Hsieh Sees State of the Supply Chain

David Hsieh looks after the Chinese market for DisplaySearch and is also responsible for the panel supply data. Hsieh is always an interesting speaker and he started by talking about “Smart Displays”.

Hsieh defined Smart Displays as TVs, PCs and mobile phones with intelligence.

Revenues in the FPD market are growing because of improving ASPs in smart displays and this is mainly because of higher resolutions, which are really valued. In terms of size, TVs on a global basis have been increasing in size by around 1″ per year. The forecast is for 40″ to be the average by 2017 and this will be helped by UltraHD where a bigger screen looks better. As there was a lot of growth in 2008-2010 and because lifetimes of TVs are around 8 or 9 years, the next few years should see a good replacement market.

Supply and demand and the balance between them, is always critical in the industry. In 2014, growth in demand has been around 7.9%, but growth in supply is only around 4.5%, so there is some shortage. Next year will be more in balance, with around 6.5% growth in demand and around 6.8% boost in capacity. So the market could be difficult in 2015, because prices may remain firm with no opportunity for set makers to push prices down.

Comparing the panel shipments and set shipments, there has been a build up of inventory because of the growth in the number of sizes and models. Both Samsung and LG have very aggressive plans and may be able to dominate the market, although they will see real competition from Chinese brands. In the US, the Chinese brands have been taking more action to boost their shares. That will make it difficult for other players, such as Japanese brands.

So “How do you make money in TV?”, Hsieh asked. Both Chinese and Korean brands have been able to keep operating profit margin in the 2% — 5% range, while Japanese brands have been losing money.

The trend to high resolution is clear in every application from mobiles upwards. Smartphones are going to HD and FullHD and even WQHD in China, while by next year, UltraHD phones will be available in China.

73% of the high resolution panels have been purchased by Apple and they are the key influencer. The Chinese panel makers are investing heavily to be able to compete in the supply chain for smartphone displays.

OLED is Good for Tablets…

Tablets are following the same story and UltraHD and high quality colour, especially for OLEDs, will be important. From this year, Samsung has been pushing AMOLED, but panels are very expensive – more than $100, which is as much as the retail price of some tablets! However, by using an OLED, you can reduce the thickness of the whole set, which also means more space for the battery. As many as 5 million high end OLED tablets will ship in 2014. In the future, flexibility will be important for mobile applications and OLED has real advantages as this feature penetrates the market.

There has been a lot of interest in curved TVs. Samsung in the CityCube is promoting curve very strongly. Other brands have the feature, but are not promoting them to the same extent. Hsieh gave some arguments for curved TVs, although they were not all serious! Why is Samsung pushing it so strongly? Actually, the supply chain complication and technology is quite difficult and needs a lot of sophistication in the backlight design. Other makers may have trouble matching them, because they don’t have so much vertical integration as Samsung.

UltraHD vs OLED is a big discussion (and has been for a couple of years). The TV makers shipped about 1.5m UltraHD TVs (with 3m panels made) This year there will be around 17.4 m sets with UltraHD – around 9%. Eventually UltraHD will cost just around 20% more than FullHD. There has been a shift to RGBW in panels in China for UltraHD, especially from LG & Samsung and Hsieh said that it is not clear that RGBW will sell outside China.

Hsieh looked at the relative costs of different TV developments. He didn’t go into the relative advantages of OLED and LCD as “everyone knows it”.

… But Not for TV

LG is aggressive on OLED TV, but Samsung only had one OLED TV in the corner of its big booth in the CityCube.

End users have a strong performance preference in China according to LG’s research. However, OLED supply is limited. Hsieh said that the more you promote OLED on the basis of colour, the more sensitive you make the user. That may be helpful for the wide colour gamut LCDs. Quantum Dots are arriving and will allow LCD to compete with OLED for colour performance.

OLED performance in the market depends on the yield. At the moment, only LG is focusing on OLED and this may be difficult because in the past with LCD, many companies were working together, so there were more resources to overcome manufacturing difficulties.

Hsieh said that “many” consumers are returning TV sets because of light leakage from LCD on curved displays. It’s almost impossible to eliminate and this may be a big set back for curved LCDs.

So OLED is curved, and has advantages, but with UltraHD easier for LCDs, there will be a continuing nightmare for TV makers. All Chinese TV makers are showing OLEDs at IFA, but none are not shipping them in China. In the market, large 21:9 sets and curved displays may compete.

Turning to the supply chain, Hsieh said that there has been a big move to develop relationships in the supply chain. There are cross investments from TV makers into panel production as companies try to find ways to stop the problem that when panel makers make money, set makers lose money and vice versa.

Panel makers are getting more flexible in making different panel sizes, but TV makers need to think hard about their relationships to make sure that they have access to the right size panels, especially as supply will be tight for the next year.

Will we see a G10 fab in China? BOE has talked about a G10.5 plant and it is possible that the plant will be built.

Black Friday is the “crazy market” in the US. This year, the planning started earlier, in June. Promotional models will be available right up to 65″ – which was a premium segment not long ago.

Panel makers (especially LGD and Innolux) are looking to add more electronics to their panels. A “Module+” concept has been developed to add TV electronics and other features such as front covers and back covers as the chips get more capable and set design becomes easier.

It will be harder to differentiate sets made in this way, but costs may be better and time to market may be quicker.

The final goal is to make money. However in the last couple of years, the panel and set makers have been going in different directions. When one is winning, the other side is losing. Each part of the chain has to do what it can do best. Panel prices will be firm in the next couple of years, but there will be price competition in the markets, especially China, and that will make life even harder for set makers.

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In response to a question, Hsieh said that the Korean panel makers are around a year ahead of Taiwan, which is about a year ahead of the Chinese. The Taiwanese may be able to make some money in the next couple of years, which might allow them to invest again in panel production.