TrendForce indicates, overall utilization rate of LCD large generational fabs of Gen.5 and above (in terms of wafer starts) slipping to 60% in 4Q22 cannot be ruled out, which would be the lowest level in the past ten years. Sluggish panel demand and the fact that most panel makers have officially turned from profit to loss in 2Q22 are the key factors forcing panel makers to take a more rigorous approach to production control in 2H22.

TrendForce states that the timing of purchasing volume adjustment on the part of IT brands lags relatively and its effect of shrinking orders quite sedate, resulting in the current market’s high inventory level still awaiting disposal. Since Gen. 5 to Gen. 6 are the production centers of IT panels, 4Q22 utilization rate is expected to drop by 5.9 percentage points compared to 3Q22 to 48.2% due to weak demand.

Although LG Display plans to close its P7(Gen.7.5) production line in 1Q23, some products will be produced in advance of 4Q22, which will help bolster the production volume of Gen. 7 to 7.5 TVs. On the other hand, Innolux significantly reduced utilization rate in September as a response to market conditions. In addition, leading monitor brands have increased the magnitude of purchase order correction in 2H22, affