Impact of Semi-Conductor Shortage on Display Manufacturers

The Reason for the crisis

• – Pandemic: The direct and root cause of causing the crisis is the pandemic.  In March 2020, a lot of countries issued executive orders for people to stay at home. The demand for various products dropped sharply. A lot of manufacturers cancelled or pushed out orders.  The world 1^st and 2^nd biggest LCD manufacturers Samsung and LG declared the plan to stop all the LCD production. A lot of LCD panel and IC manufacturers cut the production because of order drop or executive orders to stay at home. They use stock instead of the fresh production to fill the demands.

 

• – Chaos of Executive orders and planning: Because of the pandemic, nobody knew what was ahead.  Executive orders were updated monthly, the same as the planning for schools, plants, companies and other organizations. By July, a lot of schools started to realize that it was not practical to open the schools in personal and needed every student to have online classes which suddenly boosted the orders of laptops, monitors, TVs and other entertainment devices. The LCD panel manufacturers couldn’t ramp up for so fast increased demands. The stock was cleared quickly and LCD factories had been running 7/24 starting last fall which still couldn’t keep up the order speed. The price increase followed right after.

 

• – Zero Stock Policies: LCD panel and IC prices had been inclined for more than a decade. There had been a fixed mindset for a lot of commodity executives and managers that the prices will fall ever. Because the competition was tough for suppliers, the big customers demand for OTD (On Time Delivery), especially for automotive makers. They don’t hold much or any stock in order to improve the cost down and cash flow. The result is that they totally rely on suppliers to hold the inventory. With the pandemic, a lot of customers first pushed out orders which made the supplier chill in spine. The suppliers tried to cut their inventory in order to prepare enough cash for industrial winter.

 

• – Panic: A lot of companies had fixed mindset that they could ask the suppliers to shorten lead time and keep supplying with many years free of issues. When they suddenly realized that the old practices could cause their production line down situation, most of them were in panic and ordered much more than they really need. The quantities were suddenly piled up to unreasonable situation.  Most of the IC manufacturers issued notices to the customers that their orders NCNR (Not Changeable and Not Cancellable) trying to prevent the unreasoning orders.

 

• – Stimulus Packages: Government of many countries have been racing to issue stimulus packages and money flood the market. It is true that some people were struggling to stay away hunger. But most of the governments didn’t identify the real needed people. They used the ways of helicopter distributing money. A lot of people used the money to upgrade their household and entertainment.  As most of the governments promised supplying the money unlimited to the market without any cap, the majority of the companies and personals are free of worries and expect the governments will always come to rescue if they are in trouble. The competition of spending is flooding.

Consequences

 

• – By the end of 2020, the LCD panels for TV increased 32” 119%, 43” 81%, 55” 84%, 65” 46%.

 

• – By the end of 2020, LCD controllers/driver prices increased around 20%. By March 2021, the prices increased 20-30% again. The IC shortage made many factories line down. The IC prices in distributions and after market are even higher.  There was a blog mentioned a STmicro MCU price increased from 5 yuan to 70 yuan.

 

• – The prices of materials used for LCD production increased too.  ITO glass, polarizer, FPB, PCB, packing material, photoresist, chemicals etc.

 

• – The prices of other components increased too. Resistors, capacitors, LED, etc.

 

• – The commodity prices increased too, copper, nickel, plastic (oil), water, electricity.

 

• – We believe that the production capacity of LCD panels and ICs are largely balanced with the real market demands. With the frenzy over, the prices will drop eventually.

 

• – The LCD panel price increase is still slowdown. We believe the LCD panel price will keep flat but still at the high price level in 3^rd and 4^th quarter 2021. It is no benefit for LCD panel manufacturers with price drop if the IC is still in tight supply. We should see LCD panel price drop in 2^nd quarter 2022. The price drop speed should accelerate in 4^th quarter 2022. Super-hot will create super cold. We believe we will see LCD panel winter in 2023 which should last 2-3 years.

 

• – IC is still in rapid price increase.  It is our predication that IC price should stop increase in 2^nd quarter 2022. We should see the price drop starting on 4^th quarter 2022.

 

• – The biggest threat in the market is that the real market is not big. Most of the companies ordered too much, they might cancel some of the orders.  When we see some customers start to cancel the orders, it is the same to see the first leave falling, the fall comes. The tread will accelerate like dominos. The winter for the industry will come.

 

• – We see this wave of frenzy as man-made. The governments have been printed too much money. Inflation is inevitable.