​According to an announcement by the Shenzhen government, TCL (000100.CH) owned Chinastar (pvt) aka Huaxing Optoelectronics, has petitioned to acquire land adjacent to its T6/T7 production fab in order to scale production.  The overall project is expected to increase T6/T7 combined capacity by 60,000 sheets/month.  The project includes an operations center and R&D center for TCL’s TV products and commercial display business, the additional production capacity, and housing for company employees. 
Chinastar currently operates two Gen 8.5 and two Gen 10.5/11 fabs in Shenzhen, with the larger capacity fabs currently totaling 180,000 sheets/month maximum capacity.  While some of that capacity is shared with OLED production, Chinastar/TCl has barely begun to produce OLED displays and we have seen no indication that they have solved OLED production issues for large panel production on Gen 10.5/11 lines..  That said, part of the new construction project, aside from the increase in LCD capacity, is to go toward “a production base for semiconductor display materials, devices, equipment and downstream applications” which would likely indicate a module line, and “…high-performance vapor-deposited organic light emitting display tube localization project, printed OLED display localization material project…” which sounds like it would be either an OLED pilot line or similar type project.
While the ultra-large LCD panel market remains the most lucrative in terms of LCD TV panel production and as a source for TCL’s growing TV business internally sourced production is ideal, we wonder whether consideration has been given to the longer-term prospects for large panel display production.  There are certainly efficiencies to be had by using Gen 10.5/11 fabs to produce 77” and 88” TV panels, but at ~14% of the TV market currently, those sizes will be somewhat limited to a subset of consumers despite an increase of 4.4% share over 2020 

Large panel shipments (Fig. 4) were up 0.1% in August while large panel sales (Fig. 5) were down 3.8%, a result of the large drop in TV panel prices (-10.1%).  With July being the peak for TV panel prices and IT product panel pricing remaining stable in August (looks the same in September), but the effects of the steep TV panel price drop in August had a negative effect on LCD panel industry sales, with the price per unit of TV panels considerably greater than that of IT panels.   We show both Shipments & Share in Fig. 6. To illustrate how shipments have remained flat but large panel price increases have kept sales momentum intact.  Given the Significant drop in TV panel prices in August and again in September, we expect the September large panel sales results to see another drop.
TV panel share is a monthly variable that does not get reported by many panel producers (some do quarterly) but based on our data, we believe the shipment level for LCD TV panels declined by 4.3% in August, following a 1.5% increase in July, offset by a 2.8% increase in monitor shipments, flat notebook shipments, and a 4.8% increase in tablet shipments.  The shipment trends are noted in Fig. 7.  Panel producers have been decreasing their share of TV panel production in lieu of IT panel products, less in anticipation of the price drop seen in August but more due to the continued demand for notebooks and monitors.  While there is much talk over how this will lessen the effect on panel producer sales as TV panel prices decline, we have only seen one month of excessive TV panel price declines and therefore little cumulative negative momentum.  Given that September saw an even larger decline in LCD TV panel prices and little price offset from IT panel pricing, we expect that September industry large panel sales will be down in excess of 5%.

Translating those metrics to companies, we first look at the sales share of the top 5 large panel producers to gain insight into who might be affected most by declining large panel prices.  As noted, the concentration is quite high with 83.1% of the industry’s large panel LCD sales coming from the top 5 producers.  That said, given that August was the first month where TV panel prices dropped substantially, we look at the sequential change in sales for large panel producers between July and August to see who was affected most by the TV panel price drop.  We note that ideally we would like to see at least one additional month of data that included substantial panel price drops, but we take what we can get until next month’s data becomes available.  We note that we have added share in the second table to gain better understanding as to how much each panel producer influenced the total.

