​We have mentioned that several LCD and OLED panel producers have slowed or postponed decisions or plans to expand capacity over the last few months, a result of the macro inflationary environment and the concurrent lack of consumer spending.  While Chinese panel producers still have groundbreaking ceremonies and sign both letters of understanding and form new entities with local governments to build out existing or add local LCD or OLED capacity, the realities of the current situation tell a somewhat different story.  Chinastar (pvt), a subsidiary of TCL (000100.CH) has been building its T5 fab since the middle of last year, originally to be a Gen 6 OLED fab, with the possibility that it could change to an LCD fab for IT products and a micro-LED backplane line. 
As the display and CE market deteriorated this year Chinastar, while having ordered a considerable amount of fab equipment form a variety of vendors, seems to have pushed out the delivery dates, some of which were to have been delivered this month.  Two South Korean equipment suppliers indicated that they had seen such delays for contracts with near-term delivery dates, totaling $24.2m US, one of which seems to have been pushed into late 2023 (unconfirmed), and the potential micro-LED project seems to have been indefinitely postponed.  While last year panel producers were competing with semiconductor manufacturers for equipment for the TFT portion of display production, causing unusually high demand and long delivery schedules, display tool vendors are now putting the breaks on those deliveries, causing serious problems at equipment vendors who have invested in materials and labor but cannot claim customer acceptance.
While these issues are devastating to LCD and OLED equipment manufacturers, the postponement or cancellation of potential capacity expansion projects is a positive for the industry, albeit a bit later than hoped.  With little demand expansion expected for the display space over the next year, and the expansion of new product categories, such as AR/VR and Micro-LED still a few years out, there is little need for greenfield capacity, unless it is dedicated, such as has been the case with Apple (AAPL) and LG Display (LPL) in years gone by.  But with a number of OLED panel producers chasing the same potential future Apple business, and the thought that the automotive display business cannot be supported by existing capacity, has pushed some to set capacity goals a bit unrealistically. 
While most expansion plans are rarely fully cancelled (it does happen), most slow considerably or change from one display modality to another as display perspective change, and delays or postponements of new capacity currently serve to tighten the supply side of what is an unbalanced equation currently.  Without a return to the incremental demand seen during the height of the COVID pandemic, or a more conducive spending environment, the display and even the entire CE space must focus on supply, at least for the 1st half of 2023, so we view any delays and postponements as a positive, despite the implications for tool vendors and similar suppliers, as it seems better to take a short-term hit than to live through an extended downturn that could impact the entire industry.  It’s the best of a bad situation.

