Highlights from DSCC Webinar on the Impact of COVID-19 on the Display Market, New Forecast Revealed
The Bay Area Chapter of the Society for Information Display asked me to speak at their monthly webinar on April 7th. We then opened it up to our customers and other interested participants. There were 186 people listening in. If you didn’t have a chance to listen in and are a DSCC client, please contact me at email@example.com.
The topic was the impact of COVID-19 on the display market. I decided to examine previous market crashes in 2000/2001 and 2008/2009 to see if there were any similarities or if this COVID-19 crisis was likely to produce fundamentally different results. I then presented our latest outlook which we developed for this talk.
In past market crashes, we saw the display industry experience:
- Rapid panel price reductions
- LCDs taking share from other applications
- High-end products increasingly going mainstream
- Significant losses and consolidation
- A recovery in 1-2 years
Importantly, the 2000/2001 crash really led to the emergence of the LCD monitor market as 17” panels and monitors became increasingly affordable. In 2008/2009, 40”-42” LCD TV panel and street prices fell rapidly, and they too gained significant share enabling the large-area LCD TV market to really take off. In both cases, these products “crossed the chasm”, moving from the early adopter stage to the early majority stage due to lower prices. Would any products cross the chasm in 2020 downturn?
Interestingly, the 2000-2001 crisis only had 1 quarter of negative US GDP growth, but the stock market fell from 2H’00 to the end of 2002 falling 48%. The stock market didn’t reach 2000 highs until 2007.
The 2001 display market was ~20% below 2001 forecasts issued in 2000 but had exceeded the size predicted for 2003 on sharp share gains in the LCD monitor market.
2000 Display Market Forecasts vs. Actual
As indicated, prices fell faster than expected, enabling key price points such as <$999 avg. street prices for 17” in Q3’01. Panel supplier margins bottomed in Q4’01, reached an average of 24% in Q2’02, but remained cyclical, falling to negative levels in late 2002 and early 2003 before rising back up in 2003, as the crystal cycle ruled the display market. Weaker players tended to suffer more in downturns and prosper more in shortages as evidenced by HannStar’s results. This type of performance is more likely to lead to consolidation in downturns and there was consolidation. Acer Display and Unipac merged with AUO in 2001, Chi Mei acquired ID Tech and BOE acquired Hyundai Display (Hydis).
17” Price Forecast vs. Actual
2000 – 2003 Panel Supplier Margins
In 2008/2009, there was a deeper recession due to the subprime mortgage crisis and financial fallout. There was 3 quarters of negative GDP growth, unemployment reached 10% and stocks fell ~55% over 15 months. Stimulus plans, additional liquidity, bank bailouts and mark to market accounting eventually turned the economy around. It took 4 years to reach new highs, but the market kept going until 2020.
During this period, 2008 display revenues were flat, but they fell ~10% in 2009 which was ~20% below expectations from the previous year. But, by 2010, the market had caught up to previous expectations on ~30% growth in 2010. What happened? There was a sharp drop in demand in Q4’08/Q1’09 which caused prices to fall rapidly into 2009. The price declines enabled the LCD TV market to become more competitive and grew beyond previous expectations. Demand grew so fast it eventually created a shortage and prices rose for a year. LCD TVs with LEDs also took significant share from those with CCFLs as the absolute price gap fell significantly.
As an example, we saw 40” prices falling faster than predicted in 2009, but it caused demand to grow much faster in 2009 and 2010 which created a shortage and price increases which eventually slowed the market back down again in 2011. Demand grew much faster than expected in 2010, but contracted in 2011. Average 40”-42” LCD TV street prices fell below $999 in 2008 with fully featured models from tier 1 brands reaching those levels and lower in 2009.
Actual vs. Predicted 40” LCD TV Prices and LCD TV Demand
There were also large losses in 2H’08 and 1H’09 with panel suppliers losing money for 4 quarters and losing a lot of money in Q4’08 and Q1’09 when demand stalled as shown below. However, they recovered in 2H’09 and 1H’10, but not enough vs. the earlier losses. As a result, there was more consolidation. Foxconn/Innolux acquired Chi Mei and Toppoly was the highest profit acquisition. Additionally, NEC and SVA exited, selling to Tianma.
