Earlier this week we reviewed panel pricing for December and the year, and we are close to having full data for panel producer sales in December and for the full year.  In the interim, we show results for November, which were slightly better than October, and walk through the display industry on a regional and company by company basis. 
November large panel revenue was up 0.8% m/m but down 30.9% y/y which puts the 2022 YTD (11 months) down 25.8% y/y, while large panel shipments are down 10.7% over the same period.  On a regional basis, both Taiwan and Korea saw m/m revenue increases, surprising in that Samsung Display (pvt) has been winding down large panel LCD production capacity as has LG Display (LPL) to a lesser degree.  Chinese large panel LCD producers saw their overall revenue share decline, following October’s rise, and has seen its revenue share decline YTD from 49.0% in December of last year to 46.6% in November of this year, while Korea has seen its share increase from 19.0% last December to 28.0% this year.

From a company perspective, out of the 10 large panel LCD producers that make up the bulk of sales for the space, 4 saw positive m/m results for November, while the remaining six saw m/m declines.  Of the four that saw positive m/m revenue growth in November, two were Taiwanese, one Korean, and one Chinese, while none are up on a y/y basis.  As noted, industry revenue is down 30.9% y/y for the 11 months and looking at the top 10 large panel LCD display producers, only two are above the average, with the remaining 8 below.  LG Display performed the best on a YTD y/y basis and CEC Panda (600775.CH) the worst.  All in November was, as expected, a relatively quiet month, as panel producers remained beholden to continuing weakness in China, weak early holiday sales, and little change in panel pricing.  We expect little change again in December.

From a company perspective, out of the 10 large panel LCD producers that make up the bulk of sales for the space, 4 saw positive m/m results for November, while the remaining six saw m/m declines.  Of the four that saw positive m/m revenue growth in November, two were Taiwanese, one Korean, and one Chinese, while none are up on a y/y basis.  As noted, industry revenue is down 30.9% y/y for the 11 months and looking at the top 10 large panel LCD display producers, only two are above the average, with the remaining 8 below.  LG Display performed the best on a YTD y/y basis and CEC Panda (600775.CH) the worst.  All in November was, as expected, a relatively quiet month, as panel producers remained beholden to continuing weakness in China, weak early holiday sales, and little change in panel pricing.  We expect little change again in December.

While transparent displays are understandable in a retail environment, LG Display (LPL) has been working toward establishing itself as the pre-eminent supplier of transparent OLED displays and has been trying to convince parent LG Electronics (066570.KS) that this is a viable CE product for consumers.  Meetings between the display producer and parent earlier this year gave some indication that LGE was considering the idea for the 2023 TV set year but recent comments out of South Korea have indicated that no progress has been made on the idea, at least for the 2023 year, leaving it open for 2024.
Given the weakness in the CE space and the TV market overall, the idea of a new TV modality, and the costs associated with development, production, and advertising seem a bit off center, but we still have trouble with the concept itself.  Understandably, many would like not to have a massive black screen situated in a well-decorated room, and we agree, however a transparent TV, one that would look like a glass sheet, does not come without drawbacks.  In a normal OLED display, the display stack has a reflective metal cathode, so as light is generated by the emitting materials, it is reflected back and exits the display.  In transparent OLED displays, the cathode is made of a transparent material, allowing light to pass through the OLED display.  That said, each pixel in an OLED display has a driver circuit, which takes up a portion of each pixel, and while that circuitry is invisible in a transparent OLED display, it reduces the amount of light that can pass through the display.  This makes transparent OLED displays, when off, between 70% and 85% transparent relative to clear glass.  When in operation, while the display is roughly as bright as a regular OLED TV, ~38% of the image is what is behind the display, reducing the clarity of the picture.
As a display in a retail environment, such as a store window, this is not n issue as the concept is usually to add to what the viewer sees through the window, perhaps overlaying text or changing images, but still allowing the in-store merchandise to be seen.  In a residential environment, the viewer is usually interested in the best possible image, and making the above compromises for transparency reduces the quality of those images.  Chinese CE company Xiaomi (1810.HK) offered a 55” transparent TV in August 2020 based on an LG Display OLED screen for $7,200, but from what we can derive, sold very few sets and no longer offers the set on its website.
As transparent displays improve, we expect there will be more adoption in the commercial space, but we still find it unusual that LGE would consider such a product given the cost and trade-offs that consumers would have to experience.  LGD does have some slick videos about potential transparent OLED display applications, but they all fall under the commercial (signage) product line, which, in our view, is where they belong.  While we certainly commend LGD for looking to expand its transparent OLED display base, it seems a technology looking for an application in the consumer space.

