South Korea turns to OLED, LCD pressure will be greatly reduced next year

Source: Content from "China Business Times", thank you.

Recently, the market has reported that Korean panel factories will start capacity conversion again in 2019. Samsung plans to convert 1 to 2 8.5-generation panel factories to produce quantum dot QD-OLED TV panels, while LGD plans to convert one 8.5-generation factory to produce OLED TV panels each year in 2019 and 2020. Since capacity conversion takes more than half a year, it is expected to alleviate the pressure of severe oversupply in the market in 2019.

Market research firm IHS Markit estimates that if the 8.5-generation production capacity is reduced, the oversupply ratio will drop to 10%, and there will be a transfer effect for 43-inch and 55-inch panels. Taiwan's panel manufacturers can expect to breathe a sigh of relief.

In October, the TV panel market reversed again, as the peak season for demand was coming to an end, and BOE's 10.5-generation fab increased its wafer production, resulting in oversupply in the market. The prices of 32-inch and 65-inch TV panels fell first, and other prices such as 49-inch and 50-inch panels also loosened. The panel price decline from the fourth quarter to the first quarter of 2019 is difficult to stop.

With the new generation of panel factories in China, LCD panels will be in oversupply for a long time in the future, and TV panels may be difficult to make a profit. Recently, the market has reported that Korean panel factories are developing a capacity conversion plan. Samsung plans to convert 1 to 2 8.5-generation panel factories to QD-OLED TV panels in 2019 to expand the high-end TV panel market. LGD, the current leader in OLED TV panels, plans to convert one 8.5-generation factory to OLED TV panels each year in 2019 and 2020 to consolidate its leading position in OLED TV panels.

IHS Markit research director Hsieh Chin-yi said that BOE's 10.5-generation fab officially started mass production at the end of the first quarter of this year. As the yield rate gradually improves, the production capacity continues to expand. The current production volume has reached 70,000 pieces, and it is expected to increase to 90,000 pieces by the end of this year. In 2019, the production lines of the 8.6-generation fabs in mainland China will continue to expand, and the 11th-generation fab of China Star Optoelectronics will also start production in the first quarter. In 2019, the new production capacity will enter the peak period, and the oversupply ratio is estimated to be as high as 20%.

Capacity conversion requires stopping the line and adjusting the equipment. It takes half a year to a year from stopping the line to resuming production, which is equivalent to losing the production capacity of two 8.5-generation factories. In this way, it is estimated that the oversupply ratio of panels will be reduced to around 10% in 2019. Currently, South Korea's 8.5-generation factories are mainly used to produce 43-inch, 55-inch, and 65-inch TV panels and some monitor panels. Without these capacities, it is expected that 43-inch and 55-inch panels may be out of stock in the short term. For Taiwan's panel factories, the pressure of oversupply in 2019 has been greatly reduced, and there may be a transfer effect for 43-inch and 55-inch panels, which can be greatly relieved.

The production progress of BOE's 10.5-generation fab in China is better than expected, and it is expected to reach full production of 90,000 pieces by the end of this year. In the first half of 2019, Huaxing Optoelectronics' 11-generation fab will be put into production, and the pressure of oversupply of LCD panels will be great in the future. The panel production capacity in China is large, and even if LCD panels are equipped with QD quantum dots and 8K ultra-high image quality, it is useless and there is little room for premium. South Korean panel factories have gradually converted their production capacity, which is equivalent to gradually abandoning the LCD panel market.

2018 marks the peak period for the commissioning of new 10.5-generation factories. According to the currently announced factory construction plans, by 2020, there will be 19 large-generation panel factories in mainland China, and as many as 20 factories specializing in small and medium-sized panels. It is estimated that the market share of TFT LCD panel production capacity in mainland China will exceed 50% in 2020, and the market share of AMOLED panels will reach 38% by then.

This year, the overall panel industry has serious overcapacity, and oversupply in the panel market will become the norm in the future. In June this year, TV panel prices reached a historical low, and LGD has been in the red for two consecutive quarters. However, the operating conditions of OLED TV panels are getting better and better, and are expected to contribute to profits in the second half of the year. Samsung relies on OLED to make profits. OLED panels account for as much as 3/4 of Samsung's overall display panel revenue, which is 3 times that of LCD panels, and is the main source of profit.

Although Taiwan's panel manufacturers have tried every means to improve the value of LCD panels, and both panel giants have accelerated the development of 8K panels and continued to seek product differentiation, under the pressure of new production capacity from mainland panel manufacturers, 4K panels have become standard equipment with almost no price difference, and QD quantum dots and 8K are not easy to earn more premiums, and the operating pressure on Taiwan and South Korea's panel manufacturers is increasing.

For South Korean panel manufacturers, if the LCD panel business is losing money, it is better to close the factory and focus resources on OLED panels with better profits. In the past few years, two South Korean panel manufacturers have closed five of their 5th generation factories. Samsung also closed a 7th generation factory at the end of 2016. Samsung faded out of the IT panel market, while LGD focused on high-end IT panel products. In recent years, Samsung and LGD have focused on OLED panels for small and medium-sized panels. With the 8.5th generation factory switching to produce OLED TV panels, it is equivalent to announcing that South Korean panel manufacturers will fade out of the LCD panel market.

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