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Did large-area TFT LCD revenues hit bottom in February?

Thu, 03/27/2014 - 11:16am
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The large area TFT LCD industry is going through the darkest period in several years, as measured by monthly revenues. Data from the most recent Monthly TFT LCD Shipment Database indicates that February large area (9 inches and larger) TFT LCD revenues fell below $5B for the first time in over three years, declining 3% M/M and 13% Y/Y.

Source: Monthly TFT LCD Shipment Database

There are several factors impacting the large area TFT LCD industry at this time. First, there is a seasonal element constraining monthly shipments. February is the time many manufacturing sites in China close for Chinese New Year, and the time off reduced production and shipments. More concerning is the decline in monitor and notebook PC panel demand, which have been ongoing. At the same time, tablet PC panel shipment and pricing are under pressure due to a slowdown in demand in early 2014. Also, with the market balance shifting to tightness, some panel makers are clearing out inventories, but through discounting, which has a negative impact on revenues.

This leads to a broader issue of panel price decline. Large area TFT LCD panel prices have been falling since 2013. As shown in the figure, panel prices have fallen continuously for the past 12 months and in double digits Y/Y every month since September. This has a direct, negative impact on panel revenues. However, in January and February there was a halt in the rate of decline.

Source: Monthly TFT LCD Shipment Database

Given all this, will things keep getting worse, or was February the bottom of this supply-demand cycle? We are expecting recovery to begin over the next few months. As we recently commented, some LCD TV panels are in shortage. We expect several positive trends over the next several months.

First, panel makers will continue to convert production to new products, such as reducing 32” production and increasing larger sizes such as 40”+ or 65”, while increasing production of 4K panels. They will also continue to develop new process technologies for 4K, wide color gamut, curved form factor, and other panels, as well as processes such as copper electrodes for the reduction of line resistance, and techniques for ultra-high aperture ratio such as color filter and black matrix on array (these and other approaches are described in our TFT LCD Process Roadmap Report), and are increasing capacity dedicated to these new processes in order to upgrade product performance and/or reduce costs. Both of these factors will have the effect of constraining panel supply.

Second, the May Labor Holiday in China, as well as increasing demand from emerging countries, will encourage leading brands like Samsung, LGE, and Sony, as well as Chinese brands, to place more panel orders. Chinese brands are stepping into overseas markets with lower cost products, working to increase their brand awareness. This also encourages them to build panel inventories. While there are still existing inventories, changes in product mix and TV brand strategies will encourage more panel orders.

As a result, panel makers will start to ask for price increases, especially on the tight models like 32” or even 40”/42”. Some small TV brands will have to accept the panel price increase in order to secure allocations. The panel price increase in Q2’14 will not be big, and probably won’t represent an overall rebound, but it will be a sign of recovery for panel makers. So, we can expect large area TFT LCD revenues to start recovering in March.

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