TRI: Taiwan's Display Panel Industry May Rally on New Solutions in 2012

Hit by the sagging market for LCD TVs, Taiwan's display panel manufacturers have experienced a severe business downturn this year and have been forced to cut back on their expansion plans for 2012.

The Taiwan-based market research firm Topology Research Institute (TRI) believes, however, that it is still possible for the industry to stage a comeback in the second quarter of 2012--if major players can switch to new solutions, including OGS/ATT (one glass solution/advanced touch technology) and power-efficient display technologies, and expand output for niche products, as soon as possible.

Stumbling Drastically
Starting with AU Optronics Corp. (AUO), the largest display panel manufacturer in Taiwan, the island's display panel makers that concentrate on large-sized models have slumped even more than expected.

AUO reported sales revenues of NT$98.927 billion and a huge net loss of NT$15.796 billion, or NT$1.79 per share, for the third quarter of this year. The company's gross profit margin plunged to minus 9.2%, far worse than the -2.5% of the previous quarter. The firm's chief financial officer, Andy Yang, admitted at an investor conference a few days ago that AUO had suffered a total net loss of more than NT$40 billion during the first nine months of the year.

The company predicts that market demand for large-sized display panels will remain sluggish over the next one to two quarters, and that its capacity utilization rate will keep falling from the 77-78% of the past quarter. In response to the persistently slack market, Yang said, the company has no output expansion plans for 2012 and will slash its regular budget for the year to only NT$30-40 billion, all of which will be used to develop new technologies.

Taiwan's second-largest display panel supplier, the Chimei Innolux Corp., also struggled with considerable net losses in the third quarter: NT$17.26 billion, or NT$2.3 per share. This was up from a loss of NT$13.3 billion in the second quarter. Dring the first three quarters of the year, the company lost NT$44.448 billion.

Eddie Chen, spokesperson for Chimei Innolux, attributed the disappointing performance partly to falling prices for display panels and partly to weak capacity utilization. Chen went on to report that the company has halved its capital expenditure for 2011 to only NT$50-60 billion, down from NT$100 billion budgeted earlier, but has yet to decide how much it will spend next year.

Institutional investors are pessimistic about the industry and predict that Taiwan's four major manufacturers in the field, namely AUO, Chimei Innolux, Chunghwa Picture Tubes Ltd. and HannStar Display Corp., will finish the year with total net losses of more than NT$130 billion, an all-time high.

Targeting Small and Medium-sized Panels
While the market for large-sized display panels has plummeted mainly due to the global economic doldrums and souring consumer markets in Europe and the U.S., the demand for small and medium-sized models for use in smartphones and tablet PCs has grown steadily. This, TRI feels, offers a ray of hope for Taiwan's clouded display panel industry.

TRI predicted that Apple's iPhone, which inaugurated the boom in small and medium-sized panels, will see global shipments grow by 17.76% to 1.71 billion units this year. Buoyed by the persistent popularity of portable communication devices and solid consumer demand in emerging countries, the market will continue to expand in 2012. TRI suggests, therefore, that Taiwanese manufacturers ride the wave and step up mass production of niche products as soon as possible.

OGS/ATT
To gain ground in the competitive landscape, TRI said, Taiwanese manufacturers should focus on such areas as OGS/ATT, explaining that traditional external wall-mounted (Out-cell) touch technology has gradually moved toward OGS/ATT in line with the trend toward the increasing incorporation of capacitive touchscreens into smartphones and tablet PCs.

The market research firm further noted that OGS, which can help cut lamination costs by 10% and enhance touchscreen sensitivity, along with on-cell touch technology, are regarded by industry insiders as trend-setting solutions in touch panel production, and are increasingly used to generate added value for brand customers. For instance, Samsung Mobile Display, a touch module supplier affiliated with Samsung Electronics, has introduced on-cell touch technology to touchscreens for use in Samsung's hot-selling Galaxy S.

In fact, TRI noted, most Taiwanese display panel makers are capable of providing all-around touch solutions for brand customers, but they still need time to further sharpen their capabilities and boost their capacities so as better compete with Korean rivals.

High Resolution Panels
Apple's adoption of the 3.5-inch Retina Display in the iPhone 4S, which is considered by industry insiders as the sharpest, most vibrant, highest-resolution phone panel ever, has hailed the coming era of WVGA (800X480 resolution), higher-resolution phone panels.

TRI noted that WVGA phone panels currently have to be produced on LTPS-TFT (Low Temperature Polycrystalline Silicon Thin Film Transistor) lines, and that the segment is almost completely under the control of Japanese and Korean companies. Of the total number of TFT LCD phone panels shipped in 2010, Japan's TMD (Toshiba Mobile Display) and Sony Mobile Display commanded shares of 30.2% and 21%, respectively, while SMD and Sharp followed with shares of 18.4% and 16.3%. Taiwanese manufacturers contributed only 5.6% to the total last year.

TRI stressed that the market is very likely to tilt increasingly toward Japanese and Korean companies in the short term, mainly because they are better able to apply LTPS TFT technology to the production of higher-resolution phone panels. This will keep Taiwanese companies far behind.

No Pain, No Gain
Despite their disadvantageous position in the market for high resolution phones panels at the moment, TRI believes that Taiwanese manufacturers will still have a chance to nibble away at their Japanese and Korean competitors in the future if they boost their efforts to develop higher-end display technologies, including LTPS TFT, a-IGZO (an amorphous indium gallium zinc oxide) TFT, and AMOLED (active matrix organic light emitting diode).

TRI explained that the higher the resolution and brightness of images displayed on a traditional TFT LCD panel, the more power the built-in backlight module will consume. However, display panels using the new technologies mentioned above are more power-stingy; and so, according to TRI, it will be worthwhile for Taiwanese manufacturers to develop these technologies in the future. But it will not be easy.

Driven by environmental and sustainable development issues, TRI noted, display panel makers will focus increasingly on improving and upgrading their manufacturing processes in an effort to reduce the use of parts and PFCs (perfluorocarbons) while increasing the use of recycled water and air to enhance material and energy efficiency so as to achieve better operating margins. This is a trend, the market research firm indicated, in which Taiwanese manufacturers should get an early start.

Estimated Shipments of Small and Medium-sized Display Panels, by Category Unit: 1 million units
Period	LTPS TFT LCD	a-Si TFT LCD	CSTN LCD	MSTN LCD	AMOLED
Q1, 2010	69	234	66	18	6
Q2, 2010	78	252	66	18	6
Q3, 2010	102	264	48	18	12
Q4, 2010	96	252	48	12	18
Q1, 2011	96	228	36	12	18
Q2, 2011	102	300	36	6	24
Q3, 2011	108	300	24	12	36
Q4, 2011	108	280	24	12	42
Q1, 2012	110	300	15	12	42
Q2, 2012	120	310	13	10	42
Q3, 2012	150	320	10	10	54
Q4, 2012	140	320	10	10	54

Source: Topology Research Institute