December
December was another wishy-washy month for LCD panel prices, with little movement in either direction, which after a few years of unusually large monthly swings, is the second month of essentially little or no change in LCD panel prices, and a positive in our view.  That is not to say we could see continued weakness in panel prices, especially given the spike in COVID cases in China as they reduce lockdown restrictions, but a bit less volatility is a good thing.  It is difficult to judge whether the lesser COVID restrictions in China will unleash some pent-up demand or whether the higher infection rate will keep that in check, but data from the 12/12 shopping holiday in China (a subset of the more well-known 11/11 shopping holiday) indicates that TV shipments were down 8.2% y/y and sales value was down 15.8% y/y for the 12/12 holiday, even with TV set ASP declining 11.5% between the 11/11 holiday and the 12/12 holiday. 
Notebooks and tablets did better than our December forecasts, pushing IT LCD (Monitor, Notebook, & Tablets) also above our forecasts, with the remaining categories within the forecasted range.  We expect relatively similar results for January, with the total LCD panel prices between -0.3% and +1.5%.  As a bargain hunting month in the US, we are modestly optimistic about overall LCD panel prices early in the 2023 year, but have already heard that one of three panel producers in Taiwan is expecting to see the company’s utilization rate increase from ~65% currently to 80% to 85% in the first quarter.  This change alone would represent a 2.5% increase in industry capacity on a m2 basis, and while we would expect capacity decreases from South Korean producers to offset some of that expected increase, we expect other producers will also take the new year as a possible ‘better world’ and increase utilization rates. 
As whatever stability the LCD panel space has seen over November and December has been driven by supply reductions rather than demand, we become more cautious when we hear that utilization is potentially increasing in the new year.  Understandably, panel producers want to have an optimistic view and are looking for a better year than 2022 in 2023, but a slow implementation of utilization reductions last year (2022) was responsible for the difficulties the LCD panel space saw during what should have been its best quarter, so hopefully the same mistake will not be repeated in reverse.  That said, panel producers are a competitive lot and do not always do what is good for the industry, so while we see a relatively flat January, we are on the alert for misplaced optimism going forward.

2022
Sometimes numbers speak louder than words and in the case of LCD display panel prices this year, the table below says pretty much the bulk of what needs to be said.  Other than TV panel prices, which hit 2022 lows in September, and the categories in which TV panel prices are a part (‘Large Panel’ & ‘Total’), all panel categories are at their lows for the 2022 year and for the three-year period from 2020 to 2022.  What the table does not tell is that the results are the same for the five-year period between 2018 and 2022, putting all categories, other than TV LCD panels, at their lows going back to January 2018, two years before the COVID-19 pandemic began, so the mantra of returning to pre-pandemic levels tends to soften the fact that panel prices are at lows that are in some cases, the lowest in 8 years.  

We do note that the effects of COVID have had a major influence on panel prices, both to the positive and to the negative, but the one fact that seems to override the effects of COVID is that panel production is driven by individual companies that do not work toward a common goal.  There is always the “…if they are doing it, we have to also do it…” short-term view that would seem to be a result of management looking at daily, weekly, or monthly numbers and making decisions without evaluating the near-term impact on the industry overall.  This shortsightedness seems to drag out each cycle, as the hard decisions are put off, ”…to make sure the other guy doesn’t do better than us…”, even if such decisions are detrimental to the industry.  This lack of industry coherence was quite obvious this year as many panel producers held off the utilization cuts that they knew were the only way to stem the tide of falling panel prices. 
We do note that there were other factors at play, such as high component costs, especially early in the year, and the resulting pressure to raise prices to compensate, eventually raising the specter of a global inflationary environment.  But many were predicting an end to Mr. Toad’s Wild Panel Price Ride late last year and early this year, yet panel producers continued to view the world with rose colored glasses, and have been paying the price most recently.  It would seem that either panel producers have poor economic forecasters on staff, or managements pay little attention to them, likely the latter, but the industry only seems to respond when hit repeatedly over the head.  The CE space overall is relatively poor at responding to economic indicators, so we don’t put the entire onus on panel producers as they must respond to customer requests, which can also be contrary to logic or the health of the industry, so we struggle to see a solution to the problem, which tends to be made worse by governments who support industry growth with subsidies, regardless of the consequences.  It’s a complex ecosystem that seems to find itself back in the same position every few years, albeit with a bit of CE matter being sucked into a black hole.  While black holes are among the most destructive forces in the universe, it seems most would know enough to stay as far away as possible.  JOHO
 

