Samsung Accelerates LCD Shutdown, Consolidation Coming to China?
On Monday March 30th, Samsung announced that it would end all of its LCD production by the end of 2020. Let that sink in for a minute. The leader in LCDs just 10 years ago is exiting the LCD market.
In the case of its Korean LCD fabs, they will be shut down and converted to QD-OLED, mobile OLED, left idle or re-purposed. In the case of its China LCD fab, it did not say, but it is expected to be sold. There was also a report that they would convert L7-2 to mobile OLEDs, adding another 30K of mobile OLED capacity. What does this mean for A5? They do have some idle evaporation systems since they have reduced their flexible OLED backplane capacity by converting to Y-OCTA and LTPO rather than buying all new equipment. Could 2 of the FMM systems in A3 be moved to L7-2? Will A5 be delayed? We are trying to get answers to these questions.
In the case of LCDs, who will buy Samsung’s fab in Suzhou, China? It is a big fab with 125K substrate per month of G8.5 a-Si LCD capacity accounting for 3.5% of worldwide LCD capacity. The most likely answer is TCL Technology which primarily consists of China Star. China Star already has 10% ownership of Samsung’s LCD fab in Suzhou with Samsung Electronics and Suzhou Industrial Park owning 60% and 30% respectively. In addition, Samsung Display owns 10% of China Star’s T6 G10.5 fab. So, there are already deep ties between the two companies. In addition, both companies supply VA panels.
TCL Technology reportedly revealed in its just released annual report to expect potential acquisitions in 2020. TCL Technology Chairman Lidongsheng indicated:
“The price of large-sized LCD panels has rebounded since the end of last year and the operation efficiency of the industry has improved. The demand pattern of the global display industry has not changed fundamentally, but the long-term outlook for the industry is still bright. Given the competitive trend in the global display industry, China has the opportunity to become a global leader in large products, and in general, the industry has more opportunities for mergers and acquisitions in difficult times. I look forward to it. "
In 2019, Samsung Display produced around 1/3 of the LCD TV panels demanded by Samsung Electronics. Who will make up those volumes? China Star and BOE are expected to account for the 2nd highest shares in 2020 and will surely increase in 2021, but will that be enough? We have learned that Samsung has or is expected to sign an agreement to get them from Sharp. In fact, we hear Sharp will supply 70” panels from its Sakai fab in Japan and 55”, 65” and 75” panels from its new G10.5 SIO fab in Guangzhou. Volumes are expected to approach 3M units in 2H’20 and increase in 2021. Sharp/SIO will likely become their #3 supplier in 2021 although Samsung also buys panels from AUO, Innolux, HKC, CEC, CHOT and even small volumes from LGD. This agreement will help the SIO fab with its utilization and could one day enable them to fill the 2nd half of their fab.
What also does this mean for Samsung’s Quantum Dot Enhancement Film (QDEF) business which has expanded beyond TVs into monitors and notebooks as well? We would expect Samsung to replace Samsung Display with another panel supplier and add its own QDEF solutions to other companies’ panels and continue to sell this internally though Samsung Electronics branded products. This was bound to happen anyways as Samsung Display converted its capacity to QD-OLED. At the same time, AUO and China Star may also provide QDEF panels to Samsung Electronics next year as they already provide high-end VA panels. Hansol is an exclusive supplier of QDs to Samsung, so they would be impacted if Samsung stopped producing QDEF solutions.
Given the current conditions in the LCD industry, is Samsung the only company considering shutting down its LCD business? We already know LGD will be exiting the LCD TV panel business in Korea at the end of the year. They still have LCD TV panel capacity in China and have said they will make differentiated IT and mobile LCD panels in Korea. We do show them shutting down their G.7.5 fab in Korea, but they could shut down some of their G8.5 fab in Korea or China, sell their China fab or shut down and re-purpose some of their smaller LCD fabs as well at G5 and G6.
In addition, there are some companies in China that may be looking to exit the LCD business. In fact, we hear that the owners of CEC-Panda and CHOT are negotiating the sale of those businesses. Unlike BOE, China Star and HKC, CEC-Panda and CHOT are not building new fabs and no longer collecting significant subsidies from the Chinese government. Thus, they are being impacted to a greater extent by current market conditions where panels are priced below cost and companies are losing a lot of money and expected to continue to lose money as demand weakens due to COVID-19. CEC, whose public listing includes CEC Panda’s G6 and G8.5 fabs in Nanjing, lost $260M in the first 3 quarters of 2019 after losing $156M in 2018. Its operating margins have fallen to -41% in 2019, the worst in the display industry. Once again, China Star, who also produces VA panels like CEC Panda and CHOT, is a likely acquirer as is BOE. CEC Panda and CHOT account for 14% of China’s LCD capacity and its G7+ capacity. China Star has already been rumored to be acquiring CEC Panda.
So, what will large-area (G7+) capacity and large-area supply/demand look like after Samsung shuts down its LCD capacity in Korea? As shown below, after a 1% decline in 2020, we show a 2% decline in 2021. The 2021 figure of -2% is likely optimistic as some Samsung, LGD, CEC Panda and CHOT capacity could be shut down rather than just sold and fully utilized. In addition, due to COVID-19, fab ramps of new capacity is likely delayed more than currently estimated (3-months). We will likely expand the delay to 4-6 months throughout China in the next issue of our Quarterly Display Capex and Equipment Market Share Report.
G7+ LCD Capacity After Samsung Korea Shutdown Announcement
Even with just a 2% decline, we now show the 2021 LCD TV panel surplus falling from 12% in our previous forecast to 4.5% and may even be tighter. In addition, it should continue to fall in 2022 and 2023 which should improve market conditions for the remaining LCD suppliers. The decline in panel pricing expected from Q2’20 due to weakness in demand from the coronavirus, should likely turn around by 2021 with the reduction in capacity and rebound in demand. Panel pricing could jump quite a bit as supply/demand improves. We saw a similar situation in 2010 after prices fell significantly in 2009 during the financial crisis, they increased in 2010 as I will elaborate on in my upcoming webinar.
Latest LCD TV Panel Supply vs. Demand Forecast
How about G7+ LCD supplier share if China Star acquires SDC Suzhou and CHOT and BOE acquires CEC Panda. As indicated, BOE’s share would surge to 34%and China Star’s share would jump to 23%. Interesting times ahead for the LCD industry. We will be sure to update the data and our view as they change.