Growth in demand and capacity, on an area basis, is an important index to measure TFT LCD supply/demand balance. Before 2006, this index was not so important due to the high growth rate of the industry. At that time, comparisons between supply and demand could be made on a unit or an area basis.
However, since 2007, the industry growth rate has slowed, especially as the LCD TV market has matured. As the industry has matured, and new display technologies influence effective capacity, purely comparing unit numbers is less meaningful. For example, new capacity implementing IPS wide viewing angle technology may need 6-7 photomask steps which can diminish the effective capacity.
When demand growth is higher than supply growth, the market is tight and panel makers have to ride on their production strategy to maximize the output. When capacity growth is larger than demand growth, there is oversupply and panel makers have to reduce loading rates to prevent inventory increases and panel price declines. Supply was loose 1H’12 but tight in 2H’12. The biggest reason was that capacity growth fell to single digits in 2012, while demand growth increased to double digits, thanks to the size expansion of LCD TVs as well as the strong growth of tablet PCs.
Looking at recent history more broadly, 2011 was the first year in which demand growth fell to single digits Y/Y, while 2012 was the first year capacity growth fell to single digits. Thus demand fell first, followed by supply. This is quite different from past trends; TFT LCD has been a supply driven industry. The slowdown of demand indicates the industry is starting to mature in terms of volume, and will be driven more by features and performance upgrades.
2013 is the first year that both demand and supply fell to single digits in Y/Y growth, and the numbers are very similar (3% versus 4%). This means that the market is in rough balance. In 2014, it will be interesting to see if area demand growth comes back to double digits, due to continued growth in large-size LCD TVs, while capacity growth may still only be 4%. If this becomes the reality, then this might be a very good year for the panel makers.
Source: Quarterly Worldwide FPD Shipment and Forecast Report, Quarterly FPD Supply/Demand and Capital Spending Report