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Market Insight

[Display Dynamics] Analysis of LCD TV panel supply/demand outlook based on panel fab restructuring of Korean display makers

November 06, 2019

Yoonsung Chung Yoonsung Chung Director, Large Display

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Key findings

  • The rapidly growing liquid crystal display (LCD) TV panel’s excess supply and price decline have deteriorated the profit and loss (P&L) of Korean panel producers, leading to the restructuring of fab.  Korean panel makers have been reducing or halting the production of LCD TV fabs in Gen 7 and Gen 8.5, located in Korea, since the third quarter of 2019 (Q3 2019).
  • Korean display makers are expected to produce 45 million units of LCD TV panels in 2020, which is a 39% drop from 2019. The projected decline includes major sizes including 43-, 55- and 65-inch panels. Against this backdrop, Chinese makers are showing movement to increase production of these products.  
  • If Korean display makers are assumed to continue restructuring in 2020, the supply/demand of large displays should be able to overcome the excess supply and achieve balance in the future. 

Korean display makers are experiencing a challenging year in 2019. The LCD TV panel business is recording a large deficit every quarter, owing to a sharp decline in LCD TV panel prices, which were caused by the excess supply triggered by Chinese makers. In fact, such dramatic price fall was not expected, thus, Taiwanese and Chinese manufacturers are also suffering losses from the LCD TV business. It is understood that most market players have reached the cash burn rate, in other words, the marginal cost has fallen below the cash cost since Q3 2019 for LCD TV panels, despite the absence of accurate evidence. Given that the China-driven LCD market and weak P&L, caused by the excessive supply, should continue, Korean makers are urgently initiating restructuring. For example, Samsung Display, in Q3 2019, suspended the production capacity of Gen 8.5 fab by 125,000 per month, and is renovating it into cutting-edge quantum dot (QD) display production lines. This is 35% of their Gen 8.5’s production capacity in Korea. LG Display, from the latter part of Q3 2019, is reducing the Gen 7 and Gen 8.5 fab utilization by more than 40%. In the fourth quarter of 2019 (Q4 2019), one of the three TFT-LCD Gen 8.5 line is expected to halt production. Based on the current outlook, the company should utilize only around 50% of the P7, a Gen 7, and P8-1, a Gen 8.5, and completely stop the production of P8-2 starting early next year. The possibility of reemploying the suspended production lines in the future seems limited, since LG Display is also restructuring its workforce.   

Can the restructuring of production lines, initiated by Korean producers, address the supply overhang in the market and change the landscape of the LCD TV panel supply/demand situation next year? In the chart below, IHS Markit forecasts the supply of LCD TV panels of Korean producers for next year, compared with this year. As the chart shows, the restructuring by Korean producers should reduce LCD TV panel supply by 39%, against 2019, to reach only 45 million units.  

Amid the overall decline, significant negative growth in the 55-inch and above large displays is especially evident, with the exception of 75-inch and above. The 55- and 65-inch panels are projected to decline considerably. This came as a surprise, given that the demand for 55-inch panels is currently fairly robust, and that the 65-inch panels have the highest potential growth within the large-size category. Ultimately, this implies that Korean producers centered on Gen 8.5 are losing competitiveness in Gen 10.5, and that the shrinking volume of Gen 8.5 fab is inevitable as companies withdrew from Gen 8.5. However, the dramatic reduction of Gen 8.5 fab’s products from 2020 can cause an imbalance of supply/demand for popular products such as the 55-inch panels. For the 65-inch panels, while Chinese producers are significantly increasing the products from Gen 10.5 fabs, the high-end market is still occupied by Korean brands. In the high-end segment, the sizeable decrease in supply from Korea may cause supply/demand to become unstable next year.

Then, what impact can the fab restructuring in Korea have on the overall supply/demand? In the chart below, IHS Markit forecasts the supply/demand glut (%) for different scenarios. Typically, a glut (%) higher than 10% indicates an excess supply, while the opposite indicates a shortage, or a tight market. The glut (%) in Glut (Previous) scenario is the projection of last quarter, and only partially reflects the fab restructuring in Korea. The glut (%) in Glut (Latest) scenario is the forecast of this quarter, and fully reflects the fab restructuring in Korea. The Glut (Aggressive) scenario is the outlook of the analyst, forecasting additional restructuring next year onward. The chart shows that the restructuring in Korea in 2019 has slightly improved the supply/demand outlook for 2020, however, it still remains above the balance line of 10%. In addition, if Korean manufacturers carry out additional LCD fab restructuring next year, especially in Gen 8.5 fabs, the market can go below the balance line and tighten, as the chart shows.

As a result, the LCD fab restructuring of Korean makers should have a significant impact on the supply/demand situation starting from 2020, which is why display producers are looking forward to a pick-up in the price levels of LCD TV panels from early next year. Meanwhile, the Chinese makers, equipped with Gen 8.6 fabs, are adjusting their product strategy to benefit from the decline in production volume from Korea. Gen 8.6 initially mainly targeted the 32-, 50- and 58-inch markets, however, price competition in the 32-inch market is intense and the 58-inch market is not growing as expected, which have weighed on their efforts to secure utilization rates for Gen 8.6 fabs. Recently, there are Chinese producers who are taking advantage of the Gen 8.5 fab’s restructuring in Korea, targeting sizes that are projected to experience significant decrease in supply from Korea. It is noted that some are preparing the production of 43- and 55-inch panels, sizes that were not produced in Gen 8.6. The 43-inch panel is a replacement for the 32-inch panel, and is expected to be multi model glass (MMG) method of 43-inch + 23.8-inch (8 + 8 cuts). The 55-inch, like Gen 8.5, should be a single cut, which means that the efficiency is lower in Gen 8.6 than Gen 8.5. However, given that the demand for 58-inch panels is weak, opting for the 55-inch panels that have stronger demand and expectations for a considerable decrease in supply from Korea to secure utilization, is not a bad choice.

In conclusion, the impact of LCD fab restructuring of Korean makers should become evident in 2020. But going into specific sizes, the impact should be partly offset by a quick response from Chinese producers. However, as mentioned in the aggressive version outlook, if Korean producers implement additional restructuring from 2020 onward, the supply/demand balance of the overall large display market should clearly move toward a positive direction for display makers.  

Research by Market
Displays
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