​AU Optronics (2409.TT) has said it is considering building a module/assembly plant in the US.  The company, among the top 5 panel producers globally, produces panels in Taiwan and China, is expected to make a decision in 2023 at the earliest, with mass production scheduled for 2025 if approved.  Other than a sales office in Farmington, MI, a bit outside of Detroit, that is a point for AUO’s automotive display business, they have little representation in the US, and while their panels are in a number of TV sets under major brand names, they are not well known in the US.
While a module/assembly plant is a far cry from a display panel fab, it would be unusual for a panel producer to build such a facility in the US given its high cost of labor.  Typically North America is served by assembly plants in Mexico or Brazil, so such plans would be out of the ordinary, but given the incentives the US has put on bringing foreign electronics manufacturing back to the US, the net result could make such a venture a bit more competitive, especially given the high cost of transportation CE producers have faced recently.  While an unusual decision, and one that could also be used to leverage negotiations with potential assembly sites in other countries, it would be nice to see tangible results from the current administration’s efforts to bring CE and semiconductor manufacturing to the US.

​LG Display (LPL) has decided to end TV panel production in South Korea by winding down production at its P7 LCD fab , producing only to fulfill long-term existing contracts.  LGD is also expected to reduce LCD TV panel production at it fabs in Guangzhou, China from 210,000 sheets/month to 120,000 sheets/monthly, leaving that fab as the only one that will continue to produce LCD panels for the TV space. LGD’s P8 fab, which is a Gen 8 fab will produce LCD panels for IT displays (notebook, monitor, and tablets).
LG Display has expressed its intentions to reduce or eliminate LCD TV panel production in South Korea in the past, however the rise of TV panel prices during the COVID-19 pandemic in 2020 and 2021 , gave them reason to postpone those changes, likely with encouragement from parent LG Electronics (066570.KS), who, along with most other TV set manufacturers faced short supply from other sources.  Since last July the price of LCD TV panels has declined precipitously, making the decision a bit of an assumption.
Both Samsung Display and LG Display have been facing aggressive competition from Chinese panel producers, who are able to produce generic LCD TV panels less expensively due to lower labor costs and government subsidies.  In recent quarters, LG Display, along with other non-Chinese panel producers, have shifted away from direct competition with the Chinese and tried to change their mix toward higher margin more specialized products.  While this has offered a bit of protection from competition, weakness in the overall display market has lessened the benefits of those changes and pushed LGD and potentially others to restructure fabs in order to maintain a profitable mix.
Some have moved toward OLED, which we expect will be the case for LG Display in the future, converting P7 to either an OLED IT panel fab or an OLED TV panel fab, but given the current macro circumstances, such decisions can wait for a quarter or so to see how the holidays pan out and what the longer-term picture might be.  While it is expensive to have an idle fab of the size of P7, it is certainly less expensive than running it at low utilization rates or producing at cash costs or below, so the decision was imminent, although we will have to wait until January to get more information on how quickly the implementation will take place, the cost, and if any plans for the future of the fab have been made.

