Capacity vs Utilization – What’s in a Name?
When looking at large scale manufacturing and panel producers in particular, it becomes apparent that semantics can make a big difference in understanding production capacity. Panel producers have many names for production metrics and use them selectively, usually to make a positive point, but when it comes down to a realistic view of display production, the words do make a difference. There is ‘stated capacity’, which is the capacity that was considered when designing the fab, say 90,000 sheets/month at Gen 8.5. Most would assume that when that term is used one can assume that the fab is fully built out, which is certainly not the case in most instances.
Display production lines are usually installed in ‘phases’, with the building shell, power, and water feeds installed up front, but the production lines themselves built out in a staggered fashion, say in this case as three 30,000 sheet/month lines. Once the initial line, which in this case would typically consist of two 15,000 sheet/month sub-lines and a similar set of lines for TFT (Thin-film transistor), is completed, the line goes into test mode, where substrates are run through the line and both optical and electrical inspection tools trace problems on the line. As the equipment is ‘tuned’ during the test process only a small number of substrate panels are run through the line given that equipment is still being optimized, and while no client oriented production is being done, many panel producers call the fab ‘open’ when a substrate is able to run from one end of the line to the other.
The ‘open’ moniker can also be applied even if only a subset of the phase one production lines are running, say one 15,000 sheet/month line, and while there might be equipment set up for the next 15,000 sheet/month increment, it has not yet entered the test mode. Once all of the phase one line’s equipment is being utilized, even though the fab is only producing small numbers of completed panels, the fab is usually said to be in ‘mass production’.
This is a key point for panel producers as once a fab enters mass production depreciation begins and both line utilization and yield become the driver for fab profitability. When fabs begin mass production producers must balance low product yields against fab utilization rates, essentially wanting the fab to be fully utilized to maximize margin, but not wanting to produce high volumes of panels with low yields that generate losses. Ideally producers want high utilization, meaning the fab in producing at or near its stated capacity, but if product yields are low, meaning many finished panels have to be scrapped, running the fab at full utilization can be quite costly, so low product yield tends to also imply low fab utilization rates.
Ideally, the production in a fab’s early stage is driven by customer orders, but more realistically much of the early production is for evaluation samples that need to be qualified by customers, regardless of whether they have been supplied by the producers other fabs. During the qualification process, which can entail modifications to product and/or production processes and a number of iterations for sample panels, most producers will consider the fab ‘ramping’, which implies ‘not at full capacity’ or ‘not at full utilization’ but also with the implication that yields and utilization rates are improving.
This is where things get quite difficult to decipher, both from the standpoint of gauging actual production (units and value) and profitability, as ‘ramping’ has no modifier. We have seen fabs ‘ramp’ for a few months and others ramp for years, so utilization then becomes the only way to understand how much a fab is actually producing and that data tends to be released or leaked only when it serves to put the producer in a positive light. Utilization rates can be calculated if area production is known however many panel producers only give production area metrics based on ‘available capacity’, which means the fabs’ capacity during the period (inclusive of maintenance, downtime, etc.) which is not its ‘stated’ capacity but some subset or superset of that figure.
The implications of true utilization metrics are quite significant and can be very different depending on the display technology and the complexity of the process. LCD display production, given its ubiquity and maturity as a display modality, typically has a higher utilization rate than OLED production, which has some production peculiarities and potential variations that make its production a bit more difficult and less mature, but the true driver for utilization is the ability of the producer to time new capacity to the market and develop new display products that stimulate customer demand, along with more general global economics and pricing characteristics.
Currently, given the demand cycle created by the COVID-19 pandemic, LCD utilization rates are high for both large and small panel producers, in the low 90% range for small panel producers and in the mid 90% range for large panel producers, while utilization rates for OLED producers are considerably lower, although that varies considerably between producers. Looking at just Chinese LCD producers and applying a blended LCD utilization rate of 94.2%, that segment of the industry could produce 18.36m 32” panel equivalents in June, vs. just a bit over 20m 32” equivalents for stated capacity, but when it comes to OLED the difference between the number of units actually produced and stated capacity is far more obvious.
At June OLED utilization rates Chinese OLED producers were able to produce 30.89m 6.5” displays against a stated capacity of what would be 70.37m 6.5” OLED display equivalents, but in July, as OLED capacity at the country’s largest producer BOE (200725.CH) ‘ramped’ at two of its fabs increasing stated capacity by 12.3%, the unit volume improved by 26.3% to 39.02m 6.5” equivalents as overall OLED utilization at Chinese OLED fabs in aggregate increased by 5.5%, showing the production leverage even relatively small improvements in fab utilization can garner. When coupled with yield improvements that leverage is further magnified.
That said, utilization data is hard to come by and panel producers, particularly those in China are want to be as vague as possible, particularly toward OLED utilization rates, but it is essential for investors to understand the difference between stated capacity and real production, and to understand that terms like ‘improving’ and ‘ramping’ have little meaning unless they are either accompanied by metrics or detailed qualifiers.. Many Chinese panel producers state display project goals, especially when raising project capital, based on what sales the fab would generate when fully built out and running at stated capacity. As ‘ramping’ toward the goal of full utilization could take a few quarters or many years, a bit these are essentially pie-in-the-sky numbers and should never be confused with realistic production goals based on panel producer experience, the balance between supply and demand, and the maturity of the technology.
