The deadline to enter the OTT Awards has been extended to 27 September 2019. Our own Maria Rua Aguete will be serv… https://t.co/hGCftLCclO
Various factors to affect TV panel pricing in first half
As IHS Markit forecasts in the Large Area Display Price Tracker, TV panel prices will continue to fall in Q1 2018 before stabilizing in Q2. However, the fall will be small compared to the steep drop in H2 2017 because of a more balanced supply and demand during this time.
Even so, TV makers are expressing optimism about the 2018 market in anticipation of a strong TV replacement cycle. The hope is that consumers will purchase LCD TVs given their lower retail prices and the popularity of increasingly large TV screens.
The market's difficulties started in June 2017 after a long and painful collapse in TV panel prices, translating into pain for all supply chain players, from panel manufacturers and TV set makers, to TV brands and OEMs. Falling panel prices mean a drop in the TV-set business, and the difficulty in predicting how low prices could go only serves to aggravate an already challenging and uncertain situation.
Yet there are many signs that the market is once again on the mend and improving, with panel prices projected to stabilize and increase. There are even expectations of a tight market in Q2, despite worries about new capacity in China involving the ramping up of two Gen 8.6 fabs and one Gen 10.5 fab.
The various factors influencing TV panel prices for the first half of 2018 are discussed in greater detail in the following sections below.
Q1 a slow season for panel purchases
Uncertainty about Q1 2018 has made TV makers sensitive to supply chain dynamics. Initial surveys had shown some TV brands to be cautiously optimistic, forecasting Q1 panel demand to be similar to-or slightly higher than-what was seen during the same time in 2017. But Q1 this year has proven to be slow, after all, in keeping with the traditional movement of the market at this time of the year.
As a result, China's top six TV makers are now projecting a decline of 16% in their panel-purchasing volume compared to levels in the previous quarter. Moving forward, their confidence in the market will depend on how their negotiations with panel makers turn out, with TV manufacturers hoping they can continue driving consumer sales through more attractive TV prices and features.
New LCD TV capacity coming in Q1
BOE officially launched its B9 Gen 10.5 fab (2940 × 3370 mm) located in Hefei in December 2017, after hosting a grand ceremony to launch 65‑inch panels. BOE intends to use the Gen 10.5 only for the 65‑inch, with no other panel photomasks prepared for the Gen 10.5.
Just the same, doubts remain about how BOE will be able to smoothly ramp up the giant glass-substrate fab. For one, the Gen 10.5 substrate can produce 65‑inch panels 8-up, which amounts to approximately 90,000 substrates per month. Volume like that could add some 7 million 65‑inch TVs to the global supply of 65-inch sets-a tremendous impact on that market, to be sure. And even if the Gen 10.5 fab ramps up well, BOE-being a newcomer to the 65-inch space-must stay flexible with its open cell price for the company's 65-inch sets to be designed-in.
New LCD fab capacity will also be coming from two other new fabs within the China Electronics Corp. (CEC) group, both enjoying government support. These are the oxide TFT LCD Gen 8.6+ (2290 × 2620 mm) fab of CEC Panda in Chengdu; and the a-Si TFT LCD Gen 8.6 (2250 × 2600 mm) fab of CEC Caihong Optoelectronics Technology (CHOT) in Xianyang.
The CHOT fab will start with the 50 inch, and then it will go into production for the 32 inch, 58-inch, and 65-inch. For its part, the Chengdu fab will start with the 50‑inch, after which it will branch out to include the 58‑inch. Both locations are scheduled to go into mass production beginning in April 2018.
While the 50‑inch panel market is facing some oversupply, and panel makers like Innolux and AUO carry panel inventory looking forward to sales, the new 50‑inch supply from China will affect panel prices in the next couple of months.
TV OEMs remain cautious
TV brands and OEMs with a clear seasonal demand pattern in the global market are negotiating with panel makers to lower panel prices more aggressively in Q1 and Q2 2018. They expect seasonally weak demand to either pressure panel makers- especially those that plan to keep fabs at high production in Q1-or to push back scheduled fab maintenance. However, panel makers have not agreed to offer more price concessions, so the situation is currently at a stalemate.
Just the same, some panel prices may hit bottom in Q1, and these TV makers remain cautious about refilling panels since prices are still on a downward trend, in line with expected market behavior during the first quarter of every year.
Panel makers are carrying inventory but aren't reducing capacity utilization
According to the Display Production and Inventory Tracker, panel maker inventories soared in Q4 2017 because of two reasons: the decrease in TV panel shipments, as well as continued capacity utilization. Some panel makers are holding very high inventories of the 50‑inch, at some 1.8-2.0 million units, which is likely to put intense pressure on similar sizes over the next couple of months. Some TV makers expect price cuts for the 50‑inch in Q1 2018 because panel makers will need to clear inventory before the market is able to change.
Despite the drop in TV panel pricing in H2 2017, panel makers continue to enjoy small profits or at least break even, depending on their product offerings. This is one reason why they do not want to reduce capacity utilization, which would jeopardize profitability and cost.