​As we have noted in the past, public companies that are listed on the Taiwan exchange are required to report sales on a monthly basis.  This gives investors a view of actual results during the quarter, rather than having to wait for quarterly results, and helps us to spot trends that are company specific or industry wide.  There are three display producers in Taiwan, AU Optronics (2409.TT), Innolux (3481.TT) and Hannstar Display (6116.TT), although Hannstar is primarily a small panel display producer.  We have been tracking such data since 2003 and have built our models using such monthly results, along with a number of other data sources, to gain insight into the display space as a subset of consumer electronics.  It is our wish that other exchanges would implement the same monthly requirements, but realistically the likelihood is infinitesimal so we take what we can get.
AU Optronics reported November sales of NT$17.48b ($571.04m US), up 1/7% m/m and down 43.4% y/y, as a typical (5 yr. avg.) November has been up 1.2%, November m/m results are slightly better than average.  AU Optronics reported area shipments of 1.5m m2, up 17.3% m/m but down 30.2% y/y, which implies an ASP/m2 of NT$11,650, which is down 13.1% m/m and down 18.9% y/y.  Based on the November report, AUO saw improved utilization but lower panel prices, netting out to a slight improvement in overall sales.  December for AUO is typically up 0.4% m/m.
Innolux reported November panel sales of NT$16.182b ($528.63m US), up 3.7% m/m and down 39.1% y/y.  With a typical (5 yr. avg.) November being down 3.8%, Innolux saw a stronger than expected improvement in sales during the month.  Innolux also reported large panel shipments of 9.17m units, up 4.6% m/m but down 22.8% y/y, and 19.75m small panel units, down 9.9% m/m and down 29.3% y/y.  December is typically up 1.5% m/m for Innolux.
November panel sales for both AUO and Innolux were better than we expected given the relatively poor results we have seen from CE retailers, albeit mostly anecdotal, bringing the 4th quarter YTD (2 months) results up 3.6% q/q for AUO and up 2.4% q/q for Innolux, but if we assume a flat December for AUO, 2022 will show the worst yearly performance since 2005 which puts the year in better perspective. Results from other panel producers will likely be less onerous using the same long-term perspective, particularly Chinese LCD panel producers, as they have ben adding capacity over the last few years while Taiwan producers have not, but we expect that on a static capacity basis most panel producers’ full year results would look the same.  We look at 2022 in the LCD panel business as the ‘hangover year’, after the parties in 2020 and 2021, and expect 2023 to be a bit less frenetic but still needing Tylenol™ and electrolytes to make it through the year.

Many consumer electronics companies have developed or purchased dedicated production facilities for key components, who can both guarantee supply and use excess capacity to produce for external brands, especially display panels that are the basis for many CE products.  Typical examples would be Samsung Electronics (005930.KS) affiliate Samsung Display (pvt), LG Electronics’ (066570.KS) subsidiary LG Display (LPL), China’s TCL (000100.CH), that owns Chinastar (pvt) and Foxconn’s (2354.TT) ownership of Innolux (3481.TT).  These panel producing subsidiaries run quasi-independently in most cases, and while they are typically the primary display supplier to the parent company, they are not necessarily the only supplier, with parent TV, IT, and mobile divisions purchasing displays from a variety of sources, with many of those decisions based on supplier panel pricing and expertise.  Further, most large CE brands farm out design and assembly of a portion of their lines to OEM/ODMs, who are not necessarily bound to the brand’s supplier list, allowing them to source display panels from suppliers with whom they have relationships.
 
This leads to an ever-changing complex web of interconnections that not only can influence company results but play a significant part in ‘display’ politics, and recently a conflict between LG Electronics and Chinese panel supplier BOE (200725.CH) has made those connections and conflicts quite obvious, and exposes the struggle that such purchaser/supplier relationships can incite. 
 
BOE is the largest LCD panel producer in China and the largest producer of LCD panels globally.  While the company has been growing both capacity and sales over the last few years, BOE faces stiff competition from both Samsung Display and LG Display as BOE tends to be the less expensive supplier.  That said, BOE has been so aggressive toward building its large panel LCD display business that it became apparent to both competitors that they could not compete with BOE on a price basis, which led to SDC’s complete withdrawal from the large panel LCD production market, and LGD’s large reduction in large panel LCD capacity. 
 
Both competitors however have developed OLED capacity as they have decreased LCD capacity, with SDC dominating the small panel OLED market and LGD dominating the large panel OLED market and remain closely tied to parent organizations due to those display products.  BOE, while putting billions to work toward building out its own OLED capacity, does not have the OLED experience that its South Korean competitors have, and has faced challenges as it has entered the OLED display market.  One of the bellwethers for the OLED market is being added to Apple’s (AAPL) display supplier list given Apple’s stringent requirements for its displays, and as BOE has been qualified as an Apple OLED supplier, after an arduous and frustrating path to that goal, BOE has shown itself to continue to be a strong competitor.
 
