Since corrections continue to occur in the current global notebook computer market as a result of the “overbooking” bubble, destocking of terminal products is expected to continue until the first half of 2023, when cyclical growth momentum is likely to return to the market.
TrendForce forecasts that global notebook computer market shipments will reach 191 million units in 2022, falling 22.3% YoY. The first quarter of 2022 benefitted from a backstop created by market demand for business model notebooks, laying the foundation for a 2022 “not-off off-season.” However, the global notebook computer market encountered zero-COVID control measures in Shanghai, China, resulting in a supply chain suspension in 2Q22. In addition, rising inflation stalled global consumer electronics market demand. Shipment volume is only expected to be approximately 44.35 million units up until 4Q22, demonstrating that 2022 has reversed the established market norm, replacing “QoQ growth” with “QoQ decline.”
Global notebook computer market shipments will reach 177 million units in 2023, cyclical growth momentum is expected to play an important role
Looking back on 2022, due to the reversal of demand in the global notebook computer market beginning in 2Q22, the overbooking bubble caused by the COVID-19 pandemic has corrected quarter by quarter, resulting in a sharp increase in inventory levels at PC brands. Therefore, accelerating the destocking of notebook computer products is the current focus of PC brands with individual sales channels all adopting promotional strategies based on substantial price cuts. If the inventory level of terminal products can be reduced, it will be beneficial for PC brands to continue purchasing semiconductors and other materials in 2023 and pessimistic market conditions will not spread to the foundry industry, which is conducive to a positive cycle.
Movements in the current global laptop market to correct for the overbooking bubble will continue until the first half of 2023. The second half of 2023 coincides with cyclical growth momentum from back-to-school shopping and holiday seasons in major consumer electronics markets such as the United States, Europe, China, and Japan, and the global notebook computer supply chain is expected to ramp up supply from 2Q23 to reproduce a demand scenario wherein the second half of previous years surpassed the first half. Global notebook computer market shipments is estimated to reach 177 million units in 2023, an annual decline of approximately 7.7% and the proportion of shipments in terms of the first half compared to the second half of the year will be approximately 47:53.
The expected 2022 development pattern of the notebook computer business laptop market will show that Lenovo, Dell, HP, Apple, Asus, and Acer, the world’s six leading notebook computer OEMs, account for a total business laptop market share of as high as 94%, which is a double-digit percentage gain compared to a market share of 80.8% in 2021. Shipments of business laptops originating from the six major OEMs in 2022 is estimated to reach 80.29 million units, an increase of 8.2% compared to 74.22 million units in 2021, which is contrary to the YoY decline of 6.7% in the overall global business laptop market from 2021 to 2022.
Upon further observation, the aforementioned development trend is primarily due to a sharp decrease in the supply of small market share business laptops from OEMs such as Samsung, NEC, Huawei, and Xiaomi, while supply from the six major OEMs has increased. Comparing the two, the target market of smaller market share OEMs may be limited to their respective home countries. If market demand for business laptops in their home countries approaches saturation, coupled with limited capacity for expansion and a lack of strategic planning for global market access, it will be difficult to displace the top six OEMs with their targeted global market scope, nor do smaller market share OEMs have the strategic and technical ability to expand production capacity in time to meet the huge demand of the global business laptop market.
Performance of global business laptop market will decline sharply in 2023 and pandemic premiums are expected to reappear in 2024-2025
As the key driving force behind the global notebook computer market, business laptops are expected to reach 85.45 million units in 2022, a YoY decline of approximately 6.7% compared with 91.55 million units in 2021. However, shipments of business laptops will account for 43.8% of total shipments of all laptops (including business, consumer, and Chromebook laptops), setting a record for highest proportion of shipments in the past five years and since the global spread of the COVID-19 pandemic in 2019. With Chromebook shipments losing momentum, business laptop sales growth has prevented the market from falling off a cliff.
With the end of pandemic-related business laptop demand, business laptop shipments in the global notebook computer market is expected to diminish to 74.94 million units in 2023, and YoY decline will expand to 12.3%. If inflation in the consumer electronics market can be significantly slowed in 2H22 and the 1H23, cyclical “back-to-school” and “holiday season” growth momentum in 2H23 will benefit the notebook computer consumer product market, increasing the proportion of consumer device shipments in the global notebook computer market to 49.4% in 2023, while the proportion of business laptop shipments will recede marginally to 41.6%.
