The surge of new investment in both LTPS LCD and LTPS OLED capacity in recent years has led to an oversupply situation, and many of the fabs in the industry have been slowing their utilization in recent months. While LTPS OLED panels from SDC are profitable, the competing LTPS LCD fabs are having trouble with the overcapacity, and difficulty managing further price decreases.
Since the third quarter of 2016, LTPS LCD capacity has increased by 30% as four major new fabs have come online:
While LTPS LCD fab UT was greater than 80% in Q4 2016, the surge in new capacity has overwhelmed market demand, leading to sharp price drops on LTPS LCD panels, and UT levels have declined to 60% in Q2 2017. In comparison to the 30% increase in capacity, DSCC estimates that demand has increased only 7% from Q3 2016 to Q3 2017.
Figure 1: Fab Utilization at Selected LTPS Fabs, Q3 2016 to current
The difficulties are not confined to LCD fabs. OLED Capacity has increased 54% in the last year, and this has led to some cases of excess supply. Chinese brands Oppo and Vivo, heavy users of AMOLED panels from SDC, had some excess supply earlier this year, leading to UT adjustment in Q2 and Q3 at SDC’s Gen 5.5 Rigid OLED panel fab in Tanjeong.
This adjustment for OLED seems a more temporary phenomenon, though, as OLED unit demand for these two brands is expected to increase in 2017 from 2016 levels. As reported in the DSCC Quarterly OLED Supply / Demand and Capital Spending Report, Oppo and Vivo are expected together to consume 100 million OLED smartphone panels in 2017, up from 82 million in 2016.
Figure 2: LTPS OLED and LTPS LCD Capacity, Input, UT% Q3 2016 – July 2017
While OLED panel prices have declined as a result of the oversupply, LTPS LCD panel price declines have been more sharp. While the dominant OLED panel maker SDC continues to make robust profits on their OLED lines, LTPS LCD suppliers are losing money and have little room to cut prices further.
The LTPS UT decline can also be attributed to the conversion to 18.0-18.5 x 9 panels in the smartphone market. Many new programs are launching in 2H'17 and demand is waning for 16x9 panels. Most panel suppliers have indicated they expect demand to rebound in 2H'17 and prices to rise due to tight supply for 18x9 panels as these programs launch. The seasonality in 2017 is expected to be unusual due to this panel conversion and Q4, which is usually seasonally soft, is expected to be strong in 2017. Taiwan small/medium shipments were up 12% M/M in July, so the pent-up demand for full frame 18x9 panels should temporarily alleviate this weakness.
As the capacity for OLED panels will continue to grow, the surplus of LTPS LCD capacity is expected to continue indefinitely, causing a big financial headache for LTPS LCD panel makers.