Restructuring of older display fabs, migration to larger-sized LCD TV panels, and business strategy adjustments are some of the factors prompting LCD TV panel manufacturers to set a conservative shipment goal of 258.4 million units in 2017, a 1.2 percent decline from 2016, according to IHS Markit.

“LCD TV panel unit shipments in 2016 are forecast to decline 5 percent on year-on-year basis with 261.6 million. Among the top six panel makers, BOE and China Star continue to make the largest contribution to the growth of TV panel shipments in 2016, helped by a shortage of 32-inch panels,” said Deborah Yang, director of display supply chain at IHS Markit.

However, this is not enough to offset declines in shipments from South Korean and Taiwanese panel makers, all of which are undergoing the process of moving to larger panel sizes, facing production yields issues, or experiencing drastic declines in demand for 23.6-inch panels.

LCD TV panel makers continue to remain cautious with their business plans going into 2017, even as the likes of BOE, Innolux, and China Star are contributing to new capacities. BOE’s shipments have shown positive growth in past years; however, the company is projecting a decline of 14 percent year-on-year in 2017 due to a production shift to larger panel sizes, in particular 43-inch and 55-inch displays, where production capacity will be shared with IT panels.

Instead of ramping up the current supply of TV panels, panel makers are now busy diversifying into larger-sized panels and other premium products, such as 4K panels. TV panel makers are planning to ship 63 million units of 4K panels in 2016, making up a 24 percent in UHD (ultra-high definition) penetration, and later to 86.4 million units in 2017, increasing their UHD penetration to 33 percent.

LG Display remains the world’s top maker of TV panels with a target of over 51 million unit shipments. Innolux will take the second-largest position with 46.6 million units. However, should Innolux decide to produce smaller-size TV panels as well as to utilize its relationship with Sharp’s fabs in Japan, its unit shipments could be expected to jump to 53 million, even eclipsing LG Display to gain the top spot.

HKC, a sizeable LCD TV OEM and ODM maker, which recently entered the LCD TV display market with backing from the Chinese government, represents a new vertical integration business model for the industry. 

While TV makers are suffering a profit loss, HKC’s vertical integration business model could prove that a certain level of profit can be maintained through in-house supply in spite of TV panel price fluctuations. However, the biggest challenge for HKC is whether it can overcome the technical challenge that comes with ramping up a brand new fab.

Increase in Area

FPD

However, demand for TV panels in terms of area is forecast to reach 143 million square meters in 2017, up 8 percent from 2016, contributing to a 6 percent growth in the overall display market, according to IHS Market. 

“Owing to the increase in average TV screen sizes demanded by consumers, TV panel makers will enjoy a high growth in display area demand despite sluggish growth in terms of quantity,” said Alex Kang, senior analyst of display research for IHS Markit, “The average TV panel size exceeded 

FPD

40 inches in 2016 for the first time ever, and it will increase further by 1.3 inches to reach 42.6 inches in 2017.”

TV panels accounted for about 70 percent of the entire display demand in terms of area in 2016, while IT panels, which include those for desktop monitors, notebooks and tablet PCs, made up 18 percent. In contrast, IT panel demand is expected to remain flat in 2017, while mobile phone display demand is expected to grow 10 percent to 14 million square meters during the same period.

Although the increase in the average smartphone screen size is propelling area demand for mobile phone displays, its impact on the entire display market should be minimal as mobile phones make up only 7 percent of the entire display market. 

Increase in Fab Utilization Rate 

The overall utilization rate at fabrication plants (fabs) used for display panel production is expected to reach 90 percent in the fourth quarter of 2016, up 7 percentage points from the same period in the previous year, and up 1 percentage point from the previous quarter, according to IHS Markit. 

One of the contributing factors for driving up the fab utilization rate is the sudden rise in demand for larger TV panels, notably in 2016, when the average area size of overall TV panels increased by 1.9 inches from the previous year, raising the unit area by about 10 percent. 

As a result, display panel makers are increasing the utilization rate of Gen 7 fabs and later Gen fabs, used mainly to produce TV panels, and can be expected to stay high in the fourth quarter of 2016 and beyond.

“Such a high utilization rate would suggest that these fabs are running at full loading, considering the remaining capacity is already allotted for test runs and maintenance. This increase in display panel area demand has allowed panel manufacturers to sustain inventory levels that are considered healthy, and has prevented a sharp drop in utilization rate this year,” said Alex Kang, senior analyst of display research at IHS Markit.

IHS Markit expects that panel manufacturers’ year-end panel inventory level will remain healthy at under four weeks. This will allow panel manufacturers to maintain a high utilization rate for a certain period of time regardless of demand fluctuations with sufficient space to pile up extra production stock. 

With a healthy inventory outlook, panel manufacturers are projected to reach a fab utilization rate of between 85 and 90 percent in the first quarter of 2017 after the year-end peak season, which is up by between 5 and 10 percentage points since the first quarter of 2016.

Surge in Capital Equipment Spending

Flat-panel display (FPD) equipment sales are expected to attain their highest sustained three-year level in the history of the industry. FPD equipment spending will rise 89 percent, hitting USD 12.9 billion in 2016. Increased spending levels will continue, reaching USD 13 billion in 2017, and then declining slightly to USD 11.8 billion in 2018, according to IHS Markit.

FPD

“Investments in new FPD factories had been trending upwards for the past several years as Chinese panel makers continue to relentlessly build new FPD factories to make the country the largest FPD-producing region in the world. In fact, China will surpass long-dominant South Korea in capacity share by the second quarter of 2017,” said Charles Annis, USD senior director at IHS Markit.