​We note that Samsung Display has sold or closed much of its large panel LCD capacity, so monthly results could reflect that limited capacity (hence the 1.4% share) and the impact of large panel price declines.  LG Display, to a lesser degree, has done the same.
All in, August looks to be the tip of the iceberg for large panel LCD producers in terms of the impact of decreasing TV panel prices.  If September and October are any indication of the severity of such panel price drops, the effects will be felt by almost all large panel producers, especially if there is little positive offset from IT panel pricing or shipments.  Given that it took only a short period for TV panel prices to trace back almost half of the gains made in the last year, it sets the stage for a weak 4th quarter for large panel producers.  As noted above, we expect IT panel pricing to remain reasonably stable for the remainder of the year, and would find it difficult to assume that TV panel prices continue to fall at such a precipitous rate for the rest of the year, but we did not expect to see an almost 20% drop in TV panel prices in September.  “Surprise, Surprise” – Gomer Pyle USMC (1964).

​Yesterday we indicated that Chinastar (pvt), a subsidiary of TCL, has been rumored to be supplying small panel OLED displays to Samsung Electronics, the parent of Samsung Display (pvt), who has been the exclusive supplier to Samsung in the past.    We believe that Chinastar has supplied a small number of OLED panels used for the Galaxy M smartphones sold in India, with Samsung likely using those displays to evaluate Chinastar’s capabilities as a larger supplier, similar to the way that Apple (AAPL) has been testing BOE’s (200725.CH) ability to enter its OLED supply chain. 
While much will be made of the fact that Chinastar has supplied OLED displays to Samsung Electronics, we expect, as we noted yesterday, that Samsung will proceed rather slowly with Chinastar to limit the exposure to potential early production problems and potential delivery delays.  Credit is due to Chinastar for meeting Samsung’s specifications but thus far no supplier other than Samsung Display has been allowed to produce OLED displays for Samsung’s flagship lines, so the mainstay of the Samsung parent/child relationship is still intact, but while Samsung Electronics continues to push small panel OLED down the smartphone product line, they face competition from state funded Chinese OLED suppliers, who push Samsung to lower costs. 
If Samsung Display is unable to or does not want to compete with Chinese small panel OLED producers for Samsung’s low-priced smartphone products, the door will remain open to other suppliers like Chinastar.  Does it mean that the end is near for Samsung Display’s dominance of the small panel OLED market?  Not likely as SDC has the expertise to not only produce displays to Samsung’s flagship phone specifications, but has created and helped Samsung Electronics promote the flexible display business.  SDC’s ability to maintain a substantial lead in that business continues to separate them from other small panel OLED producers and gives them the option of walking away from what is likely low margin business, even if it is from its parent.  Of course also having Apple as a large customer (shared with LG Display (LPL)) doesn’t hurt either.

​Chinastar (pvt), a subsidiary of parent TCL (000100.CH) has indicated that it expects its latest LCD fab project, T9 to achieve mass production earlier than expected.  The original plan for the fab was to begin mass production in early 2023, which the COO now believes will take place before the end of 2022, a pull in of at least three months based on their schedule.  The new fab has a planned capacity of 120,000 sheets/month using a 2250 x 2600 sheet format (Gen 8.5) and has been designed to produce IT products using an IGZO backplane, a technology that Chinastar has considerable experience with.
While we had originally modeled April 2023 at the start date for the fab, we had planned for only relatively small production until July ’23.  With the expected pull-in, we move the start date to October 2022 and a serious ramp beginning in January 2023. , and additional lines scheduled in 2023 and 2024.  While pull-ins and push-outs are fairly common in the display space, we expect the optimistic view that panel producers have developed over the last year, a result of the rapid increase in large panel prices, will push timelines on new capacity projects further.  While large panel prices may flatten and even decline, most panel producers remain in a profitable position, and the mindset does not change easily when profits are accumulating.
That said, big capacity projects like T9 can have a significant impact on the supply/demand curve and as such projects enter production overall production utilization can take a hit.  If the IT panel market shows any signs of a real demand slowdown, and not one caused by shortages or the end of a shortage cycle, it will take some time before panel producers are willing to change their capacity increase schedules, and the industry could easily settle back into its more typical boom/bust pattern.  Many panel producers believe its different this time due to COVID-19, which we admit has been true, but human nature is such that it reverts back to norms as soon as possible.  Whether that is later this year or next will impact those decisions but not until it is likely too late to make substantial changes.  Alea iacta est – loosely translated, passed the point of no return…