Although growth momentum in the current business laptop market is weak, the market performance of business laptops is still highly anticipated due to the “bulk sale” characteristic of business laptops, the fact that many companies must purchase replacement “Durable Goods” every 2-3 years, and the expectation that business laptops purchased during the severe pandemic of the past two years will be replaced subsequently from 2024 to 2025.
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．
According to TrendForce, the consumer electronics market will feel the brunt of the weakening stay-at-home economy, the pandemic in China, international tensions, and rising inflation in 1H22. Coupled with the traditional off-season, demand for relevant applications such as PCs, laptops, TVs, and smartphones has cooled significantly and downstream customers have successively downgraded their shipment targets for the year, while demand for automotive, Internet of Things, communications, and servers products remain good. At the same time, the supply chain will build higher inventories in general to mitigate the risk of material shortages due to transportation impediments induced by the spread of the pandemic and the ongoing war between Russia and Ukraine.
Due to the prolonged lead-time of semiconductor equipment and limited new capacity in 1Q22, the overall foundry capacity utilization rate remains fully loaded, in particular, component mismatch issues continue for parts produced at mature nodes (1Xnm~180nm). Looking forward to the second quarter, although growth in global wafer production capacity remains limited, due to weak demand for end products, continuing international tension, and China’s forced lockdowns and supervision due to the recent spread of the pandemic, there is an opportunity for the supply chain to obtain a more adequate supply of wafers that were previously squeezed by production capacity.
The overall supply of key server materials improved slightly in 1Q22. In addition, due to increasing orders from ultra-large data centers, the general supply cycle of NetCom chips such as LAN IC/chip remains as long as approximately 40 weeks but the demand gap can be bridged by instituting urgent order fees, mitigating actual impact. As the aforementioned situation eases, additional orders for ODM motherboard production are moving briskly, prompting continued stocking of FPGAs and PMICs materials. NetCom chips are also overstocked and the overall market has a reached a “rich get richer” mindset. Material shortages at second-tier ODMs still stifle the production of motherboards for a small number of customers but does not affect the overall server market supply. With improvements in material supply, server shipments will increase significantly in 2Q22, growing an estimated 15.8% QoQ to 3.6 million units.
Affected by sluggish seasonal demand, the Russian-Ukrainian war, and rising inflation, market demand has cooled. Thus, material delivery issues in the supply chain have eased compared to 2H21. Although there is still a shortage of certain components, most of these shortages are concentrated in mid/low-end smartphone products. The lead time for 4G and low-end 5G SoCs is approximately 30 to 40 weeks, which is limited by production capacity planning. Since last year, the demand of the mid/low-end mobile phone market has not been met. This is followed by A+G sensors with a lead time of approximately 32~36 weeks and OLED DDIC and Touch IC with a lead time of 20~22 weeks. The production volume of smartphones in 2Q22 will be affected by the interaction of the aforementioned factors with a forecast production volume of 323 million units, or only 6% QoQ, which is lower than the performance of previous years.
Also affected by weakening end market demand, discounting client SSDs that are no longer oversupplied, Type C IC, WiFi, and PMIC all currently boast long lead times, with Type C IC the lengthiest at 20~25 weeks. However, compared with TrendForce’s assessment at the beginning of this year, the delivery cycle has not grown longer, so the lead time of these three types of products is expected to improve by the end of 2Q22. As supply chain backlog continues to improve, shipments of notebook computers (including Chromebooks) is expected to reach approximately 55.1 million units in 2Q22, down 0.7% QoQ.
5. MLCC Passive Components
From the perspective of other key components, taking MLCC as an example, demand for major consumer electronic products such as mobile phones, laptops, tablets, and TVs declined significantly in 1Q22, resulting in high consumer product specification MLCC inventory levels held by original suppliers and channel agents and this situation may continue into 2Q22. At present, the stocking momentum for automotive and industrial MLCCs has steadily increased, while consumer specification products have yet to escape the pattern of oversupply. In 2Q22, the MLCC market has the opportunity to alleviate its component mismatch issues through gradually increased production capacity and automotive and server ICs supplied by semiconductor IDM companies, driving stocking momentum at automotive power, server, fast charging, and charging/energy storage equipment OEMs. Vehicle and industrial MLCCs have the opportunity to become primary growth drivers in 2Q22 with Murata, TDK, Taiyu and Yageo as the primary beneficiaries. Consumer specification products, which account for the bulk of MLCC production from suppliers in Taiwan, South Korea, and China, may face continued market demand weakness in 2Q22 due to a slowdown in demand for mobile phones and laptops and continuing inventory adjustment by branded companies and ODMs.
