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）

Now that the chip shortage has persisted for more than half a year, markets and industries are closely monitoring whether chip demand is as strong as expected, or whether the current shortage is a mere mirage caused by overbooked orders from clients in fear of insufficient components.

At any rate, analyzing the current chip shortage entails doing so on both the supply and the demand ends. First of all, with regards to the demand for automotive chips, which has been in the spotlight for the past two quarters, automakers first began suffering from a shortage of automotive chips last year. This took place because automotive electronics suppliers, which had historically maintained a relatively low inventory level, slashed their chip orders placed at foundries ahead of other foundry clients at the onset of the coronavirus crisis in early 2020.

Hence, once automotive demand saw a sudden upturn later on, these automotive electronics suppliers found themselves unable to place additional orders at foundries, whose production capacities had by this time become fully loaded. Automotive chips subsequently began experiencing a shortage as a result.

At the same time, demand for CIS, DDI, and PMICs skyrocketed owing to the global 5G rollout and to the spike in demand for PCs and TVs caused by the proliferation of WFH. Given that foundries had already been experiencing fully loaded capacities across their mature technologies required for fabricating these chips, most clients had no choice but to resort to upping their volume of chip orders in orders to ensure that they are allocated sufficient foundry capacities.

Brands’ order placement strategies

On the other hand, several brands of electronic devices have been overbooking their chips to mitigate the risk of the chip shortage that began last year as well as the increased shipping times. These brands span the notebook computer, TV, and smartphone industries.

Of these three industries, smartphone brands have been overbooking foundry capacities due to the aforementioned expectation of chip shortage and most smartphone brands’ ongoing attempt to seize market shares left in Huawei’s wake. It should be pointed out that, however, in response to lackluster sales during the May 1^st Labor Day in China, most brands have now lowered their production targets.

Foundries, on the other hand, had already been experiencing fully loaded capacities due to high demand from various end devices. Hence, they were unable to reach the volume of orders that were overbooked by smartphone brands despite adjusting their product mixes and reallocating production capacities. As such, although smartphone brands have lowered their production targets, capacities across the foundry industry remain fully loaded.

“Brands are responding to the market situation by strategically procuring components. Even if they were to adjust their production targets, they could still adjust their purchases of raw materials and consumables. Actors in the supply chain are unlikely to rigorously examine the inventory levels of brands before any unexpected changes occur in either demand or material shortages”

Conversely, with regards to the notebook and TV industries, they had mostly experienced bullish demand in the past few quarters, meaning sales performances are mostly a non-issue. Their procurement efforts have thus been focused on taking stock of the supply of raw materials and consumables, and these efforts have been guided by a principle of stocking up on demand. This is in accordance with both the bullish sales and the expectations of the companies themselves.

Generally speaking, TV and notebook use the term of strategic stocking as an excuse to mitigate any doubts of rising inventory levels from market observers. For the supply chains of these industries, the current state of the market is primarily dictated by the demand side. Actors in the supply chain are unlikely to rigorously examine the inventory levels of brands before any unexpected changes occur in either demand or material shortages.

Taken together, the supply and demand situations of the notebook, smartphone, and TV markets, in addition to the capacity utilization rate of foundries, would seem to indicate that the inventory adjustments caused by overbooking is unlikely to taken place in the short run, contrary to the market’s fears. TrendForce currently expects the shortage of foundry capacities to persist at least until 1H22, only after which is the supply and demand situation in the semiconductor market like to gradually return to an equilibrium.

（Cover image source: Pixabay）

The stay-at-home economy brought about a soaring demand for TVs, which in turn resulted in a shortage of TV panels in 2H20, according to TrendForce. Also contributing to the bullish rebound of TV panel quotes last year was the fact that most panel manufacturers rapidly decreased their supply of TV panels around this time.

After the upturn of panel quotes kicked off in late 2Q20 and came to a temporary slowdown at the end of the year, this upward momentum once again intensified in mid 1Q21 without warning, and clients on the purchasing end were caught off guard as a result.

