With demand over smartphone specifications continuing to rise and most smartphone vendors have been demanding touch panel makers supply semi-completed panels with LCD and touchscreen modules already fully laminated, large China-based touch panel makers have all been aggressively increasing their full-laminated panel and TFT LCD module capacities. However, this business model sacrifices makers' gross margins.
Because of the business model, Digitimes Research has found that China's largest touch panel maker Shenzhen O-Film Tech suffered an on-year gross margin drop of 5.91pp in the first half of 2014.
Some China-based TFT LCD module makers such as Truly Opto-Electronics, Goworld and Success Electronics have in-house touch module capacities; while O-Film was the largest touch module maker in China before it started establishing TFT LCD module capacity in the second half of 2013 to maintain its competitiveness.
In the third quarter of 2014, O-Film's monthly handset touch panel shipments were 12-15 million units, and about 6-7 million units or 50% of overall shipments were full-lamination processed. As for O-Film's in-house TFT LCD module capacity, the current volume is about two million units each month and the volume is expected to rise to four million by the end of 2014, accounting for half of its fully-laminated panel capacity.
O-Film's gross margins in 2013 maintained above 16% each quarter, but the percentage dropped to 12.08% in the first half of 2014, down 5.91pp on year and 4.31pp compared to the second half of 2013 because of increases in its fully-laminated product shipment proportion, and LCD panel purchasing from outside makers. However, to maintain its leadership in China's touch panel industry, such a sacrifice is a must.
Because of weak profitability, O-Film is expected to decelerate its pace on expanding its TFT LCD module capacity and shift expenditures to new product lines such as camera modules and fingerprint detection modules, to improve gross margins.
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