LCD Plant Utilization to Remain at 85 Percent, DisplaySearch Says

Uncertainty about demand for the rest of the year caused TFT LCD panel makers to scuttle plans for price increases in mid-June, said a report from DisplaySearch. Panel makers originally expected to boost manufacturing capacity utilization to an average of 90 percent in Q3, but the demand outlook is now expected to keep it at 85 percent through September, DisplaySearch said.

As panel makers became aware of weakness in the market, they changed Q3 fab utilization plans in an effort to maintain light inventory and control production, “in the hopes of stabilizing panel prices especially now that global TV brands have encountered sales challenges in some regions,” said Deborah Yang, research director. Lowering capacity rates is the “trade-off” panel makers must make between over-supply and falling prices on one side, and increased depreciation costs at low utilization rates, she said.

Overall LCD TV panel shipment targets increased 6 percent month over month in June, but they were still 7 percent less than the previous forecast due to order adjustments from TV brands, Yang said. For Q3, “traditional seasonality remains,” but most panel makers are becoming “cautious” since the TV market seems to be suffering effects from the “unfavorable macroeconomic situation” in developed regions, she said.

China is a bright spot, where panel shipments were 4.24 million in May, up eight percent from April, according to the report, and shipments are expected to rise another three percent for June. In the China TV market, Chimei Innolux continues to lead panel makers with 35 percent market share, followed by Samsung with 21 percent, AUO with 20 percent and LG Display with 16 percent, Yang said. Chinese TV makers are positive about the demand outlook there following good sales results during May Day holidays, the report said. Chinese TV makers kept their order forecasts “almost unchanged” throughout the forecast period, it said. LCD TV panel shipments are stable and are expected to move up before “possibly reaching a peak in August,” Yang said. LCD TV OEM and ODM makers plan to increase production in August and September by 21 percent and 15 percent, she said.

Although demand in China is growing, its “demand structure” is different than that of the U.S. due to limited space in housing, said Andrew Abrams, senior analyst at Avian Securities. TVs in China, as in Japan, tend to average in the 32-37-inch range, compared with the U.S. and some other parts of the world where screen sizes average in the 40-inch range, he said. That trend isn’t working in favor of companies like Sharp, LG and Samsung, which built eight- and 10-generation panel plants in anticipation of continued growing demand for larger screen sizes, Abrams said.

That’s leading panel makers to scramble for other ways to allocate space, Abrams said. Right now, all eyes are on the hot, but unproven, tablet market, Abrams said. “Sharp and the other guys are saying, ‘how can we get the best panel utilization out of a Gen 10 piece of glass?'” Abrams said. The hope is that high yields from large pieces of glass will provide cost efficiencies that make tablet-size panels more competitive than those from fabs producing smaller glass panels, Abrams said. “They're all converting over what would normally be idle TV facilities and finding higher-margin products that they can make in the same fab,” he said.

But the tablet market is largely an “unknown,” Abrams said. “No one really knows what the tablet market is yet, so that’s the wild card here,” he said. It could “really, really hurt the industry if tablets just don’t sell well,” he said. He said panel makers have made costly commitments to the emerging tablet business that forced them to change the way they do things based on a category that didn’t exist a couple of years ago. Widely varying sales projections are an indication of the uncertainty of the tablet’s appeal to consumers, Abrams said, citing an average sales forecast of 55-66 million units worldwide -- and a sanguine forecast of 90 million by IDC. “There are a lot of people in the industry, who don’t prognosticate numbers for a living, who believe it’s going to be 40 million,” Abrams said. “We haven’t even had one year of tablet sales yet,” he said, but tablet sales will be a “significant issue” for the panel market in 2012, “either on the positive side or the negative side,” he said. “If that sell-through doesn’t happen, there would be serious consequences in the industry,” he said.