Display production lines are usually installed in ‘phases’, with the building shell, power, and water feeds installed up front, but the production lines themselves built out in a staggered fashion, say in this case as three 30,000 sheet/month lines. Once the initial line, which in this case would typically consist of two 15,000 sheet/month sub-lines and a similar set of lines for TFT (Thin-film transistor), is completed, the line goes into test mode, where substrates are run through the line and both optical and electrical inspection tools trace problems on the line. As the equipment is ‘tuned’ during the test process only a small number of substrate panels are run through the line given that equipment is still being optimized, and while no client oriented production is being done, many panel producers call the fab ‘open’ when a substrate is able to run from one end of the line to the other.
The ‘open’ moniker can also be applied even if only a subset of the phase one production lines are running, say one 15,000 sheet/month line, and while there might be equipment set up for the next 15,000 sheet/month increment, it has not yet entered the test mode. Once all of the phase one line’s equipment is being utilized, even though the fab is only producing small numbers of completed panels, the fab is usually said to be in ‘mass production’.
This is a key point for panel producers as once a fab enters mass production depreciation begins and both line utilization and yield become the driver for fab profitability. When fabs begin mass production producers must balance low product yields against fab utilization rates, essentially wanting the fab to be fully utilized to maximize margin, but not wanting to produce high volumes of panels with low yields that generate losses. Ideally producers want high utilization, meaning the fab in producing at or near its stated capacity, but if product yields are low, meaning many finished panels have to be scrapped, running the fab at full utilization can be quite costly, so low product yield tends to also imply low fab utilization rates.
Ideally, the production in a fab’s early stage is driven by customer orders, but more realistically much of the early production is for evaluation samples that need to be qualified by customers, regardless of whether they have been supplied by the producers other fabs. During the qualification process, which can entail modifications to product and/or production processes and a number of iterations for sample panels, most producers will consider the fab ‘ramping’, which implies ‘not at full capacity’ or ‘not at full utilization’ but also with the implication that yields and utilization rates are improving.
This is where things get quite difficult to decipher, both from the standpoint of gauging actual production (units and value) and profitability, as ‘ramping’ has no modifier. We have seen fabs ‘ramp’ for a few months and others ramp for years, so utilization then becomes the only way to understand how much a fab is actually producing and that data tends to be released or leaked only when it serves to put the producer in a positive light. Utilization rates can be calculated if area production is known however many panel producers only give production area metrics based on ‘available capacity’, which means the fabs’ capacity during the period (inclusive of maintenance, downtime, etc.) which is not its ‘stated’ capacity but some subset or superset of that figure.
The implications of true utilization metrics are quite significant and can be very different depending on the display technology and the complexity of the process. LCD display production, given its ubiquity and maturity as a display modality, typically has a higher utilization rate than OLED production, which has some production peculiarities and potential variations that make its production a bit more difficult and less mature, but the true driver for utilization is the ability of the producer to time new capacity to the market and develop new display products that stimulate customer demand, along with more general global economics and pricing characteristics.
Currently, given the demand cycle created by the COVID-19 pandemic, LCD utilization rates are high for both large and small panel producers, in the low 90% range for small panel producers and in the mid 90% range for large panel producers, while utilization rates for OLED producers are considerably lower, although that varies considerably between producers. Looking at just Chinese LCD producers and applying a blended LCD utilization rate of 94.2%, that segment of the industry could produce 18.36m 32” panel equivalents in June, vs. just a bit over 20m 32” equivalents for stated capacity, but when it comes to OLED the difference between the number of units actually produced and stated capacity is far more obvious.
At June OLED utilization rates Chinese OLED producers were able to produce 30.89m 6.5” displays against a stated capacity of what would be 70.37m 6.5” OLED display equivalents, but in July, as OLED capacity at the country’s largest producer BOE (200725.CH) ‘ramped’ at two of its fabs increasing stated capacity by 12.3%, the unit volume improved by 26.3% to 39.02m 6.5” equivalents as overall OLED utilization at Chinese OLED fabs in aggregate increased by 5.5%, showing the production leverage even relatively small improvements in fab utilization can garner. When coupled with yield improvements that leverage is further magnified.
That said, utilization data is hard to come by and panel producers, particularly those in China are want to be as vague as possible, particularly toward OLED utilization rates, but it is essential for investors to understand the difference between stated capacity and real production, and to understand that terms like ‘improving’ and ‘ramping’ have little meaning unless they are either accompanied by metrics or detailed qualifiers.. Many Chinese panel producers state display project goals, especially when raising project capital, based on what sales the fab would generate when fully built out and running at stated capacity. As ‘ramping’ toward the goal of full utilization could take a few quarters or many years, a bit these are essentially pie-in-the-sky numbers and should never be confused with realistic production goals based on panel producer experience, the balance between supply and demand, and the maturity of the technology.
RSS Feed