Survival Games in TFT LCD Components

By Brian Chen, Research Director, Greater China Market

As TFT LCD makers are now suffering from a deep downturn cycle, TFT-LCD component makers also face the same situation from Q3′08. As some of panel prices are approaching material costs, cost down requests from panel makers to LCD component makers are also bigger than before. Table 1 shows the average LCD panel price and LCD material price reduction rate from Q3′08 to Q4′08. If we compare the large-area panel price reduction by application, we can found the reduction rate is 19-23%. Thus, the component makers had a lot of price pressure from panel makers from late Q3′08. In general, price negotiations happen quarterly between component makers and panel makers. But price negotiations for some component are monthly to due to severe conditions in LCD market. In addition, we found some panel makers delay their payment terms to component makers, which also results in a heavy financial burden to component makers.

Table 1: Average Price Change of Panel and Components (Q3′08 and Q4′08)

The weak demand in TFT LCD not only pushed panel makers to cut most fab loading rates to less than 50%, but also forced some component makers to operate their fabs at lower utilization rates than before. Take polarizer as an example: Most polarizer makers’ fab loading rates in Q4′08 are under 45%. The TFT LCD industry is a survival contest right now, and the current demand can only satisfy 50% or lower fab loading rate for component makers.

What we observe for the component market is panel makers trying to concentrate their orders to their key suppliers to maintain basic supply chain relationships but giving up second- or third-tier suppliers in their supply chain. Panel makers also hope to support the suppliers who have more capability to overcome the downturn so that they can provide key materials with a short lead time when demand returns in 1H’09.

Therefore, being a strategy partner or key supplier for panel makers became a key survival kit of component makers. We found the component makers who have a relationship with panel makers have more support from those panel makers, like Raydium (Driver IC), Himax (Driver IC), Daxon (Polarizer), LG Chemical (Polarizer), Samsung Cheil (Polarizer) and Optivision (Prism). On the other hand, makers who don’t have affiliated panel makers must fight for limited orders. Therefore, technology and capabilities to be a key supplier or strategy partner will be a key success factor for component makers in 2009.