We have been alluding to some fab delays and cancellations in some recent articles in the DSCC Weekly Review, so in this article, we will try and quantify it. Why is this happening? This is happening because of excessive TV panel inventory in Q3’19 and Q4’19, at a time when prices are already low, manufacturers are losing money and more capacity is coming online.
Capacity for 7G+ fabs has been rising at a double-digit rate throughout the first 3-quarters of 2019 due to G10.5 fabs, widening the oversupply. As a result, panel makers have been forced to reduce their utilization at a time when they are already losing money. Panel suppliers were losing money at higher utilization levels and are now losing more money with both utilization lower and prices lower. As a result, they don’t need and can’t afford to expand capacity further, widening the oversupply and their losses. We are finally at the point where market forces dictate that capex stops, despite the presence of subsidies. As shown in this Crystal Cycle chart I created 13 years ago, when prices fall and companies lose money, there should be under-investment and little capacity added which will create a shortage. The “under-investment” stage is where we are moving to, so that a shortage is created and prices will rise. Once prices get higher and manufacturers become increasingly profitable, they look to make more money by adding capacity, but because prices are high, it causes demand to slow which leads to another surplus and prices fall repeating the cycle. I would say we have had an extended over-investment cycle in LCDs from 2016-2019 due to China’s subsidies, which should result in a longer under-investment cycle. However, because Korean manufacturers have decided to shut down a significant amount of existing capacity as well, rather than just delay future investments, it could result in a shorter under-investment cycle. This is complicated by the availability of subsidies which may decline significantly after 2021. The lack of subsidies combined with Korea shutting down LCD capacity would restrict supply growth, result in shortages, more price increases and perhaps market-driven as opposed to subsidy driven investments, which would be a healthier situation in the long run. In any case, let’s move on to the new equipment spending forecast.
1997 – 2005 Crystal Cycle Example
Source: Ross Young’s presentation at DisplaySearch 2006 US FPD Conference
In 2019, we see HKC H2 downsizing its capacity from 150K all installed in 2019, to 120K. This will reduce our 2019 equipment spending forecast by $600M or 4%, producing a 29% Y/Y decline in 2019.
In 2020, we see more downsizing and delays.
Speaking of 2021, we see fab delays and cancellations that year as well.
As capacity tightens and prices rise, we do expect some of these downsized fabs to eventually get built. If capacity is tight enough, they may even get built without the need for subsidies. They are likely to be installed from 2022 on.
For details on spending at every fab from 2016-2024 by tool type including market share for most segments, please see our Quarterly Display Capex and Equipment Report.
Existing vs. New Preliminary Display Equipment Spending Forecast
Source: DSCC’s Quarterly Display Capex and Equipment Spending Forecast
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