Coronavirus, Wuhan and the Display Industry
January 29th updates in bold.
The coronavirus is a terrible disease that can be spread before people exhibit symptoms, making early detection difficult. It has come about at the worst possible time given the massive travel that occurs during the Chinese New Year holiday. More than 100 people have already died and over 4400 people have been infected worldwide. The disease has already been detected in at least a dozen countries.
Studies have shown that the coronavirus was first detected in the city of Wuhan and is close to the SARS-related coronaviruses found in Chinese horseshoe bats. It is believed to be connected to a wet market where game animals and meat are sold. The outbreak was first reported on December 31st and took 3 full weeks for authorities to realize the seriousness of the virus which was initially thought to be mild and could not be passed between humans. Now, it is believed that it is an airborne virus that can be moved from person to person and has an incubation period as long as 14 days, meaning it can take that long before you actually get sick. For those 3 weeks, medical staff were treating patients without proper protection. 15 hospital staff in Wuhan contracted the virus with 14 infected by just one patient. A scientific assessment of the spread of the disease with an optimistic 90% quarantine predicted 1500 deaths and 59,000 infections, twice the toll of the 2002-2003 SARS outbreak.
Wuhan and the Display Industry
Wuhan is a city of 11 million people and was the first city quarantined. Surrounding cities are also now quarantined resulting in a total of 50M unable to travel. Wuhan is also quickly becoming a major hub for display manufacturing with LCD and OLED fabs already in production and a few more starting production in 2020. In 2020, Wuhan is expected to account for 6% of worldwide mobile OLED capacity, 3% of mobile LCD capacity and 2% of LCD TV capacity according to our Quarterly Display Capex and Equipment Market Share Report. In 2021, these figures should rise to 9% of mobile OLED capacity and 4% of LCD TV capacity.
The mayor of Wuhan revealed that 5M of the 11M people have left Wuhan for Chinese New Year and cannot return until the travel ban is lifted. Thus, the companies making displays are not sure what their headcount will be when their factories re-open on January 30th. The re-opening date will likely be delayed at least another week. In fact, we learned on January 29th, that the Chinese New year holiday was extended to February 10th and the lock down in Wuhan is expected to be extended to the end of February or even mid-March.
The companies with display manufacturing operations in Wuhan including China Star and Tianma in mobile displays and BOE in LCD TV panels . Corning also has a glass melting plant next to BOE’s G10.5 LCD TV fab.
We contacted China Star, which has both mobile LCD and OLED capacity, and they said they expected to be operating at ½ of their capacity when their fabs were expected to re-open on January 30th. But now, they are not expected to re-open till March. Thus, their Q1'20 shipments are most definitely at risk. Shipments for BOE and Tianma and their suppliers such as Corning will also likely be impacted. Equipment installations at BOE B17 were halted as equipment supplier engineers returned home. Equipment supplier revenues may be impacted.
Thus, the coronavirus should result in a near term supply disruption for both LCD and OLED smartphone displays and LCD TV panels. Some suppliers are likely to be impacted more than others, specifically customers of China Star and Tianma for mobile displays. China Star’s OLED customers include the Motorola Razr which has also faced quality issues from BOE, showing how risky it can be to not work with Samsung Display at this time in the mobile OLED industry. Other China Star and Tianma Wuhan OLED customers include other Motorola smartphones as well as smartphones from LGE and Xiaomi. This is the only location for China Star’s mobile OLED production and Tianma’s flexible OLED production. BOE has a number of other LCD fabs besides the Wuhan fab, B17, and could certainly delay its ramp given the seasonally slow period for TV demand.
Since the display industry is still in a period of over-supply, this supply disruption could help further stabilize and increase prices. At the same time, we are seeing a number of new fab investments in Wuhan which are now likely to be disrupted. As a result, display equipment suppliers may see their delivery schedules delayed, most likely at BOE’s G10.5 fab, B17, which is installing equipment throughout the year. In addition, if the coronavirus leads to economic weakness in China, it could impact end market display demand in China. In fact, we are seeing many signs of this virus impacting end market demand in China. In Shanghai now, most of the businesses are closed and there are few people outside. All public transportation from city to city such as trains and busses have stopped and all transportation in Wuhan has stopped.
Here is a list of the fabs in Wuhan.
- China Star
- China Star has a 50K substrate per month G6 LTPS LCD fab in Wuhan which began production in 2016.
- China Star also has a G6 flexible OLED fab in Wuhan. The first phase of 15K began mass production in April 2019. Its production is expected to be impacted. Some equipment for integrated touch capability (Y-OCTA) was expected to be installed in March 2020 which could be impacted.
- The second phase of 15K was expected to be installed in October of 2020 with POs issued from November of 2019. A 3rd phase of 15K is also expected in Wuhan with equipment awards and purchase orders in process of being issued. Some of the POs for both phases may be delayed which could impact delivery timing.
- It has an older 30K substrate per month a-Si G4.5 LCD fab that has been in operation since 2010.
- It also has a G6 OLED fab in Wuhan. The first phase of 15K/month of mixed flexible and rigid capacity began production in 2018. Equipment is being moved in for the 2nd phase now. Equipment is likely being moved-in from November 2019 to March 2020 and beyond.
- While the Tianma and China Star fabs are for mobile, BOE has a G10.5 a-Si LCD fab in Wuhan. It was expected to begin production in January with additional capacity coming online every 3 months through 2020 and much of 2021. New equipment is also in process of being installed this month and this will continue through 2020 as well. Thus, BOE’s B17 fab is likely to experience some delays in ramping its new capacity due to lack of available manpower as well as installing new equipment for additional capacity coming. It is fortunate for BOE and its customers that this is the slow season, but they are likely to experience delays which should favor its competitors in Taiwan and its Chinese competitors that have facilities far from Wuhan.
As mentioned earlier, Corning has a glass melting plant in Wuhan to supply BOE. Corning told us they have decided to restrict travel for their employees to China. The Center for Disease Control and Prevention later issued a travel warning to all of China. Corning provided us with a statement regarding travel within China:
Corning has provided its employees in China with advice and support on domestic travel within China and return-to-work measures that they can take. We have been in regular contact with employees through internal company channels throughout the Chinese New Year period. We will continue to communicate with our China and Asia based employees and with Corning contractors – their safety, and that of their families, is of the utmost importance to us.
We extend prayers to all the people of Wuhan, other effected areas and all the victims of the coronavirus.