In mid-2019 LCD TV panel prices began a decline and despite an occasional bounce, they remained that way until June of last year. The cost of producing large panel LCD displays was, for many producers, at or just above cost, and panel producer margins were negative. Samsung Display (pvt), the display production arm of Samsung Electronics (005930.KS), became convinced that competition from Chinese large panel producers and the weak panel pricing would set up a long-term scenario that would likely eliminate the profitability that Samsung senior management was demanding. To that end, Samsung Display began a program of reducing its exposure to large panel display production both in Korea, where much of its capacity resided, and China, where it had one fab in Suzhou.
According to Samsung’s original plans, all large panel LCD production in South Korea was to be halted by the end of 2020 and plans for the Suzhou fab were under discussion, with a cut-off of 2022, unless sale negotiations pulled that closing date closer. In June of last year however, large panel prices began an unprecedented rise, which has continued to date, and has increased margins and profitability for almost all panel producers, Samsung Display included.
We note also that the theory behind the potential cessation of large panel production by SDC was to focus all of the company’s attention and production on quantum dots for large panel displays, and continue its dominance in small panel OLED displays. Until panel prices began to recover, this was a viable plan, with the hope that SDC’s developing quantum dot projects could keep the company from battling with the Chinese in the generic large panel display market.
There were two basic flaws with the plan however, the first being that SDC was not far enough along in developing an alternative large panel display product to fill the ‘hole’ that selling or closing its Korean fabs would produce, and second, that parent Samsung Electronics, did not seem to have an interest in the development of SDC’s quantum dot/OLED product. Without the support of Samsung Electronics, SDC’s largest customer, SDC would have to sell the idea of QD/OLED to outside customers, a far more difficult process than was originally conceived. That said, SDC got lucky in that the rise in large panel prices gave them the opportunity to postpone slated fab closures, taking pressure off of the development of alternative large panel technologies. Currently SDC has decided to postpone any fab closings, and while the sale of the Suzhou fab to Chinastar (pvt) has been negotiated, it has yet to close.
We had expected the Suzhou fab to be transferred to Chinastar on January 1, but it seems a South Korean committee of government officials, display experts, and academics are still pondering whether the sale of the Suzhou fab would be in the best interests of the Korean display industry, which means the fab, and its production still belong to Samsung Display who gains the benefit of profitable large panel production for a bit longer. Since there is no specific timeline for the committee’s decision, the delay in closing works in SDC’s favor, which is rarely the case.
Although the sale of the Suzhou fab would not change industry capacity, the postponement of further SDC fab closings does, especially in light of fellow South Korean large panel producer LG Display (LPL) being in a similar position of holding open its South Korean fabs that it had expected to close both last year and this year. Pinpointing the exact large panel capacity of SDC’s fabs is difficult in that some lines also produce IT related product (monitors and notebooks), which are technically ‘large’ panels but are not used for TVs, the area with the most price volatility. We believe some of SDC’s L8 fab has been converted to QD/OLED, leaving a portion of its 360k peak capacity still available, likely close to 270k sheets/month. This, coupled with a portion of SDC’s L7-2 fab, which we estimate to add 90k Gen 7 sheets, comes to the equivalent of 990,000 65” TVs for each month that SDC keeps those two fabs open. At a more realistic 85% utilization rate, that comes to 841,000 65” sets/month or ~10m/year. While this is only about 4.4% of total TVs sold yearly, it means that Samsung Electronics will have to buy ~4.4% less panels from outside sources until SDC returns to its earlier policy. LG Display’s similar situation in conjunction with its parent LG Electronics (066570.KS) would also contribute toward additional large panel capacity that would not be purchased from other panel producers.