In addition to the substantial number of sixth-generation (Gen 6) and Gen 8 factories (fabs) being built in China, the two largest panel makers in the country, BOE and China Star, are rushing to construct Gen 10.5 fabs that process enormous glass substrates, targeting efficient production of 65-inch and 75-inch panels. FPD makers in South Korea and Japan have now started ceding the LCD market to producers of lower-cost displays in China. They are also starting to shutter their large-area LCD factories, to focus on active-matrix organic light-emitting diode (AMOLED) panel production, where they still have a technology edge. Declining capacity in other regions is now balancing supply and demand, which is further encouraging Chinese makers to press their advantage and build even more factories. China will account for 65 percent of all FPD equipment spending, on average, between 2016 and 2018.

The FPD industry is in the midst of an unprecedented and rapid display technology shift from LCD to AMOLED for mobile applications. Samsung Display has led this change to date with the success of its own AMOLED displays for Galaxy-based products and expansion of AMOLED panel sales to other smartphone makers looking to differentiate their products with high-end displays. Panel makers in South Korea and Japan are rushing to build new AMOLED fabs, so as not to miss out on the market shift. Chinese makers, backed by joint ventures with regional governments, are also building a large number of AMOLED factories, because they view AMOLED as a potential opportunity to upgrade from trailing-edge to leading-edge display manufacturing. 

Not only are there an extraordinary number of new FPD factories under construction, but many of the new factories are also some of the most expensive ever built. The Gen 10.5 factories have much more capacity, but capital costs are more than twice that of typical Gen 8 factories, due to the size of machines and unique facility requirements.

Almost all of the new AMOLED factories plan to produce flexible, plastic-based displays. Most of these new factories are adopting highly complicated, high-mask-count LTPS-TFT processes that require more high-resolution exposure lines and other supporting equipment. The new flexible AMOLED lines now under construction are almost 50 percent more expensive than the rigid AMOLED factories constructed only a few years ago. 

Moving Forward 

As TV panel shortages continue into 2017, top TV brands are currently reviewing plans to source yet more panels from their captive panel suppliers this year, according to IHS Markit. 

The world’s top TV makers – Samsung Electronics, LG Electronics, TCL and Sharp – are forecast to sharply increase panel orders from their respective panel suppliers, Samsung Display, LG Display, China Star, and Sharp (Foxconn) to 41 percent of all total orders in 2017 from 34 percent in 2016.

Increasing orders from the same captive supplier marks a different strategy from the previous two years, when top-tier brands such as Samsung Electronics and LG Electronics diversified their panel suppliers by sourcing orders from Chinese and Taiwanese panel makers, in part to become more cost competitive. In early 2016, they had planned to further lower panel orders from their main panel suppliers, but ongoing panel shortages had forced a rethink in their sourcing strategy.

“2016 was a very challenging year for TV makers due to panel supply shortages and the unexpected hike in panel prices, which eroded TV makers’ profit margins. Moving into 2017, there is still a concern that constraints in panel supply will continue, and this makes TV makers feel insecure about the stability of future supply. A recent decision made by Foxconn, which acquired Sharp in 2016, to stop supplying panels to Samsung Electronics in 2017 also fueled the concern,” said Deborah Yang, director of display supply chain at IHS Markit.

Choosing to hold their positions in the TV market as a top priority, top TV makers are more concerned about securing a stable panel supply above all else. They are expected to become more reliant on their captive panel suppliers than from other sources in 2017.

Sharp is expected to increase its orders the most from its captive panel supplier among all other TV makers from 36 percent in 2016 to 93 percent in 2017. Similarly, Samsung Electronics is also forecast to expand its panel purchases from its main supplier, Samsung Display, from 32 percent in 2016 to 39 percent in 2017, but the increase in orders could be constrained due to the panel maker’s planned cut in its TV panel capacity in 2017.

Sakai Display likely to suspend panel supply to Samsung. Just recently, Foxconn-owned Sharp reportedly halted the delivery of LCD TV panels to Samsung. According to Japan Times, the move from Sharp has been allegedly caused by the disagreement between Samsung and Sakai Display Products (LCD TV panels maker owned by Sharp) regarding the product price raise because the latter is reportedly having difficulties by offering lower prices on their products.

Furthermore, the decision was also caused by the extreme desire of Foxconn to go on a head-to-head battle with Samsung when it comes to selling LCD TVs in the market. According to Asian Nikkei Review, the Chairman of Foxconn Terry Gou has a long standing sense of rivalry with the South Korean tech firm; thus, halting the delivery of LCD TV panels to Samsung is an act of declaration of war.

However, many have doubted if Foxconn (Hon Hai) will beat the world’s leading TV maker of today’s generation. They are maybe excellent when it comes to contract manufacturing but their ability in dealing directly with the consumers where Samsung excels is still questionable.

Sharp is reportedly delivering 5 million LCD TV panels to Samsung and thus, cutting ties with Samsung means losing half of their revenue. Meanwhile, Sharp is said to focus on their Aquos-branded TVs and targets to doubles their sales by 10 million units for 2018.

Samsung is expected to turn to LG Display to fill-in for Sharp. 

2017 heralds growth

Stronger demand for large ultra-high definition (UHD) and 8K panels could slow declining average selling prices. Overall global display demand could also pick up after 2016, if the global economy improves as expected. Furthermore, as the demand for large TV panels rises, FPD shipment area is expected to grow at a compound annual growth rate of 5 percent, from 2015 to 2020.

 


This is What The World's First Fully Robotics Kitchen Looks Like