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Central Government of China Could Nationalize Some Display Fabs
April 05, 2020
These are strange times encapsulated up by the sobering words from Kristalina Georgieva, managing director of the IMF: “Never in the history of the IMF have we witnessed the world economy coming to a standstill...it is way worse than the global financial crisis.” So it is not surprising that some recent trends worth noting include: 1) the possibility of China’s panel manufacturing industry falling under the control of the central government due to reorganization (converted into an oligopolistic structure centered on BOE and CSOT); 2) the closing of all Samsung Display’s LCD plants in Korea (T7: 180K units; T8: 250K units); and 3) the possible sale (potentially to a Chinese firm) of Samsung Display’s Suzhou G8 plant (130K units; Samsung Display would thereby fully retreat from the LCD business). 4) LG Display announced in January 2020 that it will end its LCD TV panel production in South Korea by the end of 2020.
These changes would result in a roughly 10% decrease in global production capacity, an increase in the market share of Chinese manufacturers, and further progress towards a large LCD panel oligopoly. The panel supply/demand balance would, depending on improvements and demand, again tighten, and prices would once more rise; panel makers could possibly secure a stable 5%–10% operating margin. The beneficiaries would be China’s BOE and CSOT, Taiwan’s AUO and Innolux, and finally Sakai Display Products (includes SIO International Guangzhou).
However, the rise in panel prices as the TV market shrinks would be hard for TV brands to accept. As a result, both panel manufacturers and TV brands would begin to sell only those models that are profitable, as volumes fail to keep up—which means that shrinking market volumes would shrink that much faster. Whether the monetary size of the market can be maintained would depend on a transition to larger screens, 8K, OLED, QD 2.0 or other new technologies. What is increasingly certain at this point is that the market could shrink faster on a volume basis than previously expected, which is a negative development for large LCD component manufacturers on the whole.
The transition to OLED panels was expected to progress even for larger models. However, there are three counter points: 1) sales of OLED TVs are struggling (outside of Japan) due to their widening gap with LCD TVs; 2) the deteriorating financial strength of market expansion driver LG Display (aggressive price reductions are difficult for the company; despite its plans to invest in a G10.5 factory, there is a risk of a delay); 3) Samsung Display, which is investing in QD 1.0 (QD-OLEDs; for G8 30k units) and contributing to the expansion of the OLED TV market, has not made any decisions regarding its investments from Phase 2, which now looks like QD2.0 with GaN nanorods.. If the transition to OLED takes time, the LCD camp would have the position to compete with OLED by employing mini LED backlights to strengthen their cost competitiveness. Even μLED makers, which currently struggle to secure cost competitiveness in TVs under 100” in size, would gain some time to strengthen their development capabilities.
Prices of large LCD panels mainly used in TVs (except ultra-large sizes such as 75” panels) rose in the first three months of the year. 32” HD panels were below $30 in December but rose to $35–$37, due to supply-side disruptions, namely:
TV brands have been unable to conduct production as planned since February, due to
Panel manufacturers will be forced to cut back on operations (thereby resulting in lower component demand) as the supply- demand balance for large LCD panels reverses itself and prices fall from April. Combined TV panel sales of 226m for the LCD and OLED market (a slight Y/Y increase), could result in double-digit declines to below 200m. Assuming the spread of the outbreak subsides, market sales should bounce back to 210m–220m in 2021. However, the demand (i.e. replacement demand) that disappeared this year will be gone for good. In the medium/long term, the TV market could gradually shrink as the era of owning both a TV and PC (monitor) slows to an end.
Short-term risks to this outlook include another major impact on LCD panel production from supply-chain disruptions all over the world, with end-user demand for TVs declining. Even as panel demand from TV brands decreases panel makers may not produce enough panels anyway. There is also the prospect of large-scale restrictions on inflows of people and goods into countries (especially China) and the impact could crimp logistics networks (e.g., decreased flights).
