The utilization rate of liquid crystal display (LCD) production fabrication plants (fabs) is expected to increase by 3.2 percentage points, year over year, in the third quarter of 2016. The LCD fab utilization rate is projected to reach 90.2 percent in the third quarter, marking the first time since the first quarter of 2015 that the fab operation rate will rise above 90 percent.
The most important factor affecting the rise in utilization rate is the increase in demand for TV panels. These panels account for about 80 percent of large LCD panel demand area, which is measured in square meters, rather than in units. The surge in demand area is also based on an increase in the average size of TV panels. TV panel demand area in the third quarter of 2016 is expected to increase by 9.4 percent compared to the previous quarter.
Between July and September of this year, TV set manufacturers plan to increase their production volume -- and related panel purchases -- to sufficiently supply various retail channels in time for the year-end holiday selling season.
The increase in panel makers’ utilization rate is also due to a healthy global display inventory level. As of the end of the second quarter of 2016, panel makers’ average LCD panel inventory level was tight (3.1 weeks), according to the latest IHS Markit Display Production and Inventory Tracker. When inventory is tight, an increase in LCD panel demand area results in a rise in panel production. Certainly, there are still year-end market uncertainties that may affect panel makers’ sales plans. However, the current healthy inventory level lessens the potential burden of excessive inventory caused by sales setbacks, despite panel makers’ high production plans.
The drop in panel makers’ production yield in 2016 is also contributing to the rise in the fab utilization rate. In the second half of 2016, TV set manufacturers plan to significantly expand the supply of new products. Some TV manufacturers are also expected to more actively apply new technologies to their new releases for 2016, to introduce higher resolution, curved screens and ultra-thin form factors. This trend toward technology adaptation will lead to a drop in the yield, and an increase in the display fab utilization rate, based on same production area.
Meanwhile, the tight fab capacity of panel manufacturers, following an increase in LCD panel demand, will lead to a rise in panel prices in the third quarter of 2016. Higher panel prices are expected to continue in the fourth quarter of this year, in which LCD panel area demand -- and supply capacity -- are expected to remain unchanged from the previous three months. The price of LCD TV panels is expected to remain the same as the previous quarter, or increase slightly, especially for panels that are 50-inches or smaller.
Information in this Research Note is based on the latest IHS Markit Display Production and Inventory Tracker, which updates the status of fab management, production, shipment and inventory. It also provides a monthly forecast for all LCD panel makers for the next three months.