Price reduction overkill causes LCD TV panel average area prices to plummet

Different sizes, different value propositions

AAP is a special price index used to measure the average area price per LCD TV panel size, measured in US dollars per square meter. Using this index allows you to evaluate the prices and value propositions of different TV panel sizes. 

Panel makers are building larger-generation fabs to produce larger-sized panels. The increased panelization helps to reduce the cost of depreciation and the bill of materials (BOM) for larger-sized panels. However, oversupply pushes down prices of all panel sizes. In some cases, larger-sized panels are facing higher downward pressure than smaller sizes because of the surplus caused by the overwhelming number of fab expansions, especially in China, such as 55-inch panels in Gen 8.5 TFT LCD fabs and 65-inch panels in Gen 10.5 TFT LCD fabs. 

From an investment perspective, larger-sized fabs need more investment of capital owing to advanced product and processing technology as well as the greater needs for display components and materials. For instance, Gen 10.5 glass substrates face transportation cost issues, and therefore panel makers are requesting that glass substrate makers invest at the same time and in the same location as Gen 10.5 TFT LCD fabs. 

The following table shows the investments in and products of various TFT LCD fabs by generation. 

With the same capacity, input for one Gen 10.5 fab needs an investment of $544.2/m2, while input for a Gen 8.6 fab needs $488.9/m2. 

The larger the fab, the more the investment needed, and the higher the average investment per square meter.  

Larger-generation fabs need higher investments, so the cost per square meter of larger-sized panels should be higher than that for smaller-sized panels, as should their prices and value propositions.

Supply-demand effects on panel prices

The comparatively higher AAPs and values of larger-sized panels (such as 55-inch panels versus 43-inch panels and 65-inch panels versus 55-inch panels) are the key drivers of panel makers expanding capacity and enhancing advanced feature technologies. The picture performance and display technology requirements of a 65-inch LCD TV are certainly higher than those of a 32-inch LCD TV. 

In general, the AAP of a larger-sized LCD TV panel is higher than a lower-sized one. 

However, in practice, this is not always the case because of how supply-demand oscillations affect panel prices. Meanwhile, the sufficiency or insufficiency of panels will influence their prices; thus, some specific sizes may show very dynamic changes. 

For example, a shortage in 2021 seriously affected the display driver IC supply. When panel makers received their precious allocations of display driver ICs, they preferred using them for larger-sized panels (such as 55 and 65 inches) rather than smaller-sized ones (such as 32 and 43 inches) because of the more strategic availability of larger-sized panels on top of their higher prices. Supplying 55-, 65-, and 75-inch panels to Tier 1 TV brands could help secure long-term strategic relationships as well as take advantage of higher prices and value propositions. However, supplying 32- and 43-inch panels was comparatively less strategic because they were not the main foci of leading TV brands and OEMs. This prioritization to cope with the display driver IC shortage escalated the shortage of 32- and 43-inch panels, and at the end of the day, the AAPs of the 32-, 43-, and 50-inch panels surpassed those of 65- and 75-inch panels. This was an abnormal phenomenon. 

In particular, the 32-inch panel, even with its smaller screen size and declining quantities each year, still constitutes the largest segment among all LCD TV sizes. Therefore, when the market cycles between shortages and oversupply, the 32-inch panel always initiates price changes. It can easily overfill during price increases and might lead to an overkill in price reduction during price decreases. 

Conversely, when oversupply happens, panel makers desire to reduce capacity to amortize depreciation costs, especially in newer larger generation fabs. This might cause a price reduction overkill, which means an abnormal panel price reduction along with decreased confidence in market stabilization. In other words, the AAPs of larger-sized panels are lower than smaller-sized ones.

1. Figure 1: AAP of LCD TV open cells and modules, 2016–21

Notes: The AAP is blended with all frequencies (60Hz, 120Hz, and others), open cell, with backlight unit, and special features (such as a-Si, oxide, response time, and ultra-slim bezel).

Source: Omdia

The figure above shows the quarterly AAP from 2016 to 2021. While the AAP of LCD TV panels fluctuates throughout the crystal cycle, its general characteristic is unchanged—the AAP of larger-sized panels is always higher than the smaller sizes. However, there are exceptions:

• 3Q17: The 55-inch AAP was $222/m2, while the 43-inch AAP was $251/m2. This was due to Gen 8.5 production focusing on 55-inch panels, causing a serious glut of 55-inch panels compared with 43-inch panels.
• 4Q17–1Q18 and 3Q18: There were some short-term shortages of 32-inch panels because panel makers changed their production strategies, constraining 32-inch panel production and shifting their focus to larger sizes. When emerging markets have shortages or if spot deals emerge, the demand for 32-inch panels cannot be met. The short-term shortages caused the 32-inch panel’s AAP to be higher than those of 43-, 50-, and 55-inch panels. However, when the market became oversaturated in 2019, 32-inch panel’s AAP immediately fell below those of 43-, 50-, and 55-inch panels.
• 2016–2020: 75-inch panels had the highest AAP among all mainstream LCD TV sizes. However, its reduction amplitude was also much larger. During this period, multiple Gen 10.5 fabs were built, and supply increased. The sufficient capacity of Gen 10.5 fabs induced the continuous decrease of 75-inch panel prices (and those of 65-inch panels, another mainstream product of Gen 10.5 fabs) until 2020, when the COVID-19 pandemic began.
• 2H20–1H21: The COVID-19 pandemic and the countermeasures taken escalated LCD TV demand tremendously worldwide. Component shortages caused by supply chain disturbances saw panel prices skyrocket. The rise in 32-inch panel’s AAP was the highest among the 65-inch and below LCD TV panel sizes from 3Q20 to 2Q21. This meant that 32-inch LCD TV panel prices increased to very abnormal levels. In fact, the smaller the size, the higher the AAP. One square meter of a 32-inch panel had a higher price and value than that of a 65-inch panel. At the peak of shortages in 2Q21, AAPs were as follows: 

• 32-inch HD: $316/m2
• 43-inch FHD: $273/m2
• 50-inch UHD: $299/m2
• 55-inch UHD: $275/m2
• 65-inch UHD: $254/m2

• 2H21–present: The strong demand caused by the COVID-19 pandemic ended, and back-to-normal lifestyles emerged worldwide. Inflation rapidly shifted consumer demand away from PCs and TVs. Furthermore, many consumers had already purchased or replaced their TVs during lockdowns in the 2H20–1H21 period. The oversupply of panels and panel makers’ strategies of maintaining high capacity utilization slashed panel prices seriously. During the panel price crash, we can see that the old pattern is back—larger-sized panels’ AAPs are still higher than those of smaller-sized panels.

   

2. Figure 2: AAP of LCD TV open cells for standard 60Hz and standard specifications

Notes: The AAPs are for open cells with standard 60Hz frame rates and standard features in terms of brightness and bezel.

Source: Omdia

Following the panel price crash in 2H21, low demand persists in 1H22. Furthermore, the Russia-Ukraine crisis and soaring inflation have further damaged demand. LCD TV brands and OEMs keep scaling down their 2022 business plans and LCD TV open cell panel purchasing schemes. While display manufacturers are not considerably cutting capacity utilization, competition among panel makers is maintaining the severe downward trend of panel prices. Even while LCD TV panel prices crashed to a historic low in May 2022, LCD TV brands and OEMs were continuously demanding that prices further decrease in the next couple of months. 

Panel price reductions are necessary to enable lower LCD TV retail prices, thus rejuvenating market demand. The consequence of oversupply is panel price reduction, but panic in the supply chain usually leads to abnormal price reductions. Panel makers are worried about insufficient orders to meet demand, while TV brands and OEMs are worried about buying panels at higher prices than their competitors. Panel sellers and buyers are both worried that decreasing demand will cause decreases in inventory value or prices. Panel prices are spiraling downward and will reduce to the point of overkill in 3Q22. 

However, the AAP remains an important index for measuring reasonable levels of panel price reductions. If the AAP is unreasonably low for some larger sizes, then we believe it is an example of an overkill in panel price reduction.

Projections

Based on current panel price forecasts, we project the following AAPs in 3Q22:

• 32-inch HD 60Hz open cell: $112/m2
• 43-inch FHD 60Hz open cell: $115/m2
• 50-inch and 55-inch UHD 60Hz open cells: $110/m2
• 65-inch UHD 60Hz open cell: $111/m2

   

Not only are these record-low AAPs, but they also represent an overkill in panel price reduction. 

The almost zero gap between the AAPs of smaller sizes (such as 32- and 43-inch panels) and larger sizes (50-, 55-, and 65-inch panels) is abnormal. Since the price per square meter is homogenous, there is no value added in manufacturing larger-sized panels. 

The prices and values per square meter of 32-, 43-, 50-, 55-, and 65-inch panels are all in a similar range, and this abnormality will affect the industry in two ways: 

• For LCD TV brands and OEMs, each square meter of LCD TV screens sold to consumers is the same value, which means that they cannot use the larger-sized panels to achieve a high-end brand image or charge the value added to consumers through better picture performance. Lower-priced TV panels mean a diminished LCD TV value, which is not beneficial for TV brands’ and OEMs’ long-term businesses.
• For panel makers, larger sizes do not represent better or higher value propositions, so it is meaningless for larger-generation fabs to produce larger-sized panels in higher-generation fabs. The dynamics of capacity and technology evolution is losing. This also means that panel makers will lose money when producing larger-sized panels than smaller-sized ones because fabs usually suffer heavier depreciation owing to the larger capex.

   

Although the overkill in panel price reduction is an abnormal phenomenon and a double-edged sword, it also indicates that average AAP will finally reach its lowest point in 3Q22 and will start to rebound in 4Q22 because panel makers are taking countermeasures to constrain capacity utilization. By then, LCD TV brands and OEMs would sense that panel prices are “low enough” to start to purchasing panels to build up their inventories. 

Omdia expects AAP to rebound in 4Q22.