And because they did not cut capacity, some panel makers then slashed prices on the 40‑ and 43‑inch in October and November 2017 for strategic customers, aimed at keeping their inventory low. As a result, panel demand has recovered somewhat, even though TV makers remain cautious about adding panel inventory because panel prices are still on a downward trend.
If panel prices for the 40‑ and 43‑inch fall below $100, panel makers will likely lower the priority in production of these sizes. Yet some TV makers sense that supply for the two sizes may suffer constraints in 2018, especially since some market demand for the 32‑inch is shifting back to the 40‑inch class.
For 65‑inch TV panels, price reductions were significant in Q3 2017. Aggressive pricing continued in Q4, with TV makers continuing at that time to ask for price concessions. Seasonal demand for the 65‑inch is driven by lower prices and promotions, and brands that take advantage of those benefits become more favorably situated to sell larger, feature-rich TVs. As a result, some panel makers had no intention to lower prices by much on 65‑inch panels during late Q4 2017 and in Q1 2018. This means that 65‑inch inventories remain mostly with TV set makers.
Foxconn Sharp continues growing its TV business
Foxconn's aggressive targets have been challenging for Chinese TV makers. The company altered the 2017 competitive landscape in China, and it will affect the 2018 global landscape. Foxconn Sharp will miss its very aggressive stretch shipment target for the Sky Tiger project in China in 2017, but it will achieve the still-impressive baseline target of close to 10 million total global shipments in 2017. Last October in China, Foxconn launched another captive brand, InFocus, featuring sizes from Innolux (32-, 40-, and 50‑inch) with an aggressive shipment target of 600K for 2018. While Sharp grows its TV shipments in China, other TV and internet brands in China are losing momentum.
In its initial plans for 2018, Foxconn had wanted to put more resources toward growing market share in Asia Pacific while also penetrating Europe and entering the North America market. However, the manufacturer recently decided to upsize its business plans for China while scaling back in 2018 on expanding its market share in other regions.
Foxconn Sharp has been aggressive with retailers in China, offering them Sharp TVs on credit to be paid after they are sold to consumers. It is also offering more competitive prices to retailers, putting intense pressure on Chinese top-tier TV brands.
The sales performance of the Sky Tiger project has been good in China in 2017, leading Foxconn Sharp to expand market share in China in 2018. Its latest December business plan increased the 2018 shipment target in China to over 9.5 million units, which would effectively double the volume of shipments from the estimated 4.8 million at the end of 2017. Foxconn has also designated a target for InFocus of 2.5 million units in China for 2018, which would set the LCD TV business plan in 2018 of Foxconn Sky Tiger at 12 million in the country-a demonstration of the astonishing ambition of Foxconn to lead the TV business in China. By adding shipment targets for other regions, the stretch business plan of Foxconn expects its captive brands-Sharp and InFocus-to ship about a total of 19 million units in 2018.
While Foxconn Sharp continues to negotiate with Hisense to return the brand licensing for Sharp, our research shows that Foxconn has a new strategy for accessing the North America market via new brands that will launch during 2018. These will include:
- Flying Eagle (65- and 70‑inch) with embedded Amazon Fire TV
- InFocus (50-, 60-, and 65‑inch), likely with Roku
To achieve its aggressive shipment target, about half of the shipments will use Innolux TV panels. This could mean a big win for Innolux in 2018.
Samsung Display, LG Display face insufficient Gen 8 (Gen 8.5) capacity
Panel makers in South Korea foresee insufficient capacity in H1 2018, especially for Gen 8.5. LG Display converted some Gen 8 capacity to OLED, which led to a reduction in its TFT LCD capacity.
The next two sections describe the effects of demand and remodeling that are affecting the ability of Samsung and LG Display to provide enough panels. In turn, this has brought about more demand but less supply.
Samsung Display, LG Display face good panel demand in Q1 2018
Demand in H1 2018 for TV panels is looking good and is improving, even as panel makers Samsung Display and LG Display almost experienced a loss in December 2017 because of the crash in panel pricing during H2 2017. Korean panel makers have since indicated that demand for their panels in H1 2018 will be better than initially expected. According to the current monthly demand forecast, good demand in January and February demand is helping to mitigate the effects of a traditionally slow season at the start of every year. On top of that, the market is then expected to recover in March and April. Samsung Display is receiving stable and sustainable orders from Samsung Visual Display, based on the agreement between the two for 2018. Samsung Visual Display makes products like smart TVs, as well as B2B displays for the hospitality industry and for settings that require large-format displays.
Korean panel makers intend to stabilize panel prices for H1 2018 so that they can return to profitability. They hope to stabilize 32‑ and 55‑inch panel prices from December to Q1 2018, even though some panel makers reportedly have excess 40‑ and 50‑inch inventory, which will drive prices down in the first quarter. And while Korean panel makers do not intend to follow the trend by others in the industry of lowering 50‑inch prices, they plan to stabilize 49‑inch prices. This is because demand for Korean-made 55-inch UHD panels is improving. As a result, Korean makers are inclined to reduce production of the 49‑inch in favor of the 55‑inch, if the former faces price pressure from the 50‑inch.
