going forward.
The flat panel display market is starting to recover after a period of oversupply and lackluster growth, fueled by new technologies as well as more people working from home. The flat panel display market is complex. Several different technologies are at play, such as LCDs and OLEDs for TV screens and other products.
For the flat panel market as a whole, 2019 was a tough year. Oversupply caused prices to drop, which in turn sparked some major changes in the landscape. Two South Korean suppliers, LG Display and Samsung Display are retreating from the low-margin LCD business to focus on higher-end display technologies. Meanwhile, China-based suppliers have been building up a massive amount of fab capacity, with plans to dominate several sub-segments in the arena.
2020 has turned out to be another gloomy year as the COVID-19 pandemic struck. A large segment of the population was (and is still) forced to work at home disrupting the world’s economies. If there is a silver lining, the work-at-home economy is fueling demand for televisions and IT products, thereby jumpstarting the display market.
In the meantime, the industry is expected to experience a V shape recovery for 2021. Flat panel display area demand growth will increase by 9.5 percent in 2021. Capital spending for displays also appears to be a bright spot, which is welcome news for flat panel display equipment suppliers. There is a continuing investment in large panels for TVs.
Many vendors are developing new display technologies for the so-called advanced TVs and other products. Two other segments—microLEDs and miniLEDs—also are hot markets at present.
A ray of hope shines over 3Q20
TV panel prices have been maintaining their upswing in August, with 55-inch panels and 32-inch panels each registering price hikes of about 10 percent, according to TrendForce. Most panel manufacturers are, thus, expected to make a rebound out of the seven consecutive quarterly losses they had previously suffered and finally turn a profit, in either August or September. As such, the panel industry is projected to make a significant improvement in terms of profitability in 3Q20.
TV panel quotes are almost entirely dictated by panel manufacturers at the moment. In particular, 55-inch panels and 32-inch panels, which are both made in Gen 8.5 fabs, have been the star performers among various panel sizes by posting the highest price hikes in August.
As well, given the strong demand for 43-inch panels, all three panel sizes planned to implement price hikes of about 10 percent in August. Other panel sizes, 50-inch, 65-inch, and 75-inch panels, are expected to record price hikes of 8–10 percent, 5–7 percent, and 1–2 percent, respectively.
While the shortage of TV panels has resulted in the recent surge in panel prices in 3Q20, the demand for panels can be attributed to two factors. First, almost all TV brands have been stepping up their panel procurement efforts to prepare for increased retail sales in 2H20; this procurement momentum is projected to last until October.
Second, TV brands, including Samsung, TCL, and Hisense, have been increasingly favoring the strategy of obtaining competitive advantages by expanding their market shares. This strategy involves a more aggressive shipment of TVs in order to cannibalize competitors’ market shares, further contributing to the overall procurement momentum of TV panels.
With regards to the supply side of the panel industry, because of the consistently high demand for IT panels, manufacturers’ panel capacities have been remaining relatively tight, meaning panel manufacturers may raise TV panel prices as much as possible without worrying about having to digest possible excess capacity. Such a market condition essentially allows manufacturers to raise panel quotes while increasing production levels at an extremely slow and gradual pace.
TrendForce forecasts an 11 percent glut ratio between panel suppliers and purchasers in 3Q20, a far lower figure than the average of 20 percent and also the lowest quarterly glut ratio since the start of 2017. This 11 percent ratio accurately indicates the fact that panel prices made a rebound from rock bottom due to the overall shortage of panels.
Strong TV demand pushing LCD TV panel prices up
Robust TV demand, combined with capacity reductions by the Korean panel makers, is leading to LCD TV panel price increases in 3Q, which will improve the profitability for panel makers who rely on TV panels. Display Supply Chain Consultants (DSCC) forecasts double-digit percent increases for some TV sizes in 3Q20 compared to 2Q.
There have been several inflection points already this year. Prices hit all-time lows in 4Q19, but the industry saw a brief price bump in 1Q after the two Korean panel makers announced capacity cuts. That price increase was cut short by the COVID-19 pandemic, and fears of a demand slowdown, so 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. Starting in June, there was another price bump, bringing prices above their recent high points of 1Q20, to prices last seen in the summer of 2019.
In the current scenario, prices are expected to increase in 3Q for all sizes of TV panels except 75-inch, with double-digit percent gains in sizes from 32-inch to 55-inch. Although the long-term downward trend will resume in 4Q, and that TV panel prices will hit new all-time lows in 1Q21, the situation remains dynamic, and with the pandemic raging it seems like an eternity between now and the end of the year.
Many variables surrounding the pandemic, the global economy, and political unrest could affect the outcome. There may be another panel price increase starting in 2Q21, based on demand related to the Tokyo Olympics, if they continue to be held as currently planned.
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 37 per square meter in August but has closed from more than USD 50 per square meter at the beginning of the year.
The current price gap represents a 25 percent area price premium for 75-inch over 65-inch. Viewed another way, Gen 10.5 fabs can generate USD 1752 of revenue per substrate making 75-inch panels 6-up at August prices, compared to USD 1408 of revenue making 65-inch panels 8-up or USD 1350 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 the sharpest price increases in times of supply constraint, and the pattern is repeating itself in 2Q and 3Q. In May 2020, 32-inch panel prices matched their all-time lows, but these panels will get an 18 percent increase QoQ in 3Q, before falling again in 4Q.
