During the last quarter of 2007, the general forecast was for roughly 20+ percent cumulative growth in shipments and revenue for the global digital television (DTV) chip market, meaning an increase of 7.1 percent in electronic display demand. Behind the fantastic double digit growth forecasts (both in shipments and revenue) for DTV chips was the incredible global adoption rate of LCDs, the leader in thin film technology (TFT) displays.
Unfortunately, a number of variables converged during the first half of 2008 (1H08) and created a much tighter and tougher market for flat panel displays (FPDs) than anticipated. There continues to be activity in the sector and with the high volume, back-to-school period upon us, everyone in the display sector, from backend through retail, is eager for a much needed recovery.
What happened to the bright forecasts?
The news was promising at the end of 2007. Forecasts for the DTV and TFT chip industry, and especially TFT LCD panel sales, were boasting US$5 billion market increases and over 150 million LCD TV units to be sold by 2011. But, by December 2007, iSuppli was already forecasting weakening in the LCD market due to oversupply as a result of optimism from excellent third quarter 2007 (3Q07) numbers. At that time, iSuppli was also of the view that an improved 2Q08 would follow bringing in good shipment and revenue numbers for the remainder of 2008.
With early penetration above estimates, 2008 numbers are off for TFT LCDs and a slow-down has occurred. The forecasts for sustained growth have turned conservative quickly. The variables leading to the forecast revisions include: early penetration coupled with present softened consumer confidence; rising inflation; profit erosion due to inventory misalignments, increased expenses in production (especially materials cost increases) and in logistics (primarily due to higher fuel costs).
July numbers are not positive along the panel supply chain. Most panel shipments, regardless of size, are down between 7-13 percent, translating into double digit sequential revenue losses. August has been a continuation of the downtrend, as reported by DigiTimes on 8 August 2008:
[…] panel quotes in August are dropping at a pace faster than initially expected amid "chaotic" price negotiations between suppliers and clients. […]
The latest figures from research firms indicated a continued price fall across all LCD panel segments in the first half of August. But sources with LCD panel makers revealed that panel pricing has been "very chaotic," with suppliers and clients having to negotiate quotes once every week.
Leading the sector for the most advantageous position in the midst of falling panel prices are low-cost notebooks and monitors as well as low cost handsets; both markets are now able to offer better quality and/or larger screens at favorable prices to the conservative consumer. The new spot market pricing opportunities for panels come just in time for OEMs to entice consumers during the back-to-school season.
An opportunity for Driver ICs
The pricing opportunity for the low-cost sector is also a boost for the LCD driver IC packaging market; as notebook sales are expected to increase, particularly in the low-cost sector, the already strong driver IC market is expected to sustain growth for the remainder of 2008, according to some suppliers. Evidencing these opportunities is the new joint venture (JV) announced between NEC and Elpida to commence "by the end of September 2008 and, incorporate a new company by the end of 2008. […] The new company will engage in the development, design, and sale of display driver ICs." (http://www.necel.com/news/en/archive/0806/2001.html)
The driver IC sector appears to be a bit mixed with some design houses cautious of low ASPs for panels putting pressure on driver ICs (such as Novateck Microelectronics, Sitronix and Orise, as cited by DigiTimes 1 July 2008). Some are seeing inventory build up at panel makers affect their shipments, while others such as Youngtek Electronics recent 3Q08 estimates (cf. DigiTimes 14 July 2008) and the NEC-Elpida JV suggest opportunities arising from the LCD panel spot-market. Although, even the more pessimistic design houses are posting utilization rates between 80-90%. Most recently, Chipbond Technology and ChipMOS Technologies have posted weaker orders for LCD driver ICs, according to DigiTimes 11 August 2008. However, the small- and medium-size displays had shown price and demand improvements during July. According to the same DigiTimes article, King Yuan Electronics Company expects to exceed 80% utilization rate for LCD driver ICs for small-size applications through the end of the year and into 2009.
Small- and medium-sized panels
Unlike the more positive scenario for the driver IC makers, the news for the small- to medium-sized panel makers has been gloomy with poor numbers. According to industry reports, as a result of the poor 2Q08 demand, oversupply and uncertainty for the remainder of 2008, many of the leading panel makers have almost halved their shipment expectations. Some are more optimistic, such as Chunghwa Picture Tubes (CPT), who is hopeful that 2008 will be a revisiting of the 2006 market which showed depressed demand followed by sustained increases as prices stabilized (cf. DigiTimes 1 July 2008). Hopefully CPT’s optimism is well placed, but as thus far they have reported being off 30% for 2Q08.
Those small- to medium-size panel makers who were hardest hit by the losses in the digital photo frame market have been quickly "shift[ing their] capacity allocations" to focus on notebooks, particularly in the low-cost segment, and monitor panel shipments while trimming capacity for the remainder of the year, according to industry analysts in DigiTimes 9 July 2008. Furthermore, panel makers are reporting that to aid in correcting inventory misalignments, they will not be producing in anticipation of orders, but only based on actual orders. Unfortunately, as pricing and shipment became more favorable during the early summer for small- to medium-size panels, panel makers increased production. According to DigiTimes 11 August 2008, although present demand continues to be strong, there is anticipation of oversupply and resulting new price declines.
