Display Fab Utilization Bouncing Back After Brief Q2 Slowdown
Display industry fab utilization slowed in Q2 but less than expected, and is improving in Q3, according to the latest release of DSCC’s , issued this week. In Q2 2020, total TFT input for all display makers was down 1% Q/Q and 2% Y/Y at 69.7 million square meters, but in the current Q3 2020 we expect total TFT input to increase 7% Q/Q and 7% Y/Y to 74.4 million square meters.
The report details capacity, TFT input, and utilization for every flat panel display fab in the industry, more than 100 fabs in all, and includes pivot tables to allow segmentation by supplier, country, TFT fab generation, backplane, frontplane, or substrate type. The report provides historical utilization back to Q1 2018 and a forecast by month for 2020.
Utilizations often start the year at low levels because of the Lunar New Year holiday, and this was the case in 2019 but not in 2020, as Q1 UTs were relatively robust despite the pandemic. The COVID-19 induced slowdown started in April, affecting all regions except Taiwan with particularly sharp slowdowns in Japan and Korea, as shown in the first chart here. Sharp’s Gen 10 fab in Sakai (actually Sakai Display Products, partly owned by Sharp) sustained relatively high utilization in Q1, but took a substantial reduction in utilization in April and May 2020, similar to their slowdown in Q1 2019, before recovering in June.
TFT Monthly Fab Utilization by Country, 2019-2020
A view of TFT input shows the extent that China has taken over the industry in just the last two years, and how this process is continuing in 2020. In Q1 2018, China represented 39% of total industry TFT input on an area basis, but by Q3 of 2019 China was larger than all other regions combined, and by the end of this year China will be nearly 60% of all industry TFT input.
Quarterly TFT Input by Country, 2018-2020
Looking at the picture by main application and display technology, we see that mobile OLED fabs are consistently run at much lower utilization than LCD fabs, this is largely driven by the low UT% at Samsung’s flexible OLED lines. In contrast, up until 2020 utilization of LGD’s OLED TV lines have been the highest UT% in the industry for any application, as LGD was effectively constrained by capacity before they have started to ramp capacity in their Gen 8.5 fab in Guangzhou, China. We start counting Guangzhou capacity in Q2 2020, which explains why the OLED TV UT% dropped last quarter, and while we see LGD’s OLED TV UT% recovering in the 2nd half, we expect that it will not reach its former high levels. With the additional capacity from Guangzhou, LGD’s OLED TV panel business is no longer capacity constrained, and because LCD TV panel prices have fallen to record low levels, the price gap between LCD and OLED has widened, and LGD is finding it difficult to sell higher volumes without panel price cuts.
UT% for flexible OLED has followed a consistent pattern in recent years, with utilization low in Q1 and rising to a peak in Q3 with a slowdown in Q4. Rigid OLED utilization has been one of the main casualties of the pandemic, as it has lost share in the mid-tier smartphone market to LTPS LCD. The chart of UT% by application view also makes clear that total industry utilization closely follows LCD TV UT%, since LCD still makes up 72% of total industry capacity.
Quarterly TFT Utilization by Display Technology, 2019-2020
A view of TFT input by Gen size shows the slow erosion of the once-dominant position of Gen 8.5, as the two Korean giants shut down some of their LCD capacity in this gen size to convert to OLED. As recently as Q1 2018, Gen 8.5 represented 55.5% of total industry input (and a slightly lower % of industry capacity), but by the end of this year that share will be reduced to 41%.
Quarterly TFT Input by Gen Size, 2018-2020
DSCC expected that the COVID-19 slowdown would be more severe in Q2 and would persist into Q3, but stronger TV sell thru in North America and China has alleviated industry fears of inventory build-up and supported LCD TV panel prices.
DSCC remains cautious about the overall level of display demand, with an eye on the economic fallout from the pandemic. The better-than-expected TV sales may continue or they may be cut short as one-time stimulus payments end and as the broader economic downturn hurts budgets. As a result, we are projecting a downturn in utilization in Q4 2020, as the current industry supply in Q3 is more than adequate to meet demand. In the year of the pandemic, though, we have been surprised before, and the fourth quarter is a long time away.