AR/VR is a controversial subject in the CE space, with some CE companies making big bets on the technology, while others are still skeptical as to the validity of the technology as a competitor to more typical visual modalities.  We understand that those who have a stake in the AR/VR world will be far more optimistic about its prospects than the average Joe, and we therefore take most forecasts, especially those in the out years, with a grain of salt, and rightly so as estimates, even for this year, have come down considerably.  For example an estimate made in 2020 for XR unit shipments in 2025 has been reduced from 43.5m units to 23.8m units, with similar changes in earlier years.  That said, our attention to the space is predicated on the eventual adoption of XR by a number of major CE companies, whose motivation is not to promote a ‘new world’ or lifestyle, but to sell devices, assumedly the goal of all CE companies.
We do believe that the adoption of XR will be somewhat generational, with those that have grown up with smartphones as an extension of their bodies and personalities more willing to accept the notion of XR without the trepidation that comes from a generation that grew up with radio and TV as ‘social media’, and that will take time, but we believe the adoption of XR by Apple (AAPL) will help to legitimize XR and push it further into the more consumer oriented spotlight.  We do see a bit of a divergence between the two components of XR, with AR being the more practical application and VR having a more entertainment oriented focus, although AR will continue to have a smaller share of the XR unit total at least for the next year or so.  We also expect the two segments to merge somewhat, with a number of devices allowing the user to use the headset as an AR device, while also providing for a ‘blocking’ system that will allow the user an immersive VR experience.
Aside from the potential usage characteristics for XR, there is another important aspect of XR devices that needs to be addressed, that of ‘wearability’, and by wearability we do not mean how comfortable a headset might be but more how it looks to the outside world.  We have all seen pictures of those wearing VR headsets wildly gesticulating as they stand in the middle of a room or sit on a couch, and that is certainly an image that does not serve to entice a broad swath of consumers to try such a device, although it is likely quite attractive to the gaming population.  More to the point would be AR headsets, which are slowly evolving into devices that are close to normal glasses, thanks to optical solutions like pancake lenses, that reduce the bulk behind AR headsets, which makes them more practical for their use as an ‘everyday’ item that can be worn without the stigma of a VR headset, and will eventually become unobtrusive to consumers.
Of course there are many practical applications for both AR and VR, but while VR unit volumes are substantially higher than AR unit volumes, we see AR as the more ubiquitous device for the long-term, especially from a generational standpoint, with the information currently presented on a smartphone display projected in front of you, without blocking normal vision, a way of reducing the need to look at a screen that you have to take out of a pocket as it is always on and in front of you.
Right now, we have to look at the XR space more from the standpoint of a typical consumer device, and as almost all consumer devices have a visual interface, we start with the displays that have been and will be used in AR and VR devices.  There are a number of existing and potential displays that have been and can be used in AR and VR devices, so we offer a bit of a primer on what they are, how they work, and our data on which are gaining or losing traction.  We note that these displays tend to be more complex to manufacture than smartphone displays, particularly as they are situated within millimeters of the user’s eyes, making the resolution and pixel pitch[1] key metrics.  Such displays are considered ‘near-eye’ displays and while they are typically produced on display production lines similar to those used to produce CE displays, their characteristics are pushing the technology needed to satisfy near-eye criteria toward less typical production methods.
Most CE displays are based on a glass or plastic substrate, and while those platforms are certyainly acceptable for typical CE displays, the higher tolerances of near-eye displays have pushed development toward silicon-based displays, which are just beginning to show merit as to reducing the feature sizes needed for near-eye displays.  What makes this even more attractive to display producers is the processes use equipment that display producers already have on the fab floor, particularly semiconductor lithography tools that are used to make display TFT backplanes.  This gives the DoS (Display on Silicon) world a path into the future that requires potentially less capital and infrastructure than would be the case for a ‘new’ display technology, and gives the industry an easier path to building pilot DoS lines to further develop the technology.
That said, the AR/VR industry still has the necessity of having access to mass production that can keep costs at reasonable levels and that tends to lean toward existing display modalities, so we looked at all of the AR/VR devices produced since 2013 and traced the display types used in those devices.  Not all of the device manufacturers have been forthcoming about the type of display used, so there is an ‘unknown’ component, but we broke down the display usage into groups for those that disclosed the information, using the manufacturers ‘classification’ as to the type of display.  In some instances there were nuances that made us wonder if the AR/VR brand was accurately portraying the dive display, but without disassembling a multitude of AR/VR headsets, we took the brand’s word at face value.
This broke down the displays into eight categories based on four technologies, Liquid Crystal displays (LCD), OLED displays, LED displays, and DLP, which we describe in brief below.

• Liquid Crystal Display (LCD) – A display in which light is generated by a BLU (backlight unit), which passes through or is blocked by a liquid crystal material.  The liquid crystal is ‘controlled’ by TFT (Thin-film Transistors) circuitry that can shift the optical characteristics of the liquid crystal to let the light through or block it.  If the liquid crystal is ‘open’, the light passes into a color filter, essentially a sheet of red, green, and blue phosphors that change the white backlight to their respective colors.
• OLED Displays (OLED) – A display that uses phosphorescent and fluorescent materials that emit light when controlled by a TFT system similar to that used in LCD displays.  In small OLED displays, the OLED materials are arranged to form a pixel composed of red, green, and blue OLED materials, each of which can be individually controlled.  Since these materials are self-emissive, there is no need for a color filter.
• LED displays (LED) – As mentioned above, LCD displays require a backlight that is usually an array of LEDs (Light-emitting Diodes), and in most cases the term ‘LED display’ is used to mean an LCD display that uses an LED backlight, however, there are also display technologies that are based on the LEDs themselves as emitting devices.  In some cases individual red, green, and blue LEDs are used as self-emissive components, similar to the way OLED materials are used, and in other instances single color LEDs are used, using a number of methods for converting the color of the light (more below).
• DLP (Digital Light Processing) – This technology uses a white light source that is split into primary colors.  Three micro-mirror chips for each pixel, which are individually controlled, reflect the prism’s light or block it, to create each pixel’s color combination.  More commonly used in cinema projection systems, the technology is rarely used in near-eye devices.