TV brands are now at the mercy of panel suppliers since panels are an irreplaceable component in the production of TV sets. Being unable to effectively address the shortage and price hike of TV panels during the current surge in TV sales, TV brands have no choice but to react by buying up TV panels as they become available, thereby further driving up prices of TV panels.

Upward trajectory of TV panel quotes will likely taper in 3Q21 after TV brands successfully retool their procurement strategies.

The movement of prices in the panel market suggests that TV panel quotes will most likely peak at the end of 2Q21, plateau throughout 3Q21, and face downward pressure caused by an expected easing of demand for TVs in 4Q21. Although fourth quarters have traditionally been peak seasons for TV sales, TrendForce expects such major seasonal discounts as Black Friday sales to be cancelled this year in light of persistently high panel prices. TV sales in 4Q21 are therefore expected to be relatively muted as well.

On the other hand, as more and more of the general public receive vaccines, recreational activities, at least in developed countries such as the US, are expected to gradually move from the confines of indoor environments to the great outdoors.

Should this transition take place, TV brands and distributors alike will conservatize their outlooks of TV sales and of safe inventory levels, respectively, with brands lowering their panel procurement and distributors performing appropriate inventory adjustments. TrendForce analysts expect that TV panel quotes will enter a bearish trend in 4Q21 and gradually return to a cyclical downturn in 1H22.

（Cover image source: Samsung Newsroom Taiwan）

As Samsung Display (SDC) decided to extend the manufacturing operations of its Korea-based Gen 8.5 LCD fab, and tier-two panel suppliers are still slow to reassign their production capacities from TV panels to IT panels, TrendForce expects total TV panel shipment for 2021 to reach 269 million units, which is relatively unchanged compared to 2020 levels. Panel suppliers will continue to focus on large-sized TV panels this year in response to several industry-wide developments, including M&A, reduced production capacities, improved manufacturing technologies, and increased panel demand. Furthermore, as the persistent price hike of TV panels continues to reduce the profit margins of TV sets, TV brands have started to gravitate towards larger, more profitable TV sizes. TrendForce therefore expects the average TV panel size this year to increase by 1.6 inches and move towards 50 inches.

TrendForce analyst Jeanette Chan indicates that the shift towards large-sized panels is an effective means of expending the production capacity of panel suppliers. Case in point, due to the limited production capacity for TV panels in 1H21, not only are TV panels currently in short supply, but TV panel prices are also on the rise. On the other hand, the demand for TV panels in 2H21 will depend on several key factors: first, whether the increased retail price of TV sets will hamper consumer demand; second, whether the pandemic will be effectively brought under control as more countries begin vaccinations; third, whether the impending global economic recovery will be a significant one. And finally, whether a market bubble will appear as a result of TV manufacturers’ overbooking panel orders in anticipation of potential hindrances including the price hike of materials in the upstream supply chain, the shortage of glass substrates due to such accidents as facility fires, the shortage of IC supply, and the extended shipping times.

Thanks to their persistently rising production capacity and successful acquisitions, China-based BOE and CSOT, the two largest panel suppliers in the world, are expected to collectively account for about 40% of total TV panel shipment this year. At the same time, BOE and CSOT are actively improving their technologies and making a push for high-end products, such as 8K, ZBD, and AM Mini LED. By leveraging their improved technologies and available funds, the two companies are likely to extend their operations upstream by systematically undertaking vertical integrations.

On the other hand, HKC, which is currently raising its production capacity, has garnered much attention in the market amidst the current shortage situation of TV panels. Along with its Changsha-based H5 fab, which is set to kick off mass production shortly, HKC possesses four Gen 8.6 fabs in total. By raising its production capacity and engaging in additional strategic partnerships with tier-one TV brands, HKC is expected to enter the top three ranking of panel suppliers by TV panel shipment for the first time ever, with a shipment of about 41.91 million units this year, a 33.7% increase YoY.

