Recently, we reported that Sharp placed the second 45K substrate per month of input capacity of its G10.5 fab on hold. Now, they announced that they have delayed the start of volume production on the initial 45K by 6 months. Rather than a September – October start, they are delaying their ramp till April. It has been said in the display industry that is always best to be first to a new generation, so that your fab ramps its yields ahead of the others, and to have scale. In the case of Sharp in Guangzhou, they are last to a G10.5 and are reducing their scale. Now they are delaying their ramp by 6 months which means their yields will be even farther behind their competitors BOE and CSOT and are trying to reduce their scale while BOE and CSOT are going to be ramping their 2nd G10.5 fabs boosting their scale and further reducing their material prices.
There are likely multiple reasons why Sharp is doing this. First, the ramp is occurring at a time when utilization is declining across LCD TV panel fabs. The fab was projected to be running at around 30% utilization in Q4’19. So, delaying the ramp could allow them to start at higher utilization when they eventually do ramp, reducing the depreciation cost per panel. As more Korean capacity comes offline, they could start their ramp at a better time. By delaying, they are also delaying the start of the depreciation which will be sure to impact their bottom line given the cost of this fab. Second, by delaying the start of the ramp and start of depreciation and not signing off on equipment, they can try to justify delays in payments to equipment suppliers. Digitimes reported that there are disputes between this fab and equipment suppliers and that Sharp has only paid 60% of the amount due to equipment suppliers with the other 40% dependent on final sign-off and start of volume production. It was reported that Sharp was trying to get additional discounts of 6% - 12% before making final payment, but these proposals were rejected by equipment companies and payment in full according to their contracts is eventually expected. In the case of Taiwan equipment suppliers to Sharp, the Taiwan Electronic Equipment Industry Association represented the display equipment suppliers.
How much does this fab contribute to total G7+ capacity. Per the original schedule, it would have ramped to just 2% of total G7+ capacity in 2H’20. So, it will likely not have a much of an impact on the overall supply/demand picture. Even if the fab never starts production, G7+ capacity is still expected to grow 5% from Q4’19 to Q4’20 which is probably sufficient to meet the growth in demand.
Sharp’s SIO Planned G10.5 Share of Capacity
Source: DSCC’s Quarterly Display Capex and Equipment Report
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