While those are the main near-eye display categories, there are a number of ‘flavors’, as noted below:

• Mini-LED – Essentially an LCD display, but with much smaller LEDs in the backlight, giving a higher level of control over each pixel.
• QLED (Quantum Dot) – Similar to the Mini-LED above, these displays use quantum dots to narrow the spectrum of the LED light and enhance the color characteristics.  In some cases, the quantum dots can be used as a substitute for the color filter, shifting the white light to red, green, and blue, rather than filtering to preserve brightness.
• LCoS (Liquid crystal on Silicon) – Similar to DLP and LCD, LCoS uses liquid crystal to reflect or block the RGB light sources, and is based on a silicon substrate.  LCoS is also used for projection devices but has been used in some near-eye displays.
• Micro-LED – Micro-LED displays are based on self-emissive LEDs that are either a single color or have a red, green, and blue LED for each pixel.  In single color micro-LED displays quantum dots are typically used to shift the single color light to RGB as RGB micro-LEDs are relatively difficult to produce.
• Micro-OLED – Similar to more typical self-emissive RGB OLED displays, micro-OLED displays are produced on silicon and do not use typical evaporative OLED material deposition.  While there are a number of potential micro-OLED processes, rather than the masks used to create pixels with OLED materials, micro-OLED displays are created using photolithography on silicon.
• eQD – While not in our data for existing AR/VR headsets, we note that at some point in the future we expect that quantum dots will also be used as a self-emissive light source, likely based on silicon photolithography.  Right now QDs are typically used as ‘color shifters’ converting one color of light to another, a step above phosphors which filter out other colors.  By electrically or optically stimulating QDs, they give off light that is easily tailored to specific colors.  Not yet a product but one that will inevitably be used in near-eye displays.

As noted above, we traced the evolution of Ar and VR display technology back to the early days of XR and mapped the progress (or demise) of each technology according to the number of devices that used the technology.  This data is not unit based in terms of units sold but based on the technology share of the number of models available to consumers on a yearly basis.  While this would not be a basis for determining which technology ‘sells’ the most units, it does show trends, especially the right-hand column noted as ‘unreleased’.  This represents those AR and VR devices that have been announced but have yet to be released and would represent the (hopefully) leading edge of AR/VR display technology.  While Figure 1 and Figure 2 show the composite AR/VR Display history and Figure 3 shows the combined totals, the AR/VR Display History Individual Charts (Figure 4 - Figure 12) tell more of a story.
LCD is still the Oculus 2 (FB), the only release in 2014 contained an OLED display, giving it dominance that year, and while OLED has seen its share decline in both AR and VR over the last few years, Figure 11 shows that Micro-OLED is gaining traction over the last two years, and in those devices still unreleased.  Mini-LED, Micro-LED and QLED near-eye displays are still in the emerging category, while DLP has disappeared.  LCoS, as a reflective technology remains viable for AR (Magic Leap (pvt)), but we expect micro-OLED and modern optics will lessen its appearance.
Once again, we note that regardless of the forecasts for XR, the CE space is always looking for new hardware to sell, and while AR/VR is a bit different than your usual CE fare, it has the potential to become another revenue source for CE companies and the display industry.  As few CE devices are not display oriented in some way, we focus considerable attention to the display space to spot trends, both in the near-term and on a long-term basis.  Should a large CE company decide that XR is a viable consumer product, the media will blast the web with headlines about the merits of AR/VR and how it will change the world and the way we see it.  Therefore, we look to keep one step ahead and look to spot trends and direction that will move the XR space ahead or delay its (2nd or 3rd) ‘dawning’.


[1] Pixel pitch is the distance from the center of a pixel to the center of an adjacent pixel and is usually measured in millimeters or microns.

As we previously noted, October LCD panel pricing was mixed with TV panel pricing up 4.5% and combined aggregate IT panel pricing down 1.6%, which implies that panel producer results will be quite dependent on the overall mix of orders.  TV panel revenue for most panel producers has been declining as a percent of the total, given the rapid TV panel price declines that have been evident since July of last year so the TV pricing leverage will be relatively small, although AU Optronics (2409.TT) saw its 3rd consecutive monthly improvement is sales, while competitor Innolux (3481.TT) did not, after a sales jump last month.  Hannstar (6116.TT), primarily a small panel producer, saw a m/m improvement in sales after a weak September, but continuing the downward trend of sales for the year.
While m/m results are looking a bit better for Taiwan LCD panel producers, we expect they will, bounce along the bottom for the remainder of the year, with the objective being to lower inventory levels and attempting to only take orders for lots that are priced above cash costs.  Taiwanese based LCD supply chain participants tend to be focused on making aggressive inventory adjustments before year-end to enhance year-end financials, and weakness coming from Chinese COVID lockdowns will all likely contribute to a lackluster 4Q.  That said, there is some hope that the inventory reductions underway will keep the seasonally slow 1st quarter from being a disaster, but without a demand driven recovery, it would be hard to make the case for anything but a relatively flat 1Q.  

For panel producers, large or small, decisions about entering new markets or expanding or reducing capacity are significant given the cost of both the construction and equipment involved in such decisions.  The ~18 months needed for building out greenfield capacity, along with the additional 6 months of ‘tuning’ and yield management that follows, can make those decisions even more critical as the CE space sees shorter product cycles and considerable competition from Chinese producers.  A wrong decision can leave a panel producer with an expensive line that takes years, if ever, to become profitable, along with the burden of depreciation.
Both LG Display and Samsung Display are in the midst of that major decision making process, with both finding the current macro environment making those decisions harder and less likely to be made as originally expected.  SDC has been working toward the expansion of its OLED production capacity to facilitate a push to bring OLED technology further into the IT space, meaning monitors, notebooks, and tablets.  SDC is already producing relatively small numbers of such IT displays which have made it into mainstream products, but this production has been done on existing Gen 6 SDC infrastructure, which is more oriented toward small panel (smartphone) production.  While the glass substrate upon which mobile devices (smartphones) are produced are almost 30 ft2 and can contain almost 300 devices on a single sheet, the chambers used for the deposition of OLED materials are unable to process such sheets, forcing the substrate to be cut in half or quarters to be processed.  This slows production and makes it less efficient, so SDC and other OLED producers have been working toward moving their RGB OLED display production to Gen 8 lines, which use substrates that are over 2x larger, there are problems associated with such large substrates, along with the deposition chamber size issue mentioned earlier.  As we have noted previously, Samsung is working with partners to develop a deposition system that can process an entire Gen 8 substrate without cutting, which would have a significant impact on efficiency and therefore cost, but the decision as to whether to build out capacity based on a tool that has not been used for mass production is a serious one, along with the cost of such a tool, which we would expect to be $200m to $300m, and the other equipment and fitting needed.
Samsung Display is also evaluating the timeline for the expansion of its QD/OLED production capabilities, which are currently limited to a 30,000 sheet/month line.  The expansion of that capacity would likely cost less than $1b, given it would be done in an existing SDC site that is currently not in operation, but again, it would include substantial depreciation, capital expense, and likely weigh on profitability for some time after it begins operation.  At the same time, LG Display is evaluating when it might order equipment for a potential OLEDos (OLED on Silicon) production line that would be used to produce AR/VR high resolution displays, with a timeline that must coincide with Apple’s plans for a 2nd generation AR/VR device (Sony (SNE) is expected to produce the displays for the 1st generation device).  Such a decision, particularly the equipment ordering, was expected last quarter but was postponed and could be pushed forward again.
These decisions are all being hampered by the state of the global economy, particularly the fear of a global recession in 2023, and the prospects for continuing Chinese COVID-19 lockdowns adding to the negativity.  As these are major capital and strategic decisions, it is understandable that managements want as much time as possible to see how the macro economy develops, and with the holiday season on the horizon, how consumers participate this year.  Other factors, like the war in Ukraine and the semiconductor trade issues with China add to a witch’s brew that seems to have put the display space and much of the CE space on hold until next year, with little excitement over delving into new technologies or capacity risk taking. 
All  of this is understandable, especially to those that cannot count on governmental subsidies to fund new projects or support extended payback periods, but at the same time the rapid change in demand that occurred when COVID became a global issue made it apparent that the JIT global supply chain was far less flexible than most had thought and without the capacity expansion and technology risk taking that seems to have gone by the wayside currently, the CE space will face another cycle of rapid price increases or shortages whenever the demand gap is suddenly filled by some global event.  In the past companies like Samsung and LG took big risks in the display space and in most cases reaped significant rewards, but we fear that the recent CE down cycle might have tempered some of the bravado that is necessary to lead an industry.  Hopefully the fear will pass quickly.

