According to the latest investigations by the WitsView research division of TrendForce, as panel demand begins to rebound in 2Q20, panel quotes are expected to stabilize as a result. Therefore, panel makers are projected to see improved revenues in spite of the limited magnitude of cost reduction for upstream panel components in 2Q20.
TrendForce indicates that TV panel prices underwent a significant wave of rebound in 1Q20, but the onset of COVID-19 led to disappointing shipment performances afterwards. In addition to declining revenues, panel makers’ operating cost per square meter increased due to their declining panel shipment by area. As a result, several panel makers saw QoQ declines in their operating margins in 1Q20.
Starting from early 2Q20, IT brands gradually increased their panel orders to meet the rising demand from WFH and distance education, subsequently driving up a strong demand for IT panels. As Europe and the U.S. reopen economic activities later on in 2Q20, TV brands have also begun replenishing their inventories, steadily raising the overall demand for panels. In turn, upstream panel component suppliers were able to limit the degree of QoQ price drops for components in 2Q20. For instance, glass substrate and polarizer prices fell by under 1.5%, while DDI prices dropped by about 1% only. The minor drop in DDI prices took place mainly because 8-inch wafer fabs’ 0.1Xµm process node capacities were at maximum capacity utilization, in turn crowding out the production capacity for driver ICs and resulting in a tight DDI and PMIC supply situation. Although the magnitude of cost reductions from components is limited, as panel makers post QoQ increases in their panel shipment by area, they are expected to lower their operating cost per square meter, meaning panel makers may still be able to lower their cash costs. TrendForce forecasts a 2.5-2.8% decrease QoQ in TV panel cash costs and a 2.9-3.2% decrease QoQ in IT panel cash costs in 2Q20. With regards to 65-inch TV panels, their average cash costs may fall to as low as US$160, which is close to their quoted levels.
In the post-COVID era, adjusting product mixes and preparing for new business models will be keys to Taiwanese panel makers’ survival
As Korean panel makers gradually reduce their LCD production capacities, and Chinese panel makers finish their investments in large-sized panel fabs, the panel market may potentially see a drastic transformation. Given Taiwanese panel makers’ inferior production capacity relative to their Chinese counterparts, and the fact that the latter are quickly closing in on the former in terms of technology, Taiwanese panel makers will need to overhaul their product mix and business models. Furthermore, since their TV panels are not cost-competitive compared to Chinese ones, Taiwanese panel makers may instead allocate their small-sized panel fabs into R&D for new technology and increase their output of industrial automation, medical, automotive, and public display panels, to be strategically adjusted going forward. On the other hand, these panel makers can allocate their Gen 6 and Gen 7.5 fabs for manufacturing IT products. In order to better adjust their IT product mixes, Taiwanese panel makers need to expand their production capacity for panels with wide viewing angles and increase their CAPEX in equipment for photo-alignment and thin glass substrates.
In an era of massive IoT deployment, the display screen remains a crucial interface for communicating data, but the display industry is expected to move towards an ecosystem of low quantity and high variety, which applies to panels including Mini LED/Micro LED, video wall panels, automotive display panels, specialized medical and industrial-use display panels, among others, meaning it is increasingly difficult for panel makers to profit from economies of scale, which had been the industry’s traditional business model. As such, Innolux and AUO have recently spun off their niche business units, which subsequently became independent companies specializing in sales and design while looking for new sources of venture capital in the capital market. This move allows Innolux and AUO to focus on production and manufacturing, as well as on improving their existing business models.