According to a report from MoneyDJ, citing the Reuters, as Chinese display manufacturers have been actively expanding their production capacity and aggressively capturing market share in recent years, it has raised concerns in the U.S. about potential dependence on China for a critical component in military technologies, posing significant security risks.

The Reuters referenced an upcoming report titled “Displays are the New Batteries,” by author Joe McReynolds, who emphasizes that displays are becoming increasingly crucial in computerized military equipment, including fighter jets and augmented reality systems that enable troops to overlay digital information on their battlefield view.

The Reuters pointed out that China’s subsidies for display manufacturers could drive competitors out of the market, potentially leaving the U.S. reliant on China. As a consequence, the market suggests that China’s display industry will be the next target of U.S. sanctions, as the report from MoneyDJ mentiond.

The rapid growth of China’s display industry is largely driven by significant subsidies from the Chinese government, which include low-interest loans, favorable tax rates, and discounted land purchases. It is estimated that these subsidies cover 50% to 70% of the costs associated with display factories, as the report from the Reuters pointed out.

According to the report from MoneyDJ, China has made significant national efforts to support its display industry, gradually surpassing South Korea, which has long dominated the industry.

Due to intense price competition from China, Samsung Display completely exited the LCD industry in June 2022, while LG Display shut down its South Korean LCD TV production line at the end of 2022, as indicated by the report in MoneyDJ.

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• [News] BOE Looking to Become OLED Panel Leader, Rumored to Have a 50% Capacity Expansion
• [News] BOE Reportedly Set to Close the Gap with Korea Competitors in OLED Panel Technology to One Year

(Photo credit: BOE)

As August arrives, the LED industry is once again witnessing price increases. Recently, 8 Chinese companies including MLS, Ruisheng Optoelectronics, Developer Microelectronics, Cailiang, BOE, and Skyworth announced adjustments in the prices of LED products. Among them, MLS, BOE, Skyworth, and Cailiang have already announced price hikes multiple times this year.

The price adjustments in August primarily cover lighting, display packaging, display driver ICs, display, and lighting products, with increases ranging from 5% to 15%.

Regarding the reasons for this round of price adjustments, all the manufacturers have cited continuous increases in upstream raw material prices. The cost of production remains disproportionate to the selling price of the products. In order to continue offering high-quality products and services and sustain the long-term health of the industry, the decision to raise product prices has been made.

(Photo credit: BOE)

According to TrendForce, based on the quarterly supply-demand ratio, the difference in supply and demand in 1Q22 rose by 4.9% to 8.9% compared with 4Q22, much higher than supply and demand equilibrium at 5%. However, since panel makers still had room to build up inventories and IT panel pricing was still at a profitable level when at equilibrium, there remained an upside to panel makers’ overall operating interest, so there was no operation adjustment at the time.

Whether TV panel demand or IT panel demand, the magnitude of corrections began to intensify in 2Q22. Since the production capacity of panel manufacturers continues trending towards growth, the supply-demand ratio is expected to widen to 11.8% and the severity of the imbalance is set to return to 2008 financial crisis levels. As TVs account for nearly 70-80% of LCD production capacity, LCD TV panel quotations have again dropped, falling to record lows. For example, 32-inch HD quotations have fallen to US$28 and 43-inch FHDs have fallen to US$55.

In light of this situation, panel manufacturers have begun looking for solutions. Other than reducing the cost of upstream materials, the most effective way to buoy pricing is to control output, so news of production cuts began to appear in 2Q22. According to research from TRI, in 2Q22, the LCD glass output area of panel makers’ large generational fabs fell by 3.3% compared with their original planning. At the same time, due to Samsung’s announcement of progressively strict procurement control, TV panel shipments are expected to be downgraded by 1.2% compared with original planning. Therefore, the supply-demand ratio will not change much as panel makers reduce production in an insignificant manner.