​The Board of Directors of China’s BOE (200725.CH) has approved the capitalization of its latest OLED fab project, a $3.98b US project to be constructed in the Beijing Economic & Technological Development Zone.  The project is a Gen 6 OLED fab (1500x1850) that will sit on a 420,000 m2 site, and will be oriented toward the development and production of VR devices using micro-OLED technology.  The fab will also be capable of producing mini-LED backlight products and will have capabilities for both LTPS and LTPO backplane technologies.
The fab construction is expected to begin next year and be completed in 2025, with mass production scheduled for 2026.  BOE will be responsible for 11.5b RMB of the 29b RMB cost, with the remainder coming from a subsidiary of Beijing’s Economic Zone State-owned Asset Investment & Development program.  As is typical of such state financed projects, BOE will own 79.31% of the project, despite providing 39.7% of the financing.
This project will give BOE the ability to produce VR oriented micro-displays, a capability it does not presently have, and will further the development of its LTPO backplane technology when it is in operation.  LTPO is a key technology in that it combines the best aspects of LTPS and Oxide backplane technologies, but more to the point, is the backplane choice of Apple for OLED displays going forward.  Currently Samsung Display (pvt) is the only high volume LTPO provider, with LG Display (LPL) beginning to commercialize the technology, so if BOE is to compete with SDC, they need to spread their LTPO know-how to as many potential Apple projects as possible.   While Apple’s first foray into the XR world is expected to be produced by Sony (SNE) using micro-OLED, 2nd generation devices could be micro-OLED or micro-LED, both of which could be produced at the new BOE fab, according to the company, so it seems obvious that BOE is moving ahead with this project to gain ground with Apple.  That said, the competition for a 2nd generation VR display out a few years, will be intense and while Samsung Display is the de facto leader in small panel OLED, micro-OLED displays are far more difficult to produce than current smartphone or current VR displays, which are still primarily LCD displays.  While this project is an ambitious one, it will not be in production until 2026.  A lot can happen in the interim. 

