What Display Daily thinks: If the panel makers make good on a two week hiatus during Lunar New Year in early 2024 then you should expect a display industry recovery to be pushed back in even further than anticipated.
The downside to all of this is that panel makers are going to hold back investment, cut costs, and still hold their breath waiting for a uptick in demand while holding on to top prices. Not a good time for the industry or growth.
But, it is a good time for opportunism. It’s like watching a flock of birds circle the sky. You know where they all are, and you know where they are all going. That’s a good time to go in the opposite direction. What that means is less clear because the bright spots in the market, automotive and smartphones, are both experiencing a deflation of enthusiasm from the early part of this year.
If you take the viewpoints of TrendForce and DSCC on LCD fab utilization, you can probably arrive at a point where rates may drop close to 60% with the likelihood that you con’t see any significant uptick until at least Q3’24. And judging by depreciation values, Chinese panel makers have a lot of flexibility to strategize around.
That means Chinese manufacturers are going to start looking to hunt in the OLED market and premium display space (good news for bargain buyers), MicroLED startups are going to find it hard to get traction, distracted as the industry may be with more pressing concerns (good news for Samsung and LG because they can continue with their own agendas and developments), and materials suppliers are going to keep prices high because, they’ll need some way of balancing out lower shipments of supplies (good news for people who have to listen in on UDC investor conferences and anyone at Nanosys with shares and earn outs post-acquisition).
So, you may think it’s nice to get two extra weeks of holiday in the New Year, but you won’t be able to enjoy it because of the angst. At least not if you’re working in this industry. Happy New Year, everybody. Maybe save that one for 2025.
LCD Panel Makers Adjust Production Amid Slowing Demand
Major LCD panel manufacturers are reducing production capacity in Q4’23 and into early 2024 amid signs of slowing demand, according to a new report by TrendForce. The market research firm forecasts Gen5+ LCD panel utilization rates to fall by 9.2 percentage points QoQ to 72.2% in Q4.
| Manufacturer | Q3’23 Utilization | Q4’23 Forecast | Change |
|---|---|---|---|
| BOE | 79% | 72% | -7% |
| TCL CSOT | 93% | 76% | -17% |
| HKC | 86% | 72% | -14% |
| AUO | 93% | 79% | -14% |
| Innolux | 89% | 85% | -4% |
Leading Chinese manufacturer BOE began trimming production in Q3 and will reduce utilization by around 7 percentage points in Q4. Meanwhile, rival TCL CSOT maintained high output in Q3 2022 thanks to stockpiling by major customers and its new T9 line ramp-up. But with slower TV panel orders, TCL CSOT plans to cut utilization about 17 points to 76% in Q4.
HKC, which still has excess capacity, aims to lower output 14 points, primarily by reducing production of 32-inch TV panels amid rising inventory pressure. HKC also faces slowing orders for LCD monitor panels.
Among Taiwanese firms, AUO is reducing output of lower-margin products by around 14 percentage points. Innolux plans a 4 point utilization drop in Q4 due to one fab shutdown.
With peak holiday stockpiling finished by November 2023, the market has entered slower off-season demand. Panel makers are now taking a conservative stance on production plans for Q1’24. Additionally, several manufacturers intend two-week Lunar New Year shutdowns in early 2024 to maintain supply-demand balance.
The production cutbacks aim to prevent losses, excessive inventory and weak pricing as LCD market growth moderates. Panel makers hope to stabilize the industry headed into 2023 after pandemic-driven volatility.
Chinese Panel Makers and Depreciation
Omdia’s Robin Wu shared a timeline of the recent depreciation of Chinese display fabs which comes in handy here. Chinese panel makers have invested heavily in LCD fabs over the past decade, with 8 Gen 8.5, 8 Gen 8.6, and 4 Gen 10.5 fabs. They typically depreciate fabs over 7 years. Depreciation costs make up an important part of manufacturing costs early on, around 20-25% for a 32″ HD TV panel. Higher utilization ratios lead to lower depreciation costs per panel.
Many of the Gen 8.5 and Gen 10.5 fabs in China are nearing the end of their depreciation schedules over the next 1-2 years. When fabs are fully depreciated, panel makers can adjust utilization more freely without worrying about depreciation costs. This could lead to more flexible production and potential for severe price competition.
Production control will remain important for panel makers in coming years with high capacity and weak demand. The end of depreciation gives more freedom but also risk of oversupply and price drops without discipline.