Taiwan-based AUO and Innolux are expected to experience YoY decreases in their shipments this year as their production capacities are relatively limited, although both companies’ efforts to optimize their products and engage in cross-industry partnerships have brought them certain competitive advantages. In particular, AUO is leading the panel industry in developing not only ultra-high-end products, such as 8K+ZBD, but also Micro LED displays, whereas Innolux holds competitive advantages in product diversity and in-house ODM services. It should be pointed out that these two Taiwanese companies are able to deal with the current IC shortage situation better than their competitors because their parent companies have longstanding business relationships with IC design companies.

With regards to Korean suppliers, although LGD and SDC have both prolonged their LCD manufacturing operations in Korea in order to satisfy the current bullish market demand, the two companies are primarily focusing on transitioning their offerings to new products. LGD will expand the OLED production capacity of its Guangzhou fab in 2Q21 as part of its effort to dominate the OLED market. As for SDC, the company has dropped out of the top six ranking this year as a result of its lowered production capacity. However, new TV sets featuring SDC’s QD-OLED panels are expected to officially hit the market in 4Q21, in turn driving SDC’s yearly TV panel shipment to 2 million units in 2022.

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

Among the various display technologies used for smartphones in 2021, AMOLED models are expected to account for a 39% penetration, thanks to smartphone brands’ increasing adoption of this technology, according to TrendForce’s latest investigations. In the entry-level and mid-range segments, the smartphone demand for a-Si LCD models remains strong, although this technology’s penetration rate is expected to undergo a slight decrease to 28%. On the other hand, LTPS LCD models are continuing to lose market share to competing technologies, resulting in a 33% penetration rate, while LTPS HD LCD models will occupy a growing share of this segment.

TrendForce indicates that smartphone brands’ procurement activities for components in 2H20 will persist throughout 2021 for two reasons: First, the industry on the whole expects demand for smartphones to ramp up considerably this year. Second, production capacities across the entire semiconductor supply chain have been tight, with some segments even showing severe shortage, thus prompting downstream clients such as smartphone brands to stock up on certain components in order to mitigate the potential risk associated with component shortages.

With regards to the development of smartphone display technologies, panel suppliers have been regaining client orders for rigid AMOLED panels through aggressive pricing since 2H20. Owing to increased adoption by smartphone brands this year, rigid AMOLED models are expected to maintain a strong market presence in the mid-range and premium mid-range segments. Flexible AMOLED models, on the other hand, will likely dominate the high-end and flagship segments. Going forward, AMOLED models will gradually cannibalize the market shares of LTPS LCD models in the mid-range and premium mid-range segments, in turn forcing LTPS LCD models into a lower price segment.

Market demand for entry-level and mid-range smartphones, especially for HD models, has remained strong since 2020, due to the impact of the COVID-19 pandemic. However, the supply of key components in these smartphones (including a-Si LCD panels as well as DDI and TDDI ICs) has been in shortage in light of the foundry industry’s tight production capacities. As prices of a-Si LCD panels and ICs spiked, panel suppliers saw this upturn as the perfect opportunity to fulfill the existing demand for a-Si products with LTPS products and in turn expend their production capacity for LTPD LCD panels. Smartphone brands began adopting a-Si HD and LTPS HD LCD panels interchangeably in an increasing number of models, thus giving TDDI ICs flexibility to be used in a greater number of compatible handsets.

At the moment, IC supply remains the greatest bottleneck in the overall smartphone supply chain; case in point, TDDI supply is tight to the point of shortage. TrendForce believes that two key factors will exert significant influence over the smartphone panel industry going forward: First, Chinese IC design companies are likely to obtain wafer input priorities in Chinese foundries thanks to government policies. These IC design companies may potentially experience considerable growth as a result and disrupt the predominant oligopoly of Taiwanese IC design companies in the smartphone panel market. Second, once the ongoing capacity expansion effort of Chinese foundries concludes, their additional production capacities will alleviate the current shortage of IC supplies, with IC prices subsequently entering a downward trajectory. As a result of lowered IC prices, the relationship between LTPS HD panels and a-Si HD panels will likely shift from complementary to competitive, with both product categories struggling for dominance in the HD smartphone model segment.

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