All in,, while demand will still be the arbiter of how the display industry manages in 2021, the decision by SDC and LGD to halt scheduled plant conversions, sales, and closures, does make a difference to the display space, and increases the ‘potential’ volatility that the industry could see this year if demand trends change. Some Chinese large panel producers have delayed capacity expansion plans while others continue ahead under the assumption that SDC and LGD will return to their original plans later in the year. We are building a number of different demand models that take into consideration COVID-19 and the change in display balance that it has fostered on the industry and will match them against our capacity assumptions to better understand the possibilities for the display space this year.
According to Samsung’s original plans, all large panel LCD production in South Korea was to be halted by the end of 2020 and plans for the Suzhou fab were under discussion, with a cut-off of 2022, unless sale negotiations pulled that closing date closer. In June of last year however, large panel prices began an unprecedented rise, which has continued to date, and has increased margins and profitability for almost all panel producers, Samsung Display included.
We note also that the theory behind the potential cessation of large panel production by SDC was to focus all of the company’s attention and production on quantum dots for large panel displays, and continue its dominance in small panel OLED displays. Until panel prices began to recover, this was a viable plan, with the hope that SDC’s developing quantum dot projects could keep the company from battling with the Chinese in the generic large panel display market.
There were two basic flaws with the plan however, the first being that SDC was not far enough along in developing an alternative large panel display product to fill the ‘hole’ that selling or closing its Korean fabs would produce, and second, that parent Samsung Electronics, did not seem to have an interest in the development of SDC’s quantum dot/OLED product. Without the support of Samsung Electronics, SDC’s largest customer, SDC would have to sell the idea of QD/OLED to outside customers, a far more difficult process than was originally conceived. That said, SDC got lucky in that the rise in large panel prices gave them the opportunity to postpone slated fab closures, taking pressure off of the development of alternative large panel technologies. Currently SDC has decided to postpone any fab closings, and while the sale of the Suzhou fab to Chinastar (pvt) has been negotiated, it has yet to close.
We had expected the Suzhou fab to be transferred to Chinastar on January 1, but it seems a South Korean committee of government officials, display experts, and academics are still pondering whether the sale of the Suzhou fab would be in the best interests of the Korean display industry, which means the fab, and its production still belong to Samsung Display who gains the benefit of profitable large panel production for a bit longer. Since there is no specific timeline for the committee’s decision, the delay in closing works in SDC’s favor, which is rarely the case.
Although the sale of the Suzhou fab would not change industry capacity, the postponement of further SDC fab closings does, especially in light of fellow South Korean large panel producer LG Display (LPL) being in a similar position of holding open its South Korean fabs that it had expected to close both last year and this year. Pinpointing the exact large panel capacity of SDC’s fabs is difficult in that some lines also produce IT related product (monitors and notebooks), which are technically ‘large’ panels but are not used for TVs, the area with the most price volatility. We believe some of SDC’s L8 fab has been converted to QD/OLED, leaving a portion of its 360k peak capacity still available, likely close to 270k sheets/month. This, coupled with a portion of SDC’s L7-2 fab, which we estimate to add 90k Gen 7 sheets, comes to the equivalent of 990,000 65” TVs for each month that SDC keeps those two fabs open. At a more realistic 85% utilization rate, that comes to 841,000 65” sets/month or ~10m/year. While this is only about 4.4% of total TVs sold yearly, it means that Samsung Electronics will have to buy ~4.4% less panels from outside sources until SDC returns to its earlier policy. LG Display’s similar situation in conjunction with its parent LG Electronics (066570.KS) would also contribute toward additional large panel capacity that would not be purchased from other panel producers.
All in,, while demand will still be the arbiter of how the display industry manages in 2021, the decision by SDC and LGD to halt scheduled plant conversions, sales, and closures, does make a difference to the display space, and increases the ‘potential’ volatility that the industry could see this year if demand trends change. Some Chinese large panel producers have delayed capacity expansion plans while others continue ahead under the assumption that SDC and LGD will return to their original plans later in the year. We are building a number of different demand models that take into consideration COVID-19 and the change in display balance that it has fostered on the industry and will match them against our capacity assumptions to better understand the possibilities for the display space this year.
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