DSCC Revises Display Forecast for COVID-19 Impact
Now that we have more insight on the scope of the COVID-19 pandemic and the impact of the worldwide economic downturn on display applications, DSCC has updated its outlook for demand for major display devices; our outlook is more optimistic for IT applications, but we continue to expect Y/Y declines in smartphones, TVs, and automotive displays and declines in overall area and revenue for the display industry.
We last shared our outlook in the March 30th edition of the DSCC Weekly Newsletter, and referred to our “March 2020 forecast”, compared to our original forecast for the year, the “January 2020 forecast”. Now we introduce the “May 2020 Forecast”. Whereas our March forecast focused only on the impact in 2020, in the May update we extend the view out to 2025, showing the path that we expect the industry to trace in its recovery.
First, we will include here summary tables of the update for 2020 by application, in units and revenue. Note that these figures are for flat panels, including LCD and OLED, at the panel sales level. At the set level, units will be lower and revenue higher.
As the tables indicate, we continue to expect a significant downturn in three of the six applications listed: Mobile Phones (which includes smartphones and feature phones), TVs, and Automotive Displays. In all three cases the downturn is driven by the main economic effects: people will delay replacement of phones, TVs, and autos due to economic uncertainty. In the case of automotive displays, “demand” for the displays is a function of automobile production, which has been drastically reduced in several key markets.
We depart from our March forecast in our outlook for IT applications, which are seeing robust demand from the work from home trend. Notebooks and desktop Monitors have been flat or declining for years, and our January forecast anticipated that trend to continue in 2020. Whereas our March forecast anticipated a downturn, we now expect slight growth in Notebooks in both units and revenue and Monitors to be flat in units and down only 1% in revenue. In tablets, whereas we anticipated a double digit decline in both units and revenue at the beginning of the year, we now expect 2020 units to be consistent with 2019 and revenue to drop only 2%.
Our view of TV set shipment volume by quarter for 2019-2020 is shown in the first chart here, and our TV outlook has changed only slightly from the March forecast, which outlined a downturn in the first half followed by a recovery in the second half. Whereas our January forecast expected a 1H/2H seasonality of 45/55, the seasonality pattern for 1H/2H in our May 2020 outlook is 41/59.
DSCC Quarterly TV Shipment Forecast Revised for COVID-19 Impact
Next, we can turn to the longer-term outlook, shown in the next two charts tracking the industry in terms of display area and display revenues (again, at a panel level). Whereas in January we expected flat panel display area and revenue growth in 2020 of 5% and 2%, respectively, we now expect a decline in display area of 5% this year and a decline in display revenues of 7%.
Since the decline in revenues will exceed the decline in area, the industry area price will be lower. The flat panel display area price per square meter was $480 in 2019, and our May forecast calculates to an average area price of $470, a 2% decline despite a mix shift towards OLED and towards IT applications, which have a higher area price than TV.
As the charts indicate, we expect a strong recovery in 2021 with double-digit growth Y/Y in both units and revenue, but even with the recovery our totals for 2021 in the May forecast are lower than we expected in January. We expect that it takes until 2022 for the industry to recover to the long-term trend we expected in January, and by that time we expect that a higher penetration of OLED in several applications will allow a bit more revenue growth.
Next, we show our May forecast outlook for revenue split between LCD and OLED. We continue to expect OLED to increase its share of overall flat panel display revenues, from 25% share in 2019 to 39% share in 2024. We have seen in prior downturns in 2001 and 2008/2009 that while the downturn suppresses revenue across all technologies, the incumbent, lower-priced technologies fare the worst. Projection TV in HD formats gained share in the 2001 downturn at the expense of CRT, and LCD TV gained at the expense of both CRT and plasma displays in the 2008/2009 downturn.
Finally, it’s worth looking at our long-term view of LCD supply/demand. The COVID-19 pandemic has been devastating for LCD makers, exacerbating the existing oversupply in the industry with a reduced demand. The shutdown of capacity by the two Korean makers will not be enough to prevent a continued oversupply in 2020 because of the reduced demand.
However, these capacity reductions, combined with a demand recovery in 2021, will dramatically improve the supply/demand picture. Furthermore, with continued growth in 2022 and thereafter driven by increasing TV screen size, combined with the relative lack of LCD capacity additions, lead to a tight supply situation starting in 2022 (or more likely, late 2021), even if we include some lower probability expansions at SIO and HKC.
This picture, therefore, is not complete. A surplus of 5% or less for several years is unprecedented in the industry and would not likely be a stable arrangement; we saw LCD TV panel prices increase by 50% in 2016 with a supply shortage less severe than this outlook. We can imagine a few scenarios that could break this dilemma:
- Demand suppression: LCD TV panels prices, and the corresponding set prices, rise to such a high level as to hurt demand. With lower demand, a “normal” surplus gets restored.
- Added LCD TV investment: higher LCD TV panels prices stimulate additional investment in capacity, according to the traditional crystal cycle mechanism, and the higher capacity restores a “normal” surplus.
- Added OLED penetration and investment: higher prices for LCD TVs make OLED TVs more competitive, leading to higher OLED penetration and acceleration of OLED capacity expansions.
It is likely to take some time for these scenarios to play out; since we’re currently in the midst of the demand falloff, the recovery seems like a distant prospect, and it’s hard to imagine a shortage, let alone invest to prevent it.
As noted above, this forecast reflects our view in May in a very dynamic market, and continued developments in the COVID-19 pandemic and the corresponding global recession can alter the outlook substantially. We will continue to provide updates as appropriate.