In fact, due to BOE’s large scale LCD production capacity, the company supplies displays to both Samsung Electronics and LG Electronics, and is the largest outside display supplier to LGE, supplying over 40% of their large panel LCD displays, which would make one assume that they have a somewhat ‘protected’ status with the parent organizations, but that is not the case.  Samsung Electronics recently omitted BOE from its supplier list, likely over a conflict between the companies over an advertising fee that Samsung required from BOE,, and Samsung Display has issued a warning to BOE and its customers over allegations that the company tweaked its pixel structure slightly to avoid paying SDC a license fee for the underlying IP.  Included in that warning to BOE’s customers was Apple, SDC’s largest outside customer which makes the conflict all the more sensitive to SDC where a misstep could damage that key relationship (Samsung Display is expected to have captured between 70% and 80% of the display business for the Apple iPhone 14).
 
If that is not enough of a conflict, a subsidiary of LG Display known as Global OLED Technology LLC (pvt)[1], that maintains and licenses the OLED IP that is owned by LG Group (pvt), the entity that controls all LG companies, has also recently warned BOE that it is infringing on OLED patents owned by LGD.  However, thus far they have limited the conflict to just a warning and have yet to file any court documents, the typical next step toward forcing BOE to pay due royalties.  Given the large role that BOE plays in the TV business of LG Electronics, there are multiple factions involved in the pursuit of IP license dollars from BOE, bringing such conflicts to the highest levels of corporate hierarchy.
 
Such IP battles have always been a part of the display space and the CE space overall, but we expect to see more aggressive behavior, not only due to the competitive nature of the players, but as a result of the display cycle.  Since 2020 panel producers have been focused on being able to supply COVID related increased demand and with that goal, have paid less attention to costs.  With demand slowing and costs still high profitability has waned, which we believe will focus more attention on cost containment going forward.  Along with costs we expect and increased focus on exploiting existing revenue sources that are not display production oriented, and there is nothing better than a high margin royalty in that regard.  We expect a renewed focus by display IP holders to capture IP dollars in 2023, and while this might rile feathers a bit, we expect to see a bit of a shift in corporate sentiment toward enforcement rather than appeasement as a result.
 


[1] Global OLED Technology LLC is 32.7% owned by Idemitsu Kosan, a Japanese chemical supplier, with the rest divided between LG Display, LG Chem, and LG Electronics. 