After the industry recognized an average TV panel price increase of 4.6 percent QoQ in 1Q, and a QoQ price decline of 3.4 percent in 2Q, the prices are expected to increase in 3Q20 by an average of 9.1 percent QoQ. However, the average increase in sizes between 32-inch and 55-inch is substantially larger at 11.7 percent, while 65-inch is expected to get a 6 percent price increase QoQ and 75-inch to see a 1 percent price decline.
In 4Q, all TV panel sizes are expected to get a price decrease, ranging from 2 percent to 5 percent depending on size, with an average of 4.5 percent, but this would still leave 4Q LCD TV panel prices higher than those in 2Q20.
LG Display is expected to experience a positive swing QoQ and YoY in 3Q20, turning profitable for the first time in 7 months. The turnaround in earnings should be attributable to increases in 32-inch (+24% QoQ) and 55-inch (+15% QoQ) LCD TV open cell panel prices; KRW 241 billion QoQ decline in operating loss from the POLED panel business; and ramp-up of the new OLED TV panel line in Guangzhou.
With OLED TV sales projected to grow vigorously, and with LCD margins slim (in a good year), it is not surprising that LG Display (LGD) wants to expand its production. That expansion hinges on building a new plant. The opening of LGD’s Gen 8.5 AMOLED plant in Guangzhou has been repeatedly delayed by regulatory and technical problems. But late in July LGD announced the beginning of mass-production in earnest. Large-size OLED business is the essential growth engine of LG Display for the future.
Samsung Display Corporation’s (SDC) position is weakening due to Chinese companies’ LCD price war and increased investment in small and medium-sized OLEDs. Although SDC announced that it will invest 13.1 trillion won to develop quantum dot (QD) displays by 2025 and widen its gap with followers, it is facing a tough situation. It invested 1.62 trillion won in production facilities in 1H20, double the 802.9 billion won it invested in the same period of 2019. Yet the amount fell short of expectations.
The company’s facility investment has been on a sharp decline over the past 3 years. Assuming that the investment trend in 1H20 will continue in 2H, the company’s full-year facility investment is expected to stay around three trillion won, similar to the investment level in 2018. The decline in facility investment is attributable to China’s LCD price war. Samsung Electronics will not adopt QD displays. This deepens Samsung Display’s woes. As LG Display (LGD) is currently the only company in the world that mass-produces OLED panels for TVs, Samsung Display will be able to divide the OLED panel market with LG Display when it mass-produces QD display panels.
Samsung Electronics, on the other hand, has yet to give a definite answer on whether it will adopt a QD display or not. Samsung Electronics is discussing parts supply with companies such as Sana, Epistar, and Lextar to produce micro LED TVs. Even if Samsung Display mass-produces QD displays in 2021 as planned, it may not be able to supply its products to Samsung Electronics, its parent company.
BOE and CSOT have strategically adjusted their Gen 8.5 production lines by shifting some production capacities from TV panels to monitor panels instead. At the same time, the COVID-19 pandemic generated a massive demand for WFH and distance learning, leading to an increase in IT product shipments. As a result of these developments, the market share of Chinese panel manufacturers rose to 38 percent in 1H20.
BOE began mass producing TV panels at its second Gen 10.5 fab in Wuhan while strategically shifting some of its Gen 8.5 production capacity from TV panel manufacturing to monitor panel manufacturing, in turn allowing the company to ride the momentum of the pandemic-induced stay-at-home economy. And, CSOT has moved closer to achieving its goal of becoming the world’s top TV panel maker in 2023 after the parent company TCL signed a deal to acquire Samsung Display’s LCD plant in Suzhou for USD 1.08 billion.
Taiwan large-size panel shipments will ride high in 3Q20. Taiwan’s shipments of large-size panels (excluding Sharp’s) are expected to grow 6.7 percent sequentially in 3Q20 after registering a robust growth in the previous quarter, according to Digitimes Research. However, 4Q will see a sequential 4.6 percent drop in shipments, which nevertheless will represent an on-year rise of 10.8 percent. 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 TV, NB, and monitor panels. The company now expects TV screen shipments to increase in 3Q because of stimulus measures taken by different countries to boost their economies amid the pandemic and the launching of promotional campaigns by TV brands. AU Optronics (AUO) has registered NTD 22.9 billion (USD 778.61 million) as its consolidated revenue for July, up 6 percent on month and 3.9 percent on year.
Clearly, the flat panel display market is dynamic. Despite the innovations, it is up to the consumer to decide what sticks. The screen quality is just one factor. As before, it often comes down to the prevailing factor–price. Higher prices, combined with robust volumes, will definitely improve the profitability picture for panel makers in 3Q.
A V-shaped recovery is expected in 3Q20. Omdia expects global demand for TVs to increase 21.8 percent QoQ to 55.6 million units in 3Q20. However, actual demand could surpass that projection, driving up the price of 32-inch LCD TV open cell panels by 17.3 percent QoQ to USD 40.7 in 3Q20 as a result. Panel manufacturers will likely consolidate in advance via capacity reduction, M&A, or fab acquisitions, leading to a more comprehensive and well-integrated panel industry going forward. TVJ Bureau