Meanwhile, 55‑inch demand from China, Europe, and Asia is improving, and many set makers and system integrators are requesting more panels from LG Display.
Korean fab remodeling in Q1 2018 will curb capacity
Korean panel makers will begin remodeling their Gen 8 lines in Q1 2018, a move that may reduce supply:
- With the Phase 1 remodeling of Samsung Display's Gen 8 fab in Suzhou, China, the fab will switch from making 49- and 55‑inch to producing more 65+32‑inch multi-model glass (MMG). Production of the 49‑ and 55‑inch will move to Korean L8.
- The Samsung Display T7 fab remodel will enable the company to make more 75‑inch panels. The plan is to increase 75‑inch production in the L7-2 fab, and reduce production of other sizes.
- The LG Display P7 fab will increase production of the 75‑inch, with the fab remodeled for u-IPS-type panels. The photo alignment process to be used is projected to produce better contrast ratio and response times.
- The LG Display Guangzhou Gen 8 fab will produce more 65+32‑inch, so new exposure machines will be installed.
TV brands stay conservative while BOE's Gen 10.5 fab ramps up
BOE had its Gen 10.5 "lighting up" ceremony back in December-showing samples (65‑inch/75‑inch 60 Hz/120 Hz 8K) to major clients It invited many customers, such as Samsung, LG, Sony, Vizio, Skyworth, Konka, Hisense, Changhong, TPV, Xiaomi, and Haier.
Korean panel makers, however, have a conservative take as to how fast BOE will be able to ramp up its Gen 10.5 fab and influence 65‑inch supply/demand. They believe it will take longer, counter to the claims of BOE, because of issues relating to IPS rubbing and ultra-large glass substrates.
Meanwhile, both Korean brands have 65‑inch UHD panel inventory, so Samsung and LG are not in a hurry to use a new supplier. Still, the process of qualification by BOE could change priorities for the Korean giants.
Restructuring of older fabs expected
As Chinese capacity keeps ramping up, pressure also grows to restructure the old fabs. More Gen 5-and-below fabs-along with Gen 5 fabs in Korea, Taiwan, and Japan-are planned for restructuring or shutdown.
However, a greater impact on the market occurs in the event of a restructuring by big fabs, like Gen 7 or Gen 8. People remember how Samsung Display's restructuring plan for its L7-1 fab during Q4 2017 influenced supply/demand as early as H1 2016, with companies taking preemptive measures months before the restructuring began.
At present, there are many rumors running wild about large-generation fabs supposedly in line for restructuring this year, which likely will influence panel prices.
International sports events to stimulate the market
As described in the "Display industry 2017 summary and 2018 outlook," sports events stimulate demand for larger TVs. There are two events of note in 2018: the Winter Olympics in South Korea, and the FIFA World Cup in Russia.
The TV display supply chain is expected to prepare for World Cup TV promotions in the latter part of Q1 2018. TV makers will want to drive larger-sized TV shipments, but adoption of larger sizes in Europe is slower than in North America and China. There is still good demand for sizes below 50‑inch, so TV makers will need to secure a competitive supply base for smaller sizes like 23.6- and 32‑inch to catch potential incremental World Cup demand.
For their part, global top-tier TV brands are likely to focus on larger sizes (over 55‑inch UHD). Chinese brands TCL and Hisense are World Cup sponsors, so promotion and marketing tied to the event will stimulate the Chinese market as well.
TV replacement cycle to start anew
Some TV makers believe that a new TV replacement cycle is beginning to kick in again; the last significant growth in the TV market was in 2009-10. At that time, TV shipments rose 10% in 2009 and 21% in 2010 from their year-ago levels.
Replacement cycles in the television market range from 7 to 10 years, which means a new replacement cycle could start this year.
The replacement market will be driven by changes on several fronts: from FHD to UHD, 4K to 8K, smaller to larger TVs, and high-end LCD to high-end OLED.
David Hsieh is Research & Analysis Director within the IHS Technology Group at IHS Markit
Posted 16 March 2018
- Dark mode will be the new driver for AMOLED panels in smartphone applications
- Deploying the Factory of the Future to solve production problems of the present
- Know the limitations of your machine
- IoT devices evolve as transformative technologies like AI and 5G converge
- Where are the robots? The wait for mission-critical IoT and massive IoT
- With its latest flagship smartphones, Huawei affirms continued support of AMOLED
- Bright prospects for both photovoltaics and battery storage
- Transformative technologies will cause considerable disruption in business and industry
RELATED INDUSTRIES & TOPICS
The deadline to enter the OTT Awards has been extended to 27 September 2019. Our own Maria Rua Aguete will be serv… https://t.co/7Q5WowMrI1