At the end of the day, the PC, notebook, and monitor sectors coupled with the global handset market are likely to be the saviors for the small- to medium-size panel makers; but everyone is holding their breath as we enter the high season.
The negative macro economic environment has not been kind to the large-sized panel makers. Falling ASPs and stiffing competition among OEMs, rather than inventory misalignments, are the present problems. However, continued weak demand in 2Q08 may result in inventory pile ups, adding to the problems while further exacerbating the ASP situation. The present hope is that since panel makers are aware of the inventory misalignments, production significantly declined over the summer months. As WitsView analysts reported to DigiTimes 25 July 2008, "[t]he earlier inventory pull-in can evidently be seen. For the market to see a rebound, the key will lie in clearing away the current excess panel and TV set inventory."
According to their 16 June 2008 briefing, iSuppli predicts that in the present market, "ODMs will continue to dominate the LCD TV manufacturing sector" through 2012. One reason cited is that "EMS providers will remain absent in PDP manufacturing." PDP manufacturing is primarily done in-house by OEMs (over 90% in 2007, according to iSuppli). The reason for the OEM dominance in PDP production is a result of forecasts for LCD technology to be the dominant one, therefore the Taiwanese producers have not shown an interest in investing in PDP production capabilities.
A breakthrough for displays: eBooks
While LCDs and PDPs are certainly dominant for the large-size and many medium-size displays, OLED and LED backlighting are quickly moving into the monitor space as true competitors. Most recently, this summer, electrophoretic displays (EPDs), also known as e-paper or e-paper displays have found success in the mass market. While EPDs date back to the 1970s, it is the most recent generation of 6-inch diagonal displays with low power consumption, stable imaging, and expanded view angles on various types of displays (flexible to static), that are increasing the popularity of the new 'eBook'.
iSuppli, in their 28 July 2008 release, is forecasting quite astonishing adoption rates:
Worldwide eBook display shipments will rise to 18.3 million units in 2012, increasing at a remarkable 161 percent Compound Annual Growth Rate (CAGR) from 150,000 units in 2007 […]. Global eBook display revenue is forecast to reach [US] $291.2 million by 2012, rising at a CAGR of 143 percent from $3.5 million in 2007.
iSuppli further presents in their 28 July 2008 brief, as support for the incredible growth, that the demand for eBooks will be driven by numerous markets:
- Education […]
- Consumer markets […]
- Professional segments […]
- Other areas, such as government documentation, military maps, and religious books and material
What is on the horizon for 2H08 and beyond?
Based on current figures for 2008 and the emerging trends for the remainder of this year, panel prices are expected to continue to soften across all markets as demand has softened and inventories risk coming into oversupply. However, low cost notebooks, monitors and handsets as well as the new eBook devices are showing strength and will carry the market.
According to DisplaySearch, as reported in DigiTimes 27 June 2008, "[m]arket indicators suggest the [ASP] of monitor panels may fall at a 30% to 45% annual rate in June and July 2008. The pace of price declines may slow after the summer." Unfortunately, these early summer forecasts are proving optimistic as continued price declines and soft demand still plague the large-size display market. It appears that market forces and high end consumers have supported the 40-inch range for top-tier, feature rich LCD TV panels and a more widespread preference for the 32-inch PDP displays in the low-cost sector.
Presently, inventories are being digested and demand is beginning to show signs of a rebound, due to continued retail price declines. In order to safeguard demand though, market analysts are underscoring the importance of holding retail prices stable so as not to spur market declines during the fourth quarter, thereby preventing the down drift experienced in the past quarters (source: DigiTimes 18 August 2008).
While forecasts for the entire FPD market have been downgraded for the year, the driver IC sector is still expected to see significant growth in 2008 through 2011. As reported in DigiTimes 1 July 2008, and according to DisplaySearch, "the worldwide market for flat panel TV ICs is expected to be US$1.35 billion in 2008, and is forecast to grow to US$1.35 billion in 2011." These numbers represent a 12 percent increase in TV IC revenues for 2011, while previous forecasts indicated declines, as summarized by DigiTimes.
The reasons behind the good prospects for the driver IC sector include the present spot-market opportunities favorable for panel buyers, the value added features and panel sizes available at lower ASPs, new digital broadcast standards, and continued demand in the low-cost notebook and the monitor sectors. As reported by DigiTimes 1 July 2008,according to Paul Gray, director of European TV Research at DisplayTech:
Set-makers are keen to revitalize televisions and keep them at the center of the home. Chipmakers are rising to this challenge, but a round of consolidation [sic] will be inevitable, if only because the development costs for these sophisticated devices can only be recouped over large shipments.