April 05, 2020
These are strange times encapsulated up by the sobering words from Kristalina Georgieva, managing director of the IMF: “Never in the history of the IMF have we witnessed the world economy coming to a standstill...it is way worse than the global financial crisis.” So it is not surprising that some recent trends worth noting include: 1) the possibility of China’s panel manufacturing industry falling under the control of the central government due to reorganization (converted into an oligopolistic structure centered on BOE and CSOT); 2) the closing of all Samsung Display’s LCD plants in Korea (T7: 180K units; T8: 250K units); and 3) the possible sale (potentially to a Chinese firm) of Samsung Display’s Suzhou G8 plant (130K units; Samsung Display would thereby fully retreat from the LCD business). 4) LG Display announced in January 2020 that it will end its LCD TV panel production in South Korea by the end of 2020.
These changes would result in a roughly 10% decrease in global production capacity, an increase in the market share of Chinese manufacturers, and further progress towards a large LCD panel oligopoly. The panel supply/demand balance would, depending on improvements and demand, again tighten, and prices would once more rise; panel makers could possibly secure a stable 5%–10% operating margin. The beneficiaries would be China’s BOE and CSOT, Taiwan’s AUO and Innolux, and finally Sakai Display Products (includes SIO International Guangzhou).
However, the rise in panel prices as the TV market shrinks would be hard for TV brands to accept. As a result, both panel manufacturers and TV brands would begin to sell only those models that are profitable, as volumes fail to keep up—which means that shrinking market volumes would shrink that much faster. Whether the monetary size of the market can be maintained would depend on a transition to larger screens, 8K, OLED, QD 2.0 or other new technologies. What is increasingly certain at this point is that the market could shrink faster on a volume basis than previously expected, which is a negative development for large LCD component manufacturers on the whole.
The transition to OLED panels was expected to progress even for larger models. However, there are three counter points: 1) sales of OLED TVs are struggling (outside of Japan) due to their widening gap with LCD TVs; 2) the deteriorating financial strength of market expansion driver LG Display (aggressive price reductions are difficult for the company; despite its plans to invest in a G10.5 factory, there is a risk of a delay); 3) Samsung Display, which is investing in QD 1.0 (QD-OLEDs; for G8 30k units) and contributing to the expansion of the OLED TV market, has not made any decisions regarding its investments from Phase 2, which now looks like QD2.0 with GaN nanorods.. If the transition to OLED takes time, the LCD camp would have the position to compete with OLED by employing mini LED backlights to strengthen their cost competitiveness. Even μLED makers, which currently struggle to secure cost competitiveness in TVs under 100” in size, would gain some time to strengthen their development capabilities.
Prices of large LCD panels mainly used in TVs (except ultra-large sizes such as 75” panels) rose in the first three months of the year. 32” HD panels were below $30 in December but rose to $35–$37, due to supply-side disruptions, namely:
- Lower capacity owing to some factory closures LGD and SDC,
- Decreased distribution inventories following end-year sales in the US and China;
- A delay in mass production at BOE’s Wuhan B17 (G10.5) fab, which was in the middle of being set up, while demand rose for TV brand panels ahead of new model launches in the spring.
TV brands have been unable to conduct production as planned since February, due to
- Supply chain fragmentation in China led to shortages of metallic components such as power- source substrates and chassis, and accessories (remote controls, etc.)
- Operational halts and lower utilization have been unavoidable at plants in Malaysia, Thailand, India, and other countries.
- Southeast Asia, Europe, and the US have implemented various restrictions on movement and city lockdowns, while emerging market currencies have depreciated against the dollar.
Panel manufacturers will be forced to cut back on operations (thereby resulting in lower component demand) as the supply- demand balance for large LCD panels reverses itself and prices fall from April. Combined TV panel sales of 226m for the LCD and OLED market (a slight Y/Y increase), could result in double-digit declines to below 200m. Assuming the spread of the outbreak subsides, market sales should bounce back to 210m–220m in 2021. However, the demand (i.e. replacement demand) that disappeared this year will be gone for good. In the medium/long term, the TV market could gradually shrink as the era of owning both a TV and PC (monitor) slows to an end.
Short-term risks to this outlook include another major impact on LCD panel production from supply-chain disruptions all over the world, with end-user demand for TVs declining. Even as panel demand from TV brands decreases panel makers may not produce enough panels anyway. There is also the prospect of large-scale restrictions on inflows of people and goods into countries (especially China) and the impact could crimp logistics networks (e.g., decreased flights).
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