Looking forward to 2Q22, not including servers, demand for end products related to the consumer category remains weak. Components that were originally oversupplied will face more severe price tests due to the imbalance between supply and demand. In terms of materials in serious short supply, more output will be transferred to products with strong demand through the deployment of internal production capacity. TrendForce believes that from the changes in PC market conditions, it can be seen in rapid changes in demand, purchasing behavior has quickly switched from the former over-ordering strategy to actively cutting orders, inducing supply chains to buck the seasonal trends of previous years. Due to the accelerated recent spread of Omicron in China and under the country’s dynamic zero-COVID policy, mandatory and sudden lockdown and control measures may cause local manufacturers to face multiple and complex supply chain problems, which will be detrimental to market performance.
As the Russian-Ukrainian war directly affects Eastern Europe and, indeed, the entire European market, the supply of raw materials has destabilized and prices continued to soar, exacerbating inflation and pummeling the global economy. In addition, lockdowns and work suspensions caused by the recent pandemic outbreak in China and the government’s insistence on a dynamic zero-COVID policy may lead to complex problems such as reductions in factory production efficiency and logistical delays.TrendForce indicates, the uncertainty of current global political and economic circumstances have upset demand for three major display applications including TVs, LCD monitors, and notebooks, overshadowing 1H22 with pressure to correct expectations.
TV panel prices nearly bottomed out, driving demand in TV market remains challenging
In terms of the TV market, due to the deleterious effect of the Russian-Ukrainian war on inflation and assuming consumer budgets remain unchanged, expenditures on non-essential items will fall, deferred demand for TV products. In addition, due to issues in 2021 such as the shortage of cargo containers and port congestion, shipping costs spiked, indirectly inflating the production cost of TV sets. Before the pandemic, shipping costs on a 65-inch TV was US$9. Last year, this jumped to US$50-US$100, scaling with TV size. Even though current TV panel pricing has plunged by 30% to 40% compared to last year’s peak, the fact that freight costs are not expected to improve in 2022 will inevitably affect TV brand promotions and scale of stocking during the peak season of overseas markets in 2H22. Therefore, TrendForce revises downward its TV shipment forecast for 2022, from the original 217 million units to 215 million units, reducing annual growth rate to 2.4%.
Stay-at-home economy effect vanishes, war worries dampen demand, dragging on demand for LCD monitors
In terms of the LCD monitor market, the scale of the 2022 market will be smaller than that in 2021 as the overall market is no longer supported by strong demand from last year’s stay-at-home economy. In addition, relatively stable past demand originating from the European market ran headlong into the Russian-Ukrainian war at the end of February. This, coupled with a subsequent butterfly effect that may lead to a downward revision in demand, as well as problems such as inflation and sustained high freight rates, make it difficult for brands to realize aggressive shipping goals. Therefore, TrendForce preliminarily revises downward its LCD monitor shipment forecast for this year, from 144 million units to 142 million units, expanding annual negative growth rate to 2.3%, without ruling out a possibility of further downward revision.
Notebook demand under downward pressure from inflation and soaring component inventories
In terms of the notebook computer market, TrendForce revises downward its original 238 million unit shipment forecast to 225 million units, a decrease of 8.5% YoY. There are three primary factors to this downgrade. First, Chromebooks benefited from the pandemic driving demand for distance education in 2021, accounting for 15% of total notebook shipments. Chromebook shipments are forecast to decline by more than 50% in 2022 as a whole, disrupting total notebook shipments by approximately 7~10%. Second, the conflict between Russia and Ukraine has caused most notebook brands to suspend shipments to Russia. Russia accounted for approximately 2% of global notebook shipments in 2021 and a suspension will also curb the demand for notebook shipments. Third, every notebook brand has revised 2022 shipment forecasts downward by approximately 10-15% on average compared to the beginning of the year, indicating that inflation has clouded these brand’s future demand outlook. The inventory of the entire supply chain including certain in-transit ODM/OEM components, continues to climb while the prices of some components continue to face downward pressure, resulting in intertwined problems and forcing notebook brands to prudently control purchasing momentum, which may further impact the upstream supply chain.