No peak in peak season, production reduction in 3Q22 set in stone, stocking momentum expected to pick up in 4Q22

Moving into July 2022, in the past, Q3 was traditionally the time for panel stocking. Originally, panel manufacturers expected the seasonal effect to stabilize or even produce a slight rebound in TV panel prices but the market did not react as positively as panel manufacturers believed. The world’s largest TV brand Samsung once again revised its TV panel purchases downward in 3Q22 from its original plan of 14 million units to 8-8.5 million units. Rumors that purchase volume was even less than 8 million units cannot be ruled out, again pressuring TV panel quotations which were already under pressure to keep from selling at a loss. This news can be considered the straw that broke the market’s back.

If production is not reduced, the supply-demand ratio in 3Q22 will remain on par with the ratio before production cuts in 2Q22 (11.8%). It is conceivable that if inventory from 2Q22 added, panel makers will not only face the risk of an inventory explosion, but also if the price drops again, it cannot be ruled out that all panel sizes will ship at a loss in 3Q22 because pricing has gradually approached Bom Cost. Therefore, some panel makers have begun to plan a large-scale reduction in capacity utilization in 3Q22.

HKC, CSOT, AUO, and Sharp, who count Samsung as their primary customer, are among the panel factories that will see a significant reduction in capacity utilization in 3Q22. Huike, CSOT, and AUO have all planned to greatly reduce production by 32%, 20%, and 25%, respectively, compared with their original plans for their factory campuses. Considering the high cost of its Japanese factory, Sharp needs to maintain a high utilization rate. The company only adjusted Guangzhou Gen10.5, with overall utilization rate expected at only 70-75%.

As the LCD industry bellwether, BOE is facing external resistance. Currently, there are no plans to significantly reduce the capacity utilization rate of its entire production line, with utilization adjustment only planned for the Fuqing (B10) Gen8.5, Chengdu (B19) Gen8.6+, and Hefei (B9) Gen10.5 factory campuses. Overall impact is expected to be 10-15%. CHOT plans to reduce its capacity utilization rate by 10-15% in 3Q22 compared with their original plans due to accumulating more than a month of inventory of their main product, 50-inch TV panels.

If panel makers really control production as suggested by rumors, the supply-demand ratio will have a chance to move to 6.4% in 3Q22. Although a point close to equilibrium cannot be achieved immediately, effective output control will prevent the market from deteriorating further and facilitate advantageous price movement to mitigate or even stabilize the downtrend.

If panel makers continue to control capacity utilization in 4Q22, the price of LCD TV panels is expected to fall into a sweet spot, international brands are expected to perform purchase volume adjustments in Q2 and early spring in 2023, and Chinese brands will also stock up ahead of schedule in 4Q22. Market conditions are expected to have a chance to improve in 4Q22, with a good start for 2023. Otherwise, market conditions will deteriorate again in 4Q22, which will not only cast a shadow on the beginning of 2023, but may also force some panel makes to shut down certain factory campuses due to unbearable losses.

（Image credit: Pixabay）

According to TrendForce research, after smartphone panel shipments peaked at 1.95 billion in 2018, overall shipments declined gradually year over year. After 2020, due to the impact of the COVID-19 pandemic, shipments fell sharply to 1.796 billion units. In 2021, as the pandemic festered along with serious shortages of components overall, downstream customers continued to raise inventories to allay possible risks of shortages, driving the scale of panel shipment upwards again to 1.888 billion units. Looking forward in 2022, as mobile phone shipments are expected to remain flat, overall smartphone panel shipments have the opportunity to maintain a similar level to that in 2021, reaching approximately 1.872 billion units, a decline of only approximately 0.9%.

Judging from the shipment scale of major panel makers, BOE has become the global leader in smartphone panel shipments and it has an opportunity to maintain a scale of 502 million panels in 2022. SDC ranks second and it is expected to grow to the level of 479 million units in 2022, of which all shipments are AMOLED panels. Third to fifth consist of Tianma Microelectronics, Innolux, and TCL. From the perspective of the previous five manufacturers, the three major panel manufacturers in China alone contributed approximately 52.1% of global smartphone panel shipments, meaning that China has become an important hub for the production of mobile phone-related components and assembly, followed by South Korea panel companies at 28.5%, Taiwanese panel companies at 10.5%, and Japanese panel companies at 8.9%.