Japan Display (6740.JP), in keeping with its goal of reducing costs to bring the company back to profitability, has sold its display module facility in Suzhou to a Chinese OEM, converting fixed costs to variable.  The module plant, which was incorporated in 1996, takes raw (‘open cell’) panels produced by JDI and adds backlighting, a frame, and a number of other components to create a display that can be used in a device.  The subsidiary had annual sales between $394m and $487m over the last three years, but had net margins of 0.6% to 2.8% over the same period.  The sale price, which is subject to a final audit, is ~$139m, which represents ~32.2% of the average of sales over the last three years.  The sale is expected to be completed sometime between January and March of next year as it must be approved by a number of government organizations, and JDI will continue to use the module plant as a customer of the buyer, DSBJ (002384.CH), an OEM and assembler based in Suzhou.
While the last few years have been quite difficult for Japan Display as its primary customer, Apple (AAPL) has converted from LCD displays to OLED displays for its iPhone line, with JDI having little or no OLED capacity[1].  The company brought in Scott Callon, the Chairman of Ichigo (2337.JP), and the investment firm that bailed out JDI in 2020, as Chairman and CEO in to guide the company toward a new business model.  Since then the new JDI management has closed one of four JDI LCD fabs in Japan and sold another module facility to Wistron (3231.TT) and while the company is still losing money on a quarterly basis the losses are considerably smaller than in the past and the company’s product portfolio is more oriented toward newer technology where JDI has an edge.  All in, while it is both a difficult display environment and a hard road toward profitability, JDI seems to be making considerable progress toward regaining some of the statue the company had as a major supplier of small panel displays years ago.


[1] JDI shares a board member with JOLED 

Last week we noted that demand for small panel (primarily smartphone applications) rigid OLED displays in 2Q was considerably below expectations (missed by 25.9%), coming in down 19.5% q/q and down 33.2% y/y.  Much of the small panel OLED demand shortfall came from Samsung Electronics (005930.KS) and Xiaomi (1810.HK), and has led to expectations for 3Q small panel OLED rigid demand to decline by 25.9% q/q and by 46.5% y/y.  While these are certainly concerning data points, we also noted that small panel rigid OLED displays are an increasingly smaller part of overall small panel OLED displays, falling to 38.6% in 2Q and averaging 40.1% in 1H after 2021’s average of 44.0%, which puts the focus more specifically on small panel flexible OLED displays for a better understanding of demand for the smartphone OLED display market.
Now that we have full demand data for small panel flexible OLED displays, we note that the results for flexible OLED displays in 2Q was only off by 1.9% putting 2Q composite small panel OLED demand 12.85% below expectations, not a great number but certainly better than the rigid miss.  As can be seen in the table below, while both Apple (AAPL) and Vivo (pvt) came in above small panel flexible OLED expectations, Apple represented 49.6% of actual small panel flexible OLED demand in 2Q and was the only brand that saw better than expected results in the composite, with the composite itself being down 13.6% q/q and down 3.4% y/y.

The weak results in 2Q and the ongoing macro challenges facing the smartphone market have brought down expectations for small panel OLED demand in 3Q although there is hope for a relatively small amount of q/q growth (3.4%), as shown in the table below.  While these expectations translate to a decline of 20.3% (composite) on a y/y basis Apple, Honor (pvt) and Huawei (pvt) are expected to see q/q increases, with only Huawei seeing a y/y increase, a result of the extremely poor results Huawei saw in 2021 due to US trade restrictions. 
All in, another weak quarter for smartphones continues to put a damper on small panel OLED growth, despite an increasing share of the overall smartphone market, with Apple the only substantial standout.  As the iPhone 14 series was announced on September 7, much of the 3Q actual results will rest on the new iPhone line’s popularity during the last 15 days of the month, and based on those results, Apple will determine it order rate for 4Q.  In 2020 and 2021 Apple increased orders q/q in 4Q (11.9% and 71.5% respectively) while the y/y increase was less than 1%.  While we expect Apple is optimistic about customer demand for the iPhone 14 series, we assume they will temper that enthusiasm a bit as the macro-economic situation  continues to weigh on consumer spending, which would lead us to expect Apple’s full year small panel OLED demand to be ~200m units, up 9.8% y/y.  Given that almost all of Apple’s iPhone models (old and new) are OLED, this gives a good approximation of Apple’s 2022 display demand, which should translate into shipments, less build and transport timing and existing inventory.

