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Large Panel ASPs Creep Up, But a Drop in TV Demand is on the Horizon
May 04, 2020
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. For example, 32” HD panels were below $30 in December but rose to $35–$37, due to supply-side disruptions, namely: 1) lower capacity owing to some factory closures by South Korean companies from 2H 2019; 2) decreased distribution inventories following end-year sales in the US and China; and 3) the spread of the Covid-19 outbreak caused 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 the following: 1) supply chain fragmentation in China led to shortages of metallic components such as power- source substrates and chassis, and accessories (remote controls, etc.); and 2) operational halts and lower utilization have been unavoidable at plants in Malaysia, Thailand, India, and other countries. During this time, Southeast Asia, Europe, and the US have implemented various restrictions on movement and city lockdowns, while emerging market currencies have depreciated against the dollar. As a result, electronics product sales have fallen sharply in a lot of countries and regions in March. Distribution/brand inventories have actually risen. Korean producers (Samsung Electronics, LG Electronics), which felt only a light impact from Chinese supply chain fragmentation, have been forced to temporarily halt operation at plants in Eastern Europe due to a rapid increase in inventories. This situation will likely continue until at least Apr–Jun, and the cancellation/postponement of practically all major events such as the Olympics and Euro 2020 will probably lead to the continuation of end-user demand undershoots for flat panel TVs.
Panel makers will be forced to cut back on operations (reducing component demand) as the supply/demand balance for large LCD panels reverses itself and prices fall from April. Sales will likely drop by double-digits to below 200m (from 230m in 2019). Assuming the spread of the outbreak subsides, sales should bounce back to 210m–220m in 2021. However, replacement demand that disappeared this year will be gone for good. In the medium/long term, the TV market should gradually shrink as the era of owning both a TV and PC (monitor) gradually ends.
Some recent trends include:
These trends 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, tighten, and prices would once more rise; resulting in a stable 5%–10% operating margin. The beneficiaries of such would be China’s BOE and CSOT, Taiwan’s AUO and Innolux, and Sakai Display Products (includes SIO International Guangzhou). However, the decrease in supply will likely be offset by a countering decrease in demand, causing panel manufacturers and TV brands would begin to emphasize profitable models, which means that shrinking market volumes would shrink that much faster. The shift to 8K, OLED, μLED could exaggerate the effect.
Regarding large are OLEDs:
May 04, 2020
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. For example, 32” HD panels were below $30 in December but rose to $35–$37, due to supply-side disruptions, namely: 1) lower capacity owing to some factory closures by South Korean companies from 2H 2019; 2) decreased distribution inventories following end-year sales in the US and China; and 3) the spread of the Covid-19 outbreak caused 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 the following: 1) supply chain fragmentation in China led to shortages of metallic components such as power- source substrates and chassis, and accessories (remote controls, etc.); and 2) operational halts and lower utilization have been unavoidable at plants in Malaysia, Thailand, India, and other countries. During this time, Southeast Asia, Europe, and the US have implemented various restrictions on movement and city lockdowns, while emerging market currencies have depreciated against the dollar. As a result, electronics product sales have fallen sharply in a lot of countries and regions in March. Distribution/brand inventories have actually risen. Korean producers (Samsung Electronics, LG Electronics), which felt only a light impact from Chinese supply chain fragmentation, have been forced to temporarily halt operation at plants in Eastern Europe due to a rapid increase in inventories. This situation will likely continue until at least Apr–Jun, and the cancellation/postponement of practically all major events such as the Olympics and Euro 2020 will probably lead to the continuation of end-user demand undershoots for flat panel TVs.
Panel makers will be forced to cut back on operations (reducing component demand) as the supply/demand balance for large LCD panels reverses itself and prices fall from April. Sales will likely drop by double-digits to below 200m (from 230m in 2019). Assuming the spread of the outbreak subsides, sales should bounce back to 210m–220m in 2021. However, replacement demand that disappeared this year will be gone for good. In the medium/long term, the TV market should gradually shrink as the era of owning both a TV and PC (monitor) gradually ends.
Some recent trends include:
- the restructuring of China’s panel manufacturing industry under control of the central government due to reorganization (converted into an oligopolistic structure centered on BOE and CSOT);
- the possibility of all of Samsung Display’s LCD plants in Korea being closed (T7: 180K units; T8: 250K units);
- the 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).
These trends 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, tighten, and prices would once more rise; resulting in a stable 5%–10% operating margin. The beneficiaries of such would be China’s BOE and CSOT, Taiwan’s AUO and Innolux, and Sakai Display Products (includes SIO International Guangzhou). However, the decrease in supply will likely be offset by a countering decrease in demand, causing panel manufacturers and TV brands would begin to emphasize profitable models, which means that shrinking market volumes would shrink that much faster. The shift to 8K, OLED, μLED could exaggerate the effect.
Regarding large are OLEDs:
- Sales of OLED TVs are struggling (outside of Japan) due to their widening price gap with LCD TVs;
- The deteriorating financial strength of 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). LG Display reported 1Q FY12/20 sales of KRW4.724t (down 20% Y/Y, down 26% sequentially), GP of KRW278b (down 56% Y/Y, down 38% sequentially), an operating loss of KRW362b (wider loss Y/Y, narrower loss sequentially), and a net loss of KRW199b (wider loss Y/Y, narrower loss sequentially). The company booked an operating loss for the fifth straight quarter. It limited its 2Q guidance to general directions only, including projecting the following:
- a sequential drop in total shipments (surface-area basis);
- higher blended ASP due to a higher percentage of OLEDs and
- a roughly 10% shortfall in full-year shipments (volume basis) of OLED panels for TVs versus management’s previous target of 6m panels.
- Samsung Display, investment in QD-OLED display (QD 1.0) G8 30k units which will contribute to the expansion of the OLED TV market,
- The lack of a commitment by Samsung to Phase 2 of QD 1.0 or QD 2.0.
- If the transition to OLED takes time, the LCD camp would have time to position mini LED backlights to strengthen their cost competitiveness.
- μLED makers struggling to secure cost competitiveness in TVs under 100” in size, would gain some time to strengthen their development capabilities. From: Mizuho Securities
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