The proportion of AMOLED panels is still growing in the mobile phone panel market. As a-Si LCD panels fulfill demand for the low-end entry-level market and LTPS LCD panels nestle between the two, the market is becoming increasingly crowded. From the perspective of AMOLED technology trends, in response to changes in mobile phone specifications, AMOLED is currently developing in the direction of power conservation and folding. Therefore, technologies such as LTPO backplane and COE form the key development directions of several major panel manufacturers at this stage. Excluding SDC , which maintains certain leading advantages and is the benchmark for other panel manufacturers, panel specification requirements required by brands such as Apple for the iPhone will also have a significant impact on the development direction of AMOLED panel specifications. At present, China’s production capacity is mainly based on flexible AMOLED panels, while SDC has invested resources in both rigid AMOLED and flexible AMOLED panels. According to the overall AMOLED panel shipment plan for 2022, shipment scale is expected to be approximately 703 million units, or 15.4% YoY.

In the past, LTPS panels were produced predominantly by Japanese panel manufacturers. In the early days, due to these companies’ close partnership with Apple, LTPS panels were primarily used in mid-to-high-end smartphone models, which also led to a wave of LTPS LCD production line expansion. However, as the technology matured, coupled with the successive rise of Chinese panel plants and the growth of Chinese mobile phone brands, the primary panel manufacturers in the overall LTPS LCD supply have gradually switched from Japanese to Chinese panel companies and prices and costs have also continued to improve and decline. Overall LTPS LCD panel factory shipments are forecast to reach approximately 494 million units in 2022, a YoY decline of 10.7%.

a-Si LCD panels were an important foundation in the development of the entire smartphone panel market. However, with the rise of LTPS LCD and the subsequent increase in AMOLED panel production capacity, a-Si panels have gradually retreated to the low-end entry-level mobile phone market. a-Si LCD is mainly based on the HD resolution and the bulk of supply still comes from Chinese panel manufacturers, of which BOE is the main panel supplier. It is worth mentioning, due to fierce competition in the low-end mobile phone panel market, most Japanese and Korean panel manufacturers have successively reduced their supply of a-Si panels. Among Taiwanese panel manufacturers, AUO has also continued to reduce the supply of its a-Si panels. Shipments of a-Si LCD panels in 2022 is forecast at approximately 675 million units, a decline of 7.0% YoY.

（Image credit: Unsplash）

The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce recently issued the latest Unverified List (UVL) which includes ChuZhou HKC Optoelectronics Technology Co., Ltd., according to TrendForce’s investigations. The announcement states that if U.S. suppliers wish to ship products to companies on the UVL, they can still submit documentation to obtain a shipping license. According to TrendForce’s understanding, the primary reason ChuZhou HKC is included on the UVL is that it plans to import panel-related analytical instruments from the United States in the near future, and actions taken by BIS are not indicative of the Chinese panel industry as a whole. Currently, ChuZhou HKC is in the process submitting proposals and negotiating with its U.S. material suppliers, thus TrendForce’s assessment is that there is no impact on the supply and shipment of ChuZhou HKC products for the time being.

It should be noted that according to TrendForce statistics, HKC’s Chuzhou plant will account for only 3.8% of global LCD panel capacity in 2022, which is a fairly insignificant share. However, this plant accounts for 30% of HKC’s own capacity, thereby playing a pivotal role in company production. The Chuzhou factory primarily produces TV panels and monitor panels, among which TV panels account for nearly 80% of the factory’s production. If the current ban cannot be resolved smoothly, it will impact shipments of HKC TV panels.

In addition, the glass substrates used in HKC’s Chuzhou factory are sourced from multiple glass substrate suppliers, with approximately 40% coming from Corning, a U.S. supplier. Since Corning localized it production according to the location of panel makers, it is not expected to be limited by the restrictions on the export of U.S. production to China enumerated on the UVL, but detailed regulations are still awaiting clarification. At present, the supply of materials has not been affected, HKC’s Chuzhou plant maintains normal operation, and its clients have yet to move panel procurement away from the Chuzhou production line.

For more information on reports and market data from TrendForce’s Department of Display Research, please click here, or email Ms. Vivie Liu from the Sales Department at vivieliu@trendforce.com