2007 – 2010 Panel Supplier Margins
The display market is not in a great place when the coronavirus hit per my list below:
- Prices at or around cash cost in TVs
- Large losses in large-area LCDs
- Utilization poor in mobile OLEDs
- Excessive investments due to large subsidies from China has taken all the profits out of most segments
- Companies downsizing their LCD businesses
- Our 2020 display revenue forecast called for 1% growth after 2 negative years with low single digit growth through 2024 on higher OLED penetration.
DSCC’s Pre-COVID Display Revenue Forecast
The impact of COVID-19 is still being quantified. The OECD expects the initial impact to range from 17% to nearly 30% for the countries below.
Morningstar came out with a GDP forecast by country on April 1st. As indicated below, they believe the global recession could be worse than 2009 due to greater weakness in emerging countries. They are showing global GDP down 4.6% to -1.4% after COVID with every region seeing a Y/Y decline except for developing countries excluding China. The shape of the recovery depends on how quickly restrictions are lifted and damage is done.
Morningstar’s Post COVID-19 GDP Forecast
The drop in US stocks has been much faster than in previous downturns. The US large cap index (SPY) fell ~33% from peak to trough so far, a much faster drop than in the ’00/’01 and ‘08/’09 downturns. Unemployment growth is also happening much faster with over 16M in initial jobless claims over the past 3 weeks.
Our forecast assumes economies opening up back in Q3’20 with governments optimizing market conditions. As indicated, we expect units down 8% - 17% for the major applications with revenues down 2% - 15% for the major applications. Units were downgraded 2% - 16% in April while revenues were down 3% - 17%. There have been anecdotal reports that notebooks and monitors may benefit from the work at home trend. Panel shipments in those applications were down significantly in January and February. We will be watching these segments closely to see if there is a meaningful rebound.
April 2020 vs. January 2020 Display Forecasts by Application
Based on these changes, we see the display market down for the 3rd straight year to $103B which is the lowest value since 2011. We do see double-digit growth expected in 2021 more stable/higher pricing, pent up demand after 2020 lockdowns. But post COVID-19 economies may look somewhat different.
DSCC’s April Display Revenue Forecast
So, if we compare April with January, we see that 2020 is expected to be 9% lower than previously forecasted on a $US basis and 10% on an area basis. However, we expect the display market to catch our January revenue forecast in 2021 as demand rebounds helped by the Olympics moving to 2021, a higher OLED mix, flexible OLED demand helped by 5G. We see area slightly behind units on higher prices from OLED gains and tighter LCD supply.
DSCC’s April vs. January Revenue and Area Forecasts
As TFT LCDs gained share in the 2000/2001 and 2008/2009 downturns, we see OLEDs gaining share as a result of the 2020 COVID-19 downturn/recession. This is primarily due to OLEDs better able to hold its ASPs than LCDs as markets are largely saturated while also gaining unit share.
DSCC’s Latest LCD vs. OLED Revenue Forecasts
You may have noticed that we only show mobile phone display revenues falling 2% in 2020. Why is that? It is because we see:
- Smartphones taking share from feature phones;
- Larger sizes and higher resolutions taking share;
- OLEDs taking share from LCDs;
- Flexible OLEDs taking share from rigid OLEDs;
- >1000% growth in foldable OLED panels to >5M;
- Advanced features minimizing the decline in blended flexible OLED ASPs:
- Low blue
- Hole punch to increase screen to body ratios
- Integrated touch
- High refresh rates
- Low temperature polysilicon oxide (LTPO) for variable refresh/lower power
- Curved cover glass
- Color on encapsulation to reduce thickness and eliminate polarizers.
Catalysts for more expensive flexible OLEDs gaining share in 2020 are 5G, Apple’s all flexible OLED launch and foldable.
- 5G is a flexible OLED catalyst due to thickness/power/weight savings vs. LCDs to offset increases in thickness/power/weight of 5G components. This is especially true in China where subsidies are offered for 5G smartphones. 5G buyers are expecting a premium display and 80% of 5G smartphones have a flexible OLED display.
- If Apple’s stays on schedule with its September launch, it will really benefit flexible OLEDs as other brands’ launches earlier in the year with rigid OLEDs or LCDs will be more affected.
- Foldable display shipments should rise over 1000% in 2020 to ~5.4M which will also boost revenues and ASPs.
So, we see flexible/foldable displays gaining share in 2020, boosting mobile display revenues. Looking back, we may be able to see that flexible OLEDs crossed the chasm in 2020.
