According to TrendForce’s analysis of the supply chain for display panels, demand slowed dramatically in 2Q22 and thereby caused inventory level to rise sharply for display driver ICs (DDIs) within a short period. However, the market for DDIs is in a notably better state now in 1Q23 following two to three quarters of price decline, reduction in wafer input, and inventory consumption. Moreover, the first quarter is the critical period when DDI suppliers set their wafer input quantities. In order to effectively meet the demand for 2H23, DDI suppliers will need to finish arranging orders with their foundry partners by the end of 1Q23.
Regarding the whole 2023, the general outlook on geopolitics and the global economy is still rather pessimistic. Also, panel demand is not expected to climb back to the peak that it reached before the emergence of the COVID-19 pandemic. However, TrendForce believes that since panel prices have pretty much hit the bottom, the panel market as a whole will recover gradually over the quarters. Later, with the arrival of the traditional peak season in 3Q23, demand is anticipated to rise significantly in the panel market. Hence, the corresponding demand for DDIs will rebound as well.
According to TrendForce’s investigation, inventory began to surge for DDI suppliers in 2Q22, extending to more than 6 months. DDI suppliers therefore had to immediately revise their wafer input quantities. Working panel makers, DDI suppliers were urgently seeking a solution to clear excess inventory. Turning to foundries, DDI suppliers were scaling back wafer input. Even under the consequences of recognizing their inventory losses or compensating foundries for not meeting the terms of their long-term agreements, DDI suppliers were steadfast in reducing their existing stocks so as to minimize the impact from the rapidly deteriorating market situation.
Based on TrendForce’s observations, DDI suppliers did manage to begin lowering their inventory levels. Although they found that the general pace of inventory reduction was slower than they had hoped, the traditional peak season together with holiday-related promotions around the end of 2022 helped clear a notable amount of excess stock. In case of DDIs for large-sized TV panels, a gradual return to an optimal inventory level is expected within 1Q23.
Regarding the general price trend of DDIs, it was on a slide through 2022.The cost pressure on DDI suppliers had been very heavy due to two major factors. First, foundries had earlier raised wafer prices in response to the pandemic-related chip shortage. Second, the demand freeze in 2Q22 caused an inventory pile-up. Despite this strong cost pressure, DDI suppliers were compelled to slash prices because of the massive demand correction and the collapse of panel prices. Hence, prices of DDIs fell by 5~10% for every quarter of 2022. Currently, prices of DDIs have returned to almost the level where they began their pandemic-induced rally in 2020. Apart from this, gross margin has also shrunk considerably for DDIs. In this situation, most DDI suppliers are still compelled to cut prices further even if their foundry partners opt to not make significant concessions on wafer quotes. In order to capture a steady flow of demand over the long run, DDI suppliers might even offer quotes that are below the market average for some transactions. On the other hand, the erosion of gross margin has become notable, so there is a limit to how far prices can go down.
TrendForce also points out that the lead time for DDI orders can extend to around three months. To meet a panel maker’s demand for a particular quarter, a DDI supplier will have to be ready to make the corresponding wafer input no later than at the start of the quarter before. Hence, a sudden shift in supply-demand dynamics is a potential issue that warrants consideration. Presently, DDI suppliers are sticking with a conservative wafer input plan because they still want further lower their inventories. At the same time, there are uncertainties as to the amount of demand that will be released in the future. So, there is a risk of delays in wafer input for DDIs if foundries do not set aside sufficient production capacity to process orders for these chips. After all, foundries could allocate more production capacity to other kinds of semiconductor components like power management ICs. Under such scenario, an influx of orders from panel makers could lead to tight supply or even shortage.
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