Chinese TV panel self-sufficiency 85% this year
Chinese panel producers China Star (pvt) has indicated that it believes Chinese TV brands will reach 85% self-sufficiency this year as mainland panel manufacturers continue to add TV panel capacity. This is up from 80% last year and 54% in 2012 according to the company, and while the timeframe to reach 100% was a bit vague at ‘sooner or later’, the idea that China will eventually reach 100% self-sufficiency in TV panels has been an objective of the Chinese government for a number of years. The comments by China Star do not include small panel displays, where South Korean firms dominate the market, but include only those fabs that produce large format panels for TV, usually starting at 32” and topping out at 100+”.
We note that while the TV segment ranges from 43% to 49% of revenue on average for large panel producers, even 100% self-sufficiency in that segment does leave considerable room for other display manufacturers in the Chinese market, and looking at the TV market today, will likely not give a realistic picture of what the TV market will look like in 2020 or beyond, given the changes in TV panel size and display technologies. That said, there is no doubt that Chinese display producers have made great strides in building capacity over the last few years, and on an overall capacity basis, we expect China to have the largest overall capacity share by 4Q 2019, as can be seen in Fig. 2 below.
As we have noted in the past, Chinese panel producers have an advantage over other regional suppliers in that they receive significant subsidies for fab construction and substantial state, regional, or local intervention as to a supporting infrastructure. This has allowed Chinese panel producers to generate large display production projects that might have been far more difficult to finance if not state-sponsored. This is not to say that other panel producers do not receive some benefits from their respective governments, but the substantial subsidies and sponsorship that Chinese panel producers regularly receive has allowed them to bypass some of the financial hurdles that other panel producers face and expand despite the lack of near-term financial viability. While this can also be looked at as a driver that pushes other panel producers to be more focused on profitability, it is responsible for much of China’s growth as a display producing country.
Further, while Chinese panel producers will eventually reach near 100% self-sufficiency in the TV panel segment, Chinese TV panel producers will not be satisfied with only providing panels to Chinese TV brands, and are already pushing out into the worldwide TV market to further justify their growth. This is both a challenge to non-Chinese TV panel producers and a significant factor for decisions as to what direction the non-Chinese panel producers will take over the next few years. Samsung Display (pvt) has already made some directional changes in its capacity plans, by closing some older LCD fabs and converting them to small panel OLED production lines, while buying open cell panels from other suppliers, and LG Display (LPL) is re-evaluating plans for a Gen 10.5 TV panel fab that it was considering, and refocusing away from the ultra-large TV space and more toward small panel OLED displays. In part, these decisions reflect the concept that competing against Chinese panel producers in the large panel TV market is a low profitability generator, while enhancing the technology advantage that other panel producers have over the relative new Chinese panel producers is a much more profitable way to allocate assets. While these decisions are not quite as cut and dried as this, and can also be influenced by a number of other factors, the handwriting has been on the wall for other non-Chinese panel producers, who must adapt or face dire circumstances over the next few years.
We note that while the TV segment ranges from 43% to 49% of revenue on average for large panel producers, even 100% self-sufficiency in that segment does leave considerable room for other display manufacturers in the Chinese market, and looking at the TV market today, will likely not give a realistic picture of what the TV market will look like in 2020 or beyond, given the changes in TV panel size and display technologies. That said, there is no doubt that Chinese display producers have made great strides in building capacity over the last few years, and on an overall capacity basis, we expect China to have the largest overall capacity share by 4Q 2019, as can be seen in Fig. 2 below.
As we have noted in the past, Chinese panel producers have an advantage over other regional suppliers in that they receive significant subsidies for fab construction and substantial state, regional, or local intervention as to a supporting infrastructure. This has allowed Chinese panel producers to generate large display production projects that might have been far more difficult to finance if not state-sponsored. This is not to say that other panel producers do not receive some benefits from their respective governments, but the substantial subsidies and sponsorship that Chinese panel producers regularly receive has allowed them to bypass some of the financial hurdles that other panel producers face and expand despite the lack of near-term financial viability. While this can also be looked at as a driver that pushes other panel producers to be more focused on profitability, it is responsible for much of China’s growth as a display producing country.
Further, while Chinese panel producers will eventually reach near 100% self-sufficiency in the TV panel segment, Chinese TV panel producers will not be satisfied with only providing panels to Chinese TV brands, and are already pushing out into the worldwide TV market to further justify their growth. This is both a challenge to non-Chinese TV panel producers and a significant factor for decisions as to what direction the non-Chinese panel producers will take over the next few years. Samsung Display (pvt) has already made some directional changes in its capacity plans, by closing some older LCD fabs and converting them to small panel OLED production lines, while buying open cell panels from other suppliers, and LG Display (LPL) is re-evaluating plans for a Gen 10.5 TV panel fab that it was considering, and refocusing away from the ultra-large TV space and more toward small panel OLED displays. In part, these decisions reflect the concept that competing against Chinese panel producers in the large panel TV market is a low profitability generator, while enhancing the technology advantage that other panel producers have over the relative new Chinese panel producers is a much more profitable way to allocate assets. While these decisions are not quite as cut and dried as this, and can also be influenced by a number of other factors, the handwriting has been on the wall for other non-Chinese panel producers, who must adapt or face dire circumstances over the next few years.
Regional Display Capacity - Source: SCMR LLC, Displaysearch, Company Data
Regional Display Capacity Share - Source: SCMR LLC, Displaysearch, Company Data
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