LCD fab utilization to recover, passing 90% mark in Q3
LCD fab utilization rates are projected to rise 3.2 percentage points from the same time last year and reach 90.2% in Q3, marking the first time since Q1 2015 that fab operation rates exceeded the 90% level.
The most important factor affecting the rise in LCD fab utilization rates is the increased demand for TV panels, which account for nearly 80% of large-LCD panel demand area. The surge in demand area, measured in square meters rather than in units, also stems from growth in the average size of TV panels as consumers continue to favor larger-sized TVs. TV panel demand area in Q3 2016 is expected to grow 9.4% compared to the previous quarter.
In a related development, TV manufacturers plan between July and September this year to expand both production volumes and related panel purchases in order to supply various retail channels with sufficient quantities of television units, in time for the year-end holiday selling season.
Also contributing to a rise in utilization rates for panel makers is the healthy inventory level for global displays. At the end of Q2, average LCD panel inventory level among panel makers was tight at 3.1 weeks, according to the latest IHS Markit Display Production and Inventory Tracker. During tight inventory, an increase in LCD panel demand area results in a rise in panel production. To be sure, there are still year-end market uncertainties that may affect panel makers' sales plans. However, the current healthy inventory level lessens the potential burden of excessive inventory caused by sales setbacks.
Finally, a drop in panel makers' production yield in 2016 is also contributing to the rise in fab utilization rates. This is because in the second half of 2016, TV set manufacturers plan to more actively apply to their new releases for 2016 new technologies like higher resolution, curved screens and ultra-thin form factors. Such moves will lead a drop in the yield because of the complexity of the newer technologies involved, inversely causing an increase in display fab utilization rates based on the same production area.
Meanwhile, the tight fab capacity among panel manufacturers in light of stronger LCD panel demand will lead to a rise in panel prices in Q3. Higher panel prices are expected to continue in Q4, in which both LCD panel area demand and supply capacity are expected to remain unchanged from the previous three months. The price of LCD TV panels is forecast to remain the same as the previous quarter, or increase slightly, especially for panels sized 50 inches or smaller.
David Hsieh is Director of Analysis & Research within the IHS Markit Technology group
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