Analysts: LCD tool spending dips, 2009 outlook unclear

Nov. 3, 2008 – Manufacturing output for TFT-LCD displays is expected to hit record highs in 2008, but look for spending to fall off a cliff in 2009, according to separate analyst reports.

TFT/LCD capex (land, buildings, equipment) are seen rising 78% this year to $16.3B, with 405 of total spending going toward Gen 8 panel production; LG Display, Samsung, AU Optronics, and Chi Mei Optoelectronics are all building fabs to accommodate 2200mm × 2500mm substrates. Spending on G8 panels will continue through 2010, but in 2011 G10 will become the largest revenue-generating panel size, the analyst firm predicts.

Meanwhile, Information Network president Robert Castellano sees LCD makers trimming their tool spending budgets significantly by the end of this year and cutting output by 20%, though even with those dents the LCD tool market will still surge 50% for the year. Demand for large-sized LCDs will grow 5% this year to 390M panels, he says, thanks to demand for notebooks and TVs. But the global economic slowdown and declining profit margins have caused LCD firms to largely hold off on investing in new tools toward the end of this year, pushing ~$600M worth into 2009. That will give 2009 a bit of a boost, with revenue increase of ~14% for equipment despite weakening prices and inventory corrections.

“Panel makers are stringently controlling costs while improving the technology innovation at this time,” exemplified by cutbacks in output from Taiwan’s AUO and CMO during what’s traditionally a strong holiday season, notes Castellano.

Long lead times for TFT/LCD fabs and equipment are slower than the cycles for LCD materials and modules, and with previously ordered tools already well into assembly/shipment phases, it’s harder to push out deliveries — and that’s what’s saving 2008, notes Charles Annis, DisplaySearch VP of manufacturing research, in a statement. Fab utilization cutbacks in 3Q08 haven’t stopped the freefall in prices, and “multiple fab expansions planned for 2009 have already been delayed,” he writes. Moreover, “with the demand outlook still bleak, continued bad news about the economy and utilization reductions being extended into Q4, the worst may not yet be over. The 2009 equipment forecast may still be at risk.” Demand should rebalance with supply again by mid-2009, making 2010 a better year for expansion and TFT/LCD equipment spending, he says.

TFT/LCD array capacity is seen rising at 36% CAGR from 4.5M sq. m in 2000 to >237M sq. m in 2013. But the amount of capacity coming online from 2009-2011 will be less than previously forecast, though through 2013 CAGR should stay “well above 10%,” the firm says. Top TFT LCD makers Samsung, AUO, LG Display, CMO and Sharp are all forecast to continue to invest the most, increasing their total share of capacity by about 1.5 percentage points to 82.9% of the market by 2Q10.

But for now, cutbacks are coming. PDP lines are closing; in 3Q08 Hitachi said it will pull out of this segmentt, leaving Panasonic as the lone Japanese maker of the venerable large-format FPD technology — but this is quickly becomingn “a niche display technology” with only Panasonic and Samsung battling each other with “aggressive technology development, sales, and investment strategies.” And large-area TFT LCD profit margins have sunk from 18% in 2Q08 to around break-even in the next quarter, and are expected to swing to losses by year’s end; Korean panel makers are expected to “fare somewhat better than Taiwanese makers due to elapsing Gen 5 depreciation schedules and greater vertical integration,” Annis writes.

AMOLEDs will still be just a “fraction” of the overall TFT/LCD market, but with “very high” growth rates, as “cautiously optimistic” top-tier LCD makers pursue AMOLED mass-production plans, Annis writes. Even Sharp, he notes, has joined Japan’s NEDO-sponsored consortium to produce high-performance low-cost 40-in. AMOLEDs by 2015.

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