Taiwan's Flat Panel Display Makers Flounder in Q4, 2008 Amid Global Downturn

The flat panel display (FPD) industry in Taiwan turned out products totaling NT$264.2 billion (US$7.77 billion at US$1: NT$34) in the fourth quarter of 2008, for a 35.3% quarter-on-quarter (QoQ) decline, according to the statistics compiled by the IEK-ITIS (Industry & Technology Intelligence Services) project.

FPDs contributed NT$182.9 billion (US$5.38 billion) to the total value, a 39.1% QoQ decline, with FPD parts and components making up NT$81.3 billion (US$2.39 billion), a QoQ drop of 25.4%.

Large-sized (over 10 inches) thin film transistor-liquid crystal displays (TFT-LCDs) contributed NT$132.6 billion (US$3.9 billion) to the overall production value, small- and medium-sized TFT-LCDs NT$37 billion (US$1.09 billion), and TN/super twisted nematic (STN)-LCDs NT$11.1 billion (US$326.2 million).

In terms of the production value of parts, color filters accounted for NT$18.29 billion (US$537.9 million), polarizers for NT$8.73 billion (US$256.76 million), glass substrates for NT$28.68 billion (US$843.53 million), and backlight modules for NT$25.63 billion (US$753.8 million).

Weakened Confidence

The IEK-ITIS attributes the decline in FPD production value to consumers' weak purchasing willingness for consumer electronics due to the worsening economic factors, high unemployment, and increasing uncertainty in the wake of the global financial tsunami. The consequent shrinkage in demand from downstream manufacturers also steadily compromised the prices of large-sized panels. In the fourth quarter, panel prices declined by 20% to 30%, forcing most panel suppliers to respond by cutting production. The double impact clearly pushed down makers' revenues, with the production value of large-sized TFT-LCD panels suffering a 45.3% QoQ decline as a result.

The shipment of small- and medium-sized TFT-LCD panels used in netbooks (mini-notebook PCs), driven by urgent demand by buyers, steadily rose but tapered off in the fourth quarter. The overall production value of small- and medium-sized TFT-LCD panels in Taiwan in the fourth quarter of 2008 dropped slightly relative to that in the previous quarter.

Shipment of organic light-emitting-diode (OLED) panels in Taiwan suffered a relatively-minor QoQ decline of 9% due to downstream makers' purchase decrease and uncertain outlook, despite the rising penetrations of passive-matrix (PM) OLED panels for low-end displays in cellphones and MP3 players. In addition, the active-matrix (AM) OLEDs are less price competitive than TFT-LCDs, while AMOLED downstream suppliers were less willing to stock up on inventory, which also affected the shipments of such products.

The overall turnover in the TN/STN panel sector in Taiwan dropped 19.8% QoQ in the fourth quarter over the third. The makers attribute such decline to the global downturn that drastically battered demand for consumer electronics starting in Oct. Also the TFT-LCD oversupply impacted the TN/STN makers, with steadily falling small and medium panel prices giving less room to survive for TN/STN LCDs. Some TN/STN LCD suppliers in Taiwan have been slowly diversifying into the touch-panel business to boost their flagging operations.

Key Parts

Last year was the bleakest in the FPD industry history as all the world's top-three TFT-LCD panel manufacturers reported losses, which also compromised performance of parts suppliers.

Battered by the double impact of falling prices of large TFT panels and weakened demand, most makers of color filters reported poor performance in the fourth quarter (revenues fell 42% from the previous quarter).

The production value of polarizers also suffered-declining 42% QoQ in the fourth quarter-due mainly to high pressure for price cuts and lower demand from panel makers. From the third quarter, many polarizer makers in Taiwan, including Optimax Technology Corp., had laid off employees or halted production.

The value of glass-substrate production in the fourth quarter dropped 11.0% compared with the third quarter because of weak demand and price negotiations, causing manufacturers to cut back on production to stabilize prices.

Meanwhile, the backlight modules sector suffered in the fourth quarter due to tighter cost control by the panel makers. The production value of the backlight module sector in Taiwan slipped 31.7% QoQ in the fourth quarter, with all the local makers' profits and shipments seriously hit.