Display panel pricing is a singular piece of incremental data in the CE space.  Given that almost every CE device has a display of some sort, display attachment rates are near 100% and with displays typically the most cost single component of a device, their price is integral to the overall BOM.  While the price of displays does not immediately track to CE device retail prices as display inventory can reside at many points in the CE supply chain, the trend in display panel pricing  can signal both changes to consumer CE prices on a forward basis, and the profitability of a number of participants in the CE supply chain. 
First in line would be the panel producers themselves, a relatively limited number of players that can be categorized by their size and/or their product line-up, but as the supply chain for the display industry itself is a complex one, each sub-group, while they certainly have their own characteristics, is affected by display panel pricing, some of which are industry groups created specifically for the display industry.  Display glass is one such industry, and while a subset of the overall glass industry, there are only a few players that produce commercial quantities of glass for displays.  In a real sense there are only a few major players, Corning (GLW), Asahi Glass (5201.JP), Nippon Electric Glass (5214.JP), Avanstrate (500295.IN), Schott (pvt), and Rainbow (438.HK).  Given that glass is the substrate or working production platform for almost every display, display prices, while not directly affecting display glass prices, can be a harbinger of demand for this particular ~$6b market.
LCD displays are driven by LED backlights, which are a subset of the overall LED manufacturing industry that includes LED lighting as its largest application (~33% in 2021).  but if you add signage, consumer products, large displays, mobile displays, and Mini/Micro-LED displays, display applications are 38% of the LED market (sales), larger than lighting, making display pricing a key function of that ~$16b market.  Display production equipment, another highly specialized industry, is a ~$10b industry that is closely tied to panel demand as reflected in panel pricing, and the causality of display price changes has a great influence on the electronics assembly business, where companies like Foxconn (2354.TT), Wistron (3231.TT), Pegatron (4938.TT) and Quanta (2382.TT), acting as assemblers or as ODM/OEMs, can see their business change radically as display pricing trends change.
Outside of the display supply chain, there is a litany of CE companies who must compete against each other to provide the most value to consumers, who have relatively little loyalty to brands and see CE products as ones that should always come down in price.  Display choices by such brands are significantly affected by display panel prices as a major contributor to product BOM and margins, so there are few in the CE space that are not directly or indirectly influenced by display prices, the reason we have been collecting such data since 2009 and are a bit obsessive about tracking such data.
OK, enough self-justification…   November display pricing was positive (m/m) for the first time this year, which many will take as a sign of a pricing recovery, however the overall increase was entirely the result of TV panel prices, which increased by 4.3% in the aggregate, while all other panel categories declined.  TV panel prices, which began their climb during the early days of the COVID pandemic, started falling sharply last July as consumers began to venture from COVID confinement.  IT panel (monitor, notebook, tablet) prices lagged as component shortages kept supply constrained, but peaked just two months after TV panel price peaks, and despite the industry’s insistence that we were experiencing a ‘new normal’, IT panel prices have continued to decline since.
TV panel prices not only retraced their pre-COVID lows but fell to levels that put them below cash costs for many panel producers, with the eventual result being lower panel fab utilization and in some cases panel producers went as far as to refuse orders that they believed would price out at a loss.  In October TV panel producers saw an opportunity, in that lower TV panel production had seemed to tighten the market a bit, and used that opportunity to raise TV panel prices for the first time this year.  TV brand panel buyers, with the understanding that TV panel prices were at historic lows, accepted the increase in October, however, panel producers saw that increase as a chance to salvage 4Q sales and profitability and pushed for more increases in November, as noted above.   That said, the global macro environment continued to deteriorate in November and Chinese and US holiday results were lackluster, which brings us to December where we expect that TV panel prices will be relatively flat, while IT panel prices continue to decline on continued demand weakness and panel producers will meet with resistance from buyers toward further TV panel price increases, given the uninspiring demand environment.

 
Based on or estimates for panel prices in December, assuming our scenario plays out, this was not a good year for panel prices from a y/y perspective, and while some might say that a y/y comparison is not an accurate portrayal of the cycle given the COVID pandemic’s influence, we also calculated current panel prices (December) relative to the lowest point over a 3 year period.  Current TV panel prices are the only ones that are appreciably above those lows, with the aggregate total (all categories) up less than 1% from the 3-year low set in September of this year.
Panel costs are difficult to estimate given that each model run or order are different, but the basic components and materials used in the panel production process typically allow a panel producer to reduce its costs by between 4% and 7% each year as products mature and production efficiency increases, especially as new capacity ramps up to mass production levels, but since early 2020 we have seen a considerable number of material and production costs rise rapidly, particular some of the basic materials used in displays.  Copper was among the worst, with price increases over 25% in both 2020 and 2021, , while substrate glass saw incremental price increases in almost every quarter during the same period, along with energy and labor costs.  Copper however has declined in price this year, and while down ~15% y/y, it is still up ~37% from its base price at the end of 2019.  This makes the typical cost reductions panel producers typically used to allow them to lower panel prices impossible over the last three years, and while the higher volumes and higher panel prices seen during 2020 and the 1st half of 2022 allowed panel producers to generate record profits, the battle ground has changed considerably.
Costs will continue to be an issue for panel producers heading into 2023, although the weakness seen in certain segments of the semiconductor space could give panel producers a bit of help toward cost reductions that come close to price declines, so we are a bit more optimistic about the display space in 2023, looking at it from a cost/price perspective, but we still struggle for a demand driver that could push the display space back toward profitability.  We expect less volatility toward panel pricing in 2023, and more rational behavior toward capacity expansion, particularly in China, both positives that could lead to a more stable and predictable display industry, but the display space is not noted for its stability, and we have come to expect irrational behavior from display producers as a matter of course and expect 2023 will have similar instances which could throw off our less frenetic feeling about display in 2023.
On a short-term basis, we look to the following to plan our 2023 display scenarios:

• December TV panel pricing – Do buyers walk away from panel price increase requests in December?
• Year-end inventory levels – The CE space has been plagued with excess supply this year, as it was slow to respond to a return to more ‘pre-COVID’ buying patterns.
• Results from holiday buying, particularly in North America and China.
• Results during Chinese New Year – Unless China relaxes COVID restrictions, it could be a poor Chinese New Year (1-22-23).
• CE brand forecasts for 2023 – While these are typically made in October, we expect CE brands will postpone 2023 targets as long as possible heading into the holidays.  Hopefully those targets will be more reasonable for 2023 than they were this year, as they had to be revised 2 or 3 times, leading to rapid changes in production levels at suppliers.

On a longer-term basis we look to the following:

• Do panel producers stick to new capacity postponements and cancellations, or do they return to the competitive over-building that is characteristic of the display space?
• Does the Chinese government, particularly at the local level, slow display project funding?
• Does Apple (AAPL) push into new product categories in 2023 (AR/VR) or is 2023 a ‘more of the same’ year for major CE brands?
• Do consumers completely abandon the ‘COVID lifestyle’ and return to typical CE buying patterns or have we migrated into a ‘modified-normal’ buying pattern, with a continuation of an increased focus on mobile, or does the populous get off the couch in 2023?
• Is inflation brought under control, giving consumers a bit of spending incentive?

All in, we expect the display space to bump along near the current cyclical bottom for the early part of the 2023 year, with some potential for a gradual rise into 3Q and 4Q, but a lot of factors (see above) need to fall into place to make that scenario work.  Do we think 2023 is going to see a cyclical upswing for the display space and CE in general?  Not likely, but difficult 2023 1H comparisons aside, we see the potential for a transition year that does not age those who follow the CE space closely more than the clock would suggest, and that would be a good thing, but we still have a way to go this year and lots of potential hiccups next, so we are applying litmus to everything we hear to maintain an unbiased position and hoping we are reading the tea leaves correctly…

After a small bounce in September, large panel shipments in October declined by 4.3% m/m (down 18.8% y/y), seemingly settling into a range around 60m units/month, where it has been since July, with an increase (↑13.8% m/m) in tablet shipments largely offsetting the decline (↓18.2%) in notebook shipments.  IT (notebook, monitor, and tablet) panel shipments declined by 5.2% m/m and by 26.5% y/y while LCD TV panel shipments declined by 2.7% m/m and 0.9% y/y.   Large panel LCD revenue declined by 3.2% m/m and 30.5% y/y, bringing large panel ASP up 1.1% for the month but still down 14.4% y/y.  China’s LCD panel producers represented 48.6% of industry revenue, and while Chinese large panel revenue growth in October was a meager 1.5% m/m (↓32.0% for YTD), China was the only region that saw revenue growth in October.  BOE (200725.CH), China’s largest large panel LCD producer represented 56.8% of revenue generated in the region, with Chinastar (pvt) and HKC (248.HK) in the #2 and #3 positions with an 18.8% and 17.9% revenue share respectively.
October is typically (5 yr. avg.) a down month for large panel LCD shipments (-3.1% avg.), so results this year were only modestly worse, however we expect November, typically an up month for shipments (+2.0% on avg.) to be weak as consumer enthusiasm continues to wane and COVID lockdowns in China limit brand shipments, leading to order cutbacks at panel producers.  If this scenario plays out, it should help to reduce inventory levels further, working toward reducing the over-supply as the holidays progress.  While we still see little hope for a demand led CE recovery as we head into the new year, there seems to be some headway being made toward maintaining lower display production levels and normalizing inventory levels, perhaps leading to a more stable, if unenthusiastic start to the new year.  With Chinese New Year coming early (1/22/23), much will depend on the COVID lockdown situation relative to Chinese CE demand, which could easily swing in either direction.  If the lockdowns are softened, we expect a bit of pent-up CE demand, but if not, we expect the Mainland will see weaker CE results than seen in the US and Europe.  It is in Xi’s hands…