In TVs, we see both OLED and LCD TV volumes down around 10% - 11% vs. our prior forecasts. 2020 OLED TV panel volumes were downgraded on delays in ramping its new 90K China fab and a widening price gap vs. LCDs. Higher growth rates for OLED TVs are now expected in 2021 and 2022 than in 2020. We see shipments doubling from 2019 to 2021. We also downgraded 2023 OLED TV panel shipments in 2023 as the start date of their G10.5 fab in Korea was delayed. We see LCD TV volumes down 11% in 2020, but ahead of our previous 2021 forecast helped by the move to 2021 for the Olympics and the European Cup.
DSCC’s Latest OLED and LCD TV Panel Forecasts
In TVs, although the Olympic delay impacted the excitement over 8K, we do see opportunities for at least one TV technology to cross the chasm. Quantum dot enhancement film (QDEF) and narrow band phosphor solutions may have the best opportunity since supply of these technologies are plentiful and cost/prices have come down a great deal. They should be able to hit lower, increasingly attractive price points and see meaningful volume increases. OLED TVs do not have enough capacity in place yet to cross.
Because this downturn has come after 2 down years, prices are close to cash cost and the display industry has lost money for 7 of the last 8 quarters as shown below, we are seeing consolidation happening much earlier in this downturn as listed below:
- Apple acquires JDI Hakusan fab for $200M.
- Samsung Display to shut down all LCD production in Korea by the end of the year.
- Samsung Display to sell LCD fab in Suzhou. TCL Technology is the likely buyer, already has a 10% share.
- LG Display exiting LCD TV panel business in Korea in 2020 and may exit IT/mobile LCD business sooner than later.
- CEC Panda and CHOT are reportedly for sale. Not receiving significant subsidies any more. CEC Panda’s G6 and G8.5 fabs in Nanjing have been losing a lot of money. Lost $156M in 2018 and $260M in first 3 quarters of 2019 on -41% operating margins, the worst OPMs of all publicly traded panel suppliers.
Display Supplier Margins Have Been Falling Since Q1’17
As a result of this consolidation, downsizing and fab closures, we see LCD capacity falling 1% in 2020 and 2% in 2021. The -2% forecast for 2021 may be optimistic given the likelihood that more capacity could be shut down as well as delays for new investments in 2020 in China which are likely to ramp slower than previously forecast due to COVID-19. We assumed a 3 month install delay in Wuhan in 2020 for new investments, but will likely end up with a 4-6 month delay in Wuhan and 3-month delays in the rest of China.
Based on the changes to supply and demand, you can see our new updated supply/demand forecasts for G7+ LCDs in the figure below. As indicated, the surplus has widened significantly in 2020 from 11% to 16%. Due to the slowdown in demand, the rise in panel prices in Q1’20 turned to declines in Q2’20. Perhaps the impending shutdowns will create more fear in the market and cause prices to stabilize in 2H’20. However, in 2021, we see supply much tighter than in the past and continuing to tighten in 2022 and 2023. In addition, there are no LCD investments slated for 2023 and beyond, so LCD capacity should become much tighter. BOE and TCL Technology (China Star) are likely to be major acquirers during this period and potentially control >55% of G7+ LCD capacity in 2021.
So, what is the conclusion of the impact of COVID-19 on the display industry? While LCD monitors and LCD TVs crossed the chasm in the 2000/2001 and 2008/2009 downturns respectively, in the 2020 downturn, flexible OLEDs and QDEF/narrow band phosphors have the best potential to cross. While TFT LCDs took significant share in previous downturns, we see OLEDs taking share from TFT LCDs in the 2020/2021 downturn on share gains and slower price reductions. The absolute price matters, not just the rate of decline. For example, 5G phones with flexible OLEDs at <$799, 65” OLED TVs at $999, etc. Although the extent of this downturn and a vaccine is unclear, we are optimistic it will be short-lived. We do see display revenues catching up to previous predictions in 2021 with more supply going offline resulting in tighter supply/higher prices than previously predicted for 2021 and beyond. Since this downturn occurred after 2 down years, it will lead to more consolidation, restructuring and eventually tighter supply in LCDs in 2021-2023, with the potential for price increases and improved profitability which this industry badly needs.
Despite the length of this article, some important charts from the webinar were not shown. If you would like a copy of the 57-slide deck and are a DSCC client or SID member, please email firstname.lastname@example.org.