Forecasting Q1, 2009

The IEK-ITIS points out that the fourth quarter, usually a peak season, for the FPD line in Taiwan took a beating due to the global economic recession, which continued to sap demand, with retail sales in Europe and the U.S. during the Christmas season less than expected.

Even the usually hot Christmas seller LCD TV succumbed under the global downturn, a fate that also plagued the other consumer electronics. To avoid inventory pile-ups, systems makers strictly controlled ordering from FPD makers, causing panel quotations to steadily drop.

Seldom-seen Declines

In the fourth quarter of 2008, Taiwan's FPD industry, due to lowering capacity utilization to stabilize falling prices, saw a seldom-seen QoQ and YoY declines in the traditional high season. One worrying aspect was that South Korea, traditionally the archrival of Taiwan's FPD sector, wielded a price advantage in quotations. Such edge was due to the deeper depreciation of the Korean won, relative to the Taiwan currency, against the greenback as well as the earlier reporting of equipment depreciation by Korean players. As result, the S. Korean rivals had a 10% to 20% higher capacity-utilization, as well as better sales volume and revenues, than companies in Taiwan, whose global FPD shares fell.

Although there have been some rush panel orders for Taiwanese panel suppliers in January, but as a result of relatively-low parts inventory kept by downstream makers rather than a sign of possible market recovery. Many panel suppliers in Taiwan are pegging big hopes on the mainland Chinese policy of subsidizing consumer-electronics purchases by rural residents. However the bottom-line is that only 10" to 20" panel purchases will be subsidized, smaller than TV panel sizes and whose prices are still lackluster, hence unable to help panel makers' profitability. Also such official stimulus program in China is expected to be short-term, not likely to aid the long-term revival of the FPD sector in Taiwan. Whether the panel sector in Taiwan will see rosier times depends on the recovery of the global economy.

For the first quarter of 2009, the IEK-ITIS foresees the production value of large-sized TFT-LCDs to continue declining by 10% QoQ to reach NT$119.43 billion (US$3.51 billion) due to the low-season effect, continued capacity-utilization cut, and no sign of major rebounds in panel prices. Small- and medium-sized TFT-LCD production is to suffer a QoQ drop of 22% in the first quarter, due to the low-season factor, weak consumer confidence, and increasingly fierce underselling as more sub-5G panel lines have been or will be shifted to manufacturing such product.

Production Value of Taiwan's FPD Sector Unit: NT$100 million
Category	Q2, '08	Q3, '08	Q4 , '08	2008
Revenue	Q/Q	Revenue	Q/Q	Revenue	Q/Q	Revenue	Y/Y
FPDs	Panels	TFT-LCDs (>10")	2,815.9	-4.1%	2,426.0	-13.8%	1,326.9	-45.3%	9,505.3	-12.6%
TFT-LCDs (<10")	331.2	-22.8%	416.0	25.6%	370	-11.0%	1,546.4	21.6%
TN/STN LCDs	135.0	-5.6%	138.3	13.4%	110.9	-19.8%	503.2	-21.1%
OLEDs	17.8	9.2%	21.9	23.0%	19.9	-9.0%	75.9	19.7%
Others*	1.3	-7.1%	1.5	15.4%	1.2	-20.0%	5.4	-19.4%
Sub-Total	3,301.2	-6.4%	3,003.7	-8.7%	1,829.1	-39.1%	11,636.1	-9.4%
Key Parts	Color Filters	368.3	-3.1%	315.3	-14.4%	182.9	-42.0%	1,246.5	-5.8%
Polarizers	181.0	2.0%	150.4	-16.9%	87.3	-42.0%	596.2	-13.8%
Substrates	332.2	-2.0%	322.2	-3.0%	286.8	-11.0%	1,280.2	10.8%
Backlight Units	380.1	0.2%	375.2	-1.3%	256.3	-31.7%	1,390.8	-7.3%
Sub-Total	1,216.6	-1.1%	1,163.1	-7.8%	813.3	-30.1%	4,513.6	-3.4%
Overall	4,801.9	-10.1%	4,562.8	-5.0%	2,642.4	-35.3%	16,204	-7.5%
Source: IEK-ITIS, February 2009.