The smartphone market continues to be sluggish, leading to a lack of demand for panels. LCD suppliers face pressure from OLED's technical advantage, while OLED suppliers have to deal with excess capacity issues. As a result, suppliers in both camps have expressed their struggles in trying to thrive in a weak smartphone panel sector.
As of the second quarter of 2023 (2Q23), global smartphone shipments have seen a YoY decline for 8 consecutive quarters, indicating poor market demand. Additionally, with the mainstream smartphone panel technology shifting from LCD to OLED, Taiwan-based manufacturers that primarily developed a-Si LCD panel technology have reduced their supply of smartphone panels one after another.
Apart from companies like AUO and Innolux, which have significantly reduced their smartphone panel shipments, makers of mid-to-small-size panels like HannStar and Giantplus have also reduced their involvement in smartphone applications. They're actively redirecting their efforts toward cultivating niche markets.
HannStar pointed out that 2017 was the peak for smartphone shipments, and the numbers have been declining since then. China is the world's largest single market for smartphones, with an annual demand of around 400 million units previously. However, that figure has slid to just over 300 million units.
Currently, most smartphones have a screen size of 6 inches or larger. There is no clear segmentation between products, all have strong functionality. Moreover, the average service time of a phone is 30–36 months. Considering all these factors, the long-term growth prospects of smartphones are relatively weak.
Smartphone panels accounted for around 22% of HannStar's revenue in 2022. That figure is estimated to reduce to 15% in 2023. Looking at more recent revenue distributions, in 2Q23, smartphone panel products 6 inches and smaller accounted for only 35% of total sales. The focus has shifted to mid-sized tablet panels (6.1–10.4 inches), which accounted for 54% of total sales in the second quarter.
Another factor is that OLED has already become the mainstream technology for smartphone panels, with a projection that in 2023, the penetration rate of OLED smartphone panels will exceed 50%. Therefore, besides HannStar's approach of adjusting its product portfolio, many in the LCD camp have also conducted transformations in their mid-to-small-sized panel plants.
For example, Innolux has been actively adjusting its 3.5, 4.5, and even 5.5 generation of mid-to-small-sized panel production lines. By actively introducing them to new products and applications like X-ray and FOPLP, it hopes to tap into new business opportunities for mid-to-small-sized panel production lines.
On the other hand, while OLED has become mainstream in smartphone panel technology, the OLED camp also has its own problems to deal with. Currently, the production capacity for OLED panels is primarily in South Korea and China. Among the many suppliers, only Samsung Electronics, LG Display, and BOE were able to make it into Apple's iPhone supply chain. The rest can only compete for the Android market.
Additionally, even though OLED panel technology has made significant progress in smartphone applications, it has limited breakthroughs in other sectors like TVs, notebooks, and tablets, with an estimated penetration rate of less than 3%. This has resulted in a serious oversupply issue for OLED panel capacity. The average capacity utilization rate is even lower than that of LCD production lines.
Moreover, future OLED production lines are expected to develop toward higher generations, leading to continuous capacity expansions. If they cannot significantly expand the range of applications, the inadequate customer base and product portfolios of OLED panel manufacturers will continue to create massive financial pressure.
Article translated by Jack Wu