​Chinastar (pvt), a subsidiary of TCL (000100.CH), celebrated the opening of its T9 LCD display fab in Guangzhou, China last week, with considerable fanfare and the usual ‘glorious’ description of how the new fab, along with Chinastar’s T8 OLED fab that is under construction, will push Guangzhou to become the display capital of the world, generating over $35b US, up from $25.3b that was generated in 2019[1].  The T9 fab however, will not be in mass production until 3Q ’23, running what we expect to be two 30,000 Gen 8.6 sheet/month lines at the onset.  Phase two of the project, another two 30,000 sheet/month lines are expected to become producers in mid to late 2024, while plans for phase 3, another two 30,000 sheet/month lines are a bit too far out for speculation.
The T9 fab will be initially producing IT panels, automotive displays, and PID (public information displays), but is also expected to, at some point, incorporate an ink-jet printing line, along with the T8 fab.  We expect the IJP line will be used for Mini/Micro-LED products at T9, while for OLED materials at T8, although actual IJP based displays at Chinastar are still at the technical demo stage.  Both fabs are expected to be producing IGZO backplanes for the displays they produce and the T9 fab, which is expected to cost upwards of $5b US, will have a module production facility in the complex to take the open cell panels and create display modules that can be sold to OEMs..
Note that Figure 1 shows Chinastar’s large panel sales and Gen 8+ capacity (dotted line), with large panel LCD industry sales scaled to match Chinastar’s January 2019 sales.  Chinastar’s growth through 2021 has been based on the company’s ability to fully utilize the new capacity it has added over that time period, however since the beginning of the year sales have declined rapidly as utilization rates for existing Gen 8+ fabs declined.  The industry has seen sales for large panel LCD displays decline by 32.3% since the end of 2021 while Chinastar has seen sales decline 39.3% over the same period.
While the celebration ahead of actual production is typical, given the current circumstances in the display space, the addition of new LCD capacity, especially Gen 8 type capacity is of little use to an industry that is facing low utilization rates at many Gen 8 and Gen 10 fabs due to weak demand.  Chinastar, now the 2nd largest LCD panel producer in China (19.3% sales share) and the 5th largest (sales) globally (9.3% global sales share) as of August of this year, so we would expect to see sales continue to increase next year as the T9 fab begins production.  That said, a continuation of weak overall display demand next year, T9 could prove to be a significant burden on the company as it will be difficult to fil the new lines along with added depreciation.  Under that scenario, we would expect the phase 2 schedule to be slowed, but with a year between now and the planned phase 2 opening date there are a lot of parameters that could change.


[1] According to Guangzhou Bureau of Industry & Information Technology.

September panel prices offered a ray of sunshine in what has been a dark forest of depressed pricing across all panel categories.  While the shaft of sunlight is a thin one, as all categories (lg. panel, sm. Panel, tot. panel, IT panel, TV panel, Mon. panel, NB panel, Tablet panel, & Mobile panel) are all at their 3 year pricing lows, some solace can be taken in that the monthly rate of decline has been slowing, albeit still negative.  Perhaps as we get closer to the holiday season we are becoming more cheerful, but Figure 1 looks like it is getting close to the zero line, although a polynomial trend line (4th order) would take 6 more quarters to reach zero change.
There has been little change in the balance between buyers and sellers with buyers certainly having the upper hand, while sellers are trying, mostly unsuccessfully, to keep prices from falling further.  We expect there is some panel buying for Black Friday and the Chinese 11/11 holiday, but we temper our optimism with the global macro environment, which is doing little to stimulate consumer demand.  Given that panel prices are at lows and that there has been some relief on transportation and component costs, there is the possibility that as lower utilization rates allow existing panel inventory to be sold, there will be room for lower priced products to enter the market for the holidays, which could stimulate some bargain hunting, but we are still would not raise our expectations substantially for the remainder of the year as there remain considerable negatives on the horizon.
All in, September was slightly better than expected, mostly in the TV panel space, as it peaked and started its decline earlier than other categories.  Our modest sense of optimism, at least for October, is reflected in our October forecast, which portends a better (less negative) month across almost all categories.  We hope our optimism extends more than one month but we take it one day/week/month at a time.