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Firm anticipates brake in TFT-LCD equipment spending

Posted: 05 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:LDC? equipment spending? fab expansion? display market?

DisplaySearch reported that 2008 spending on TFT LCD manufacturing equipment is still expected to reach historic highs. However, rapidly dropping panel prices, low fab utilization and continued concerns about the world-wide economy will cause previously planned fab expansions to be delayed, considerably pushing down forecast 2009 spending by 21 percent to $10.6 billion.

"Due to the long lead time to build fabs and production equipment, the TFT LCD equipment market rides a delayed cycle compared to LCD materials and modules. With previously ordered machines already well into assembly and shipment phases, it is difficult for panel makers to delay deliveries, which is why 2008 should still be a strong year for the equipment industry," according to DisplaySearch VP of manufacturing research Charles Annis.

According to the Q3'08 Quarterly TFT LCD Supply/Demand and Capital Spending Report, TFT LCD array capacity is expected to rise at a compound annual growth rate of 36 percent from 4.5 million square meters in 2000 to over 237 million square meters in 2013. Because of to the current weak environment, the amount of capacity coming on line from 2009 through 2011 is now expected to be less than previously forecast, but in the longer run, through 2013, capacity is still expected to continue growing at rates well above 10 percent per year.

AMOLED entry
PDP line closures continue. In Q3 08, Hitachi announced it will withdraw from PDP cell production, leaving Panasonic the last Japanese PDP manufacturer standing. PDP is still a venerable large format FPD technology, the report said. However, PDP is trending toward becoming a niche display technology with only Panasonic and Samsung continuing aggressive technology development, sales and investment strategies.

The AMOLED market is expected to remain only a fraction of the enormous TFT LCD market throughout the forecast range, but it is growing at very high rates. The FPD industry perspective on AMOLEDs has now moved to cautiously optimistic with all top-tier LCD makers pursuing AMOLED mass-production plans. Even Sharp has joined Japan's NEDO-sponsored consortium, which has a goal to produce high-performance, low-cost 40-inch AMOLEDs by 2015.

The top five TFT LCD makersSamsung, AUO, LG Display, CMO and Sharpare forecast to continue to invest at the highest rates, increasing their total share of capacity from 81.4 percent in Q2 08 to 82.9 percent in Q2 10.

The report also noted that large-area TFT LCD supply/demand remained tight from mid 2007 through Q2 08, then suffered a dramatic swing in Q3 08, with glut levels rising to a very loose 14.6 percent. The supply/demand environment is forecast to remain loose through mid-2009, before demand catches up with supply again.

Gen 8 investment
In terms of equipment revenue by generation size, panel makers will invest 40 percent of total spending in 2008 on Gen 8. LG Display, Samsung, AUO and CMO are all building fabs using 2200mm x 2500mm substrates. Gen 8 is expected to continue to dominate spending through 2010, but by 2011, Gen 10 is forecast to become the largest generator of equipment revenues.

In terms of total capital expenditures (CapEx) for land, buildings and equipment, AUO, CMO, CPT, HannStar, Innolux, LG Display and Samsung are planning to spend $16.3 billion in 2008. This is a 78 percent increase over 2007. These expenditures are expected to drop off substantially in 2009.

Meanwhile, large-area TFT LCD profit margins (modeled averages for first-tier panel makers) dropped from 18 percent in Q2 08 to around break-even in Q3 08. Moving into Q4 08, margins are forecast to move into negative territory. Korean panel makers will fare somewhat better than Taiwanese makers due to elapsing Gen 5 depreciation schedules and greater vertical integration.

"In Q3 panel makers lowered fab utilization, but this failed to significantly stem falling prices. Multiple fab expansions planned for 2009 have already been delayed. Now well into October, 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," Annis said. "The 2009 equipment forecast may still be at risk. Even so, with time and slower capacity growth, demand should once again catch up to supply by the middle of 2009, causing panel makers to move forward again with expansion plans, leading to increased TFT LCD equipment spending in 2010."

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