Vertical Divider
Large Area Shipments, Revenues and ASPs Expected to Peak at the End of 2021
Large area (L/A) panel’ revenue, shipments and prices have risen in an unprecedented fashion over the last 9 months. But like all crystal cycle events, the panel shortage is showing signs of ending. L/A supply-demand balance has remained extremely tight since 3Q 2020, but is now approaching a turning point, due to:
The supply-demand balance for 43” and smaller panels should begin to loosen at the start of Q321, and panel prices should decline, as panel makers allocate more production capacity to larger sizes (55” and larger) and products for which demand is strong (e.g., panels for notebooks and monitors). The following benchmarks gauge the degree of deterioration in supply-demand:
TV and PC brands have low inventories of both panels and finished products and will need to continue “stocking” panels ahead of the yearend and Lunar New Year shopping seasons, meaning final demand will not cool off suddenly and panel procurement activity is unlikely to ease up. If panel prices reverse course and head lower, brand-side panel demand might actually increase. For the rest of this year even with a supply- demand reversal, the risk of a price collapse (i.e., prices falling by half or more from peak levels) is not high.
Production capacity is expected to grow by 9.7%, 11.7% growth in maximum production volume (surface-area basis; does not account for input shortages), and 3.8% growth in demand, which points to a supply surplus. Given Samsung’s third postponement (to end-2022) of the scheduled closing of Samsung Display’s T8 line and various makers’ existing-plant capacity expansions (due to capex and lower mask counts), capacity could increase by around 11%, which implies a boost of production further. Achieving supply-demand equilibrium would likely require supply-side output reductions, either by Chinese suppliers (roughly 60% of overall LCD production capacity) reducing their capacity utilization or SDC and LG Display shuttering some LCD plants (G7.5/G8). Panel prices could fall less than 30% from peak levels, resulting in makers consistently earn double-digit operating margins.
Large area (L/A) panel’ revenue, shipments and prices have risen in an unprecedented fashion over the last 9 months. But like all crystal cycle events, the panel shortage is showing signs of ending. L/A supply-demand balance has remained extremely tight since 3Q 2020, but is now approaching a turning point, due to:
- Excessively high LCD panel prices (and their impact on demand. Prices for 32” panels have tripled from their June 2020 lows (now above price levels of seven years ago), rising $60.
- Retail prices in the US market, with a few exceptions, have risen by only $20–$50.
- Except for high-end brands, margins are inverted (negative), and because there is a roughly four-month time lag between the former and latter, retail prices (particularly for 55” and smaller sizes, which saw the sharpest price increases from 3Q 2020) will continue rising through the year-end shopping season.
- The US market saw robust 22% growth in 2020 thanks to tailwinds such as stay-at-home demand and the government’s stimulus checks, and strong growth has continued in 2021 as well.
- The price elasticity of demand in the US market is high, and as retail prices rise, demand particularly for 24”, 32”, 40”, and 43” models will likely decline.
The supply-demand balance for 43” and smaller panels should begin to loosen at the start of Q321, and panel prices should decline, as panel makers allocate more production capacity to larger sizes (55” and larger) and products for which demand is strong (e.g., panels for notebooks and monitors). The following benchmarks gauge the degree of deterioration in supply-demand:
- Sell-through trends and the trajectory of retail prices in the US (sustainability of stay-at-home consumption and the macro economy).
- The pace of decline in prices for TV panels:
- Change in prices for notebook and monitor panels
- Panel makers scaling back production
TV and PC brands have low inventories of both panels and finished products and will need to continue “stocking” panels ahead of the yearend and Lunar New Year shopping seasons, meaning final demand will not cool off suddenly and panel procurement activity is unlikely to ease up. If panel prices reverse course and head lower, brand-side panel demand might actually increase. For the rest of this year even with a supply- demand reversal, the risk of a price collapse (i.e., prices falling by half or more from peak levels) is not high.
Production capacity is expected to grow by 9.7%, 11.7% growth in maximum production volume (surface-area basis; does not account for input shortages), and 3.8% growth in demand, which points to a supply surplus. Given Samsung’s third postponement (to end-2022) of the scheduled closing of Samsung Display’s T8 line and various makers’ existing-plant capacity expansions (due to capex and lower mask counts), capacity could increase by around 11%, which implies a boost of production further. Achieving supply-demand equilibrium would likely require supply-side output reductions, either by Chinese suppliers (roughly 60% of overall LCD production capacity) reducing their capacity utilization or SDC and LG Display shuttering some LCD plants (G7.5/G8). Panel prices could fall less than 30% from peak levels, resulting in makers consistently earn double-digit operating margins.
The largest project is CSoT’s t9 plant (G8.6, 180,000 units), which was announced on 9 April (equipment orders just started) for IT applications, an area of weakness for CSoT. The fab will use IPS technology and seems to be a move to counter BOE. CSoT could take market share from Japanese, South Korean, and Taiwanese players. BOE (B17), SIO Guangzhou (SDP), and Innolux (G8.6) have plans to expand capacity. Last week, we reported that BOE is planning to build a 3rd Gen 10.5 fab for large size TV panels. In the OLED space, plans include LGD’s Guangzhou expansion and G10.5 investment, CSoT’s t8 plant, and phase 2 of SDC’s QD-OLED plant. The impact of lower LCD prices on free cash flow to fund those projects could cause some delays, particularly in LGD’s case. In China, Taijia and other players have plans to build LCD plants and procure used G7/G8 equipment/systems from South Korea and Japan, but in addition to financing hurdles, it is also possible that they will not receive approval from governmental authorities, they have not been included in the capacity assumptions.