In 2021, shipments of notebook computer panels increased quarter by quarter with record highs posted in each quarter. In addition to strong demand for display terminals, panel makers continued to invest in capacity and resources for notebook computer panel production. With notebook panel shipments hitting a record high in 2021, panel makers also set fairly aggressive BP targets for 2022.
Panel makers shipped 187.7 million notebook panels before the COVID-19 outbreak in 2019 and up to 287.9 million in 2021, an increase of more than 50% in two years. In 2022, panel makers planned to grow by an additional 14.1% to 328.5 million units. With such high expectations, the sudden shipment revisions in 1H22 were urgent and violent, catching panel manufacturers off guard.
In 1H22, terminal demand and inventory problems materialized at the same time
The Russian-Ukrainian war in 1Q22 had a dramatic impact on oil production capacity. In addition, strong terminal demand in the past few quarters drove up the prices of various commodities, causing the annual growth rate of inflation to climb, in turn changing interest policies from central banks to focus on suppressing terminal demand and inflation, and leading to plummeting terminal demand.
Shipments of whole devices in 1Q22 were lower than single-quarter shipments of any quarter in 2021, meaning pandemic-induced demand had weaker since the outbreak of COVID-19. However, China imposed restrictions to prevent resurgences of the pandemic in 2Q22. These measures affected the assembly capacity of notebook computer OEMs, and also reduced 2Q22 notebook computers shipments by 17.7%. Looking into the background of 2Q22, when China’s lockdown measures were implemented, brands did not scramble to request OEMs resume production and supply as they had in the past two years. Instead, brands lowered their annual BP and component orders, reflecting that when brands express a bearish attitude regarding waning pandemic-induced boons and pessimism towards future demand, canceled orders in the supply chain is unavoidable.
Before 1Q22, panels have always resided on the top 3 list of notebook computer components. Therefore, notebook computer brands have adopted overbooking and accumulated inventory in the past two years to respond to strong terminal demand and support performance. The average supply-demand ratio for the past 12 years of whole notebook computer panel devices fell at 12.5%. The supply-demand ratio exceeded the long-term average of more than 18% beginning in 3Q21, reaching an ultra-high level of 28% in 1Q22. A relatively high supply-demand ratio means that panel inventory on the brand side accumulated to a certain extent in 2H21 and rose sharply in 1Q22. A higher inventory level will lead to future revenue support when demand is strong but, when market demand reverses, high inventory becomes a heavy burden on financial reports.
In 2Q22, notebook computer panel shipments dropped by 24.3% QoQ, and this quarterly decline was much higher than the 17.7% QoQ decline in shipments of whole devices. This means that brands have begun to curb inventory and greatly reduce panel purchases. Looking at a wider perspective, the beginning of every downward economic cycle related to consumer electronics is accompanied by demand reversal and inventory problems. The Russian-Ukrainian war was only the last straw that led to this reversal．
In view of aggressive procurement activities for panels used in various applications, TrendForce forecasts a 2% glut ratio for the large-sized TFT-LCD panel market for 2021, representing a supply and demand situation that ranges from “healthy” to “slightly in shortage”. As a lack of components constrained panel shipment in 1H21, the overall panel market during this period had a 1.2% glut ratio, which was lower than the average range of 2.5-3% and represented a supply shortage in the panel market. Hence, panel prices were driven into an uptrend for the first half of the year.
Regarding the glass input of panel suppliers for 1H21, despite the tight upstream supply of glasses due to certain work safety-related accidents, the overall capacity utilization rate of panel suppliers remained above 80%. Furthermore, as newly installed capacities, including CSOT’s T7 fab and HKC’s production lines in Changsha, kick off production, large-sized TFT-LCD glass input by area grew to 117.8 Mn2 (million square meters). On the other hand, owing to the proliferation of the stay-at-home economy last year, most display brands carried a relatively low level of inventory, which prompted them to ramp up their panel procurement. However, owing to a shortage of ICs, panel glass shipment (by area) for 1H21 reached a mere 116.4 Mn2.
TrendForce expects two developments to take place in 2H21: First, the arrival of the traditional peak season for monitors in 3Q21 means that demand for IT panels will still remain above a certain baseline; second, there is an ongoing trend for TVs to shift towards large-sized form factors. In light of these factors, although panel suppliers are expected to install significant amounts of production capacity in 4Q21 and thereby drive the glut ratio of panels to 2.6% for 2H21, this overall glut ratio is still within a healthy range. Nevertheless, as suppliers gradually ramp up their newly installed capacities, the quarterly glut ratio of panels is expected to increase by 0.5% from 2.4% in 3Q21 to 2.9% in 4Q21. Not only is 2.9% the highest quarterly glut ratio in 2021, but it is also the second highest since 1Q20, during which the onset of COVID-19 led to an oversupply of panels at a 7.5% glut ratio. TrendForce therefore believes that peak demand in the panel market has already passed.
Regarding the glass input and shipment by area for 2H21, certain panel suppliers are expected to perform routine fab maintenance during the holiday season. Even so, as Gen 10.5 production lines from certain suppliers and various other production lines from HKC begin ramping up capacities, the overall large-sized TFT-LCD glass input area is expected to massively increase by 5.9% compared to 1H21 to 127.2 Mn2 in 2H21. In particular, 4Q21 will see the highest quarterly glass input by area, at 64 Mn2. As previously mentioned, the shift towards larger-sized TFs and the persistent demand for IT products are expected to propel the overall demand for large-sized TFT-LCD glass in 2H21 to 123.9 Mn2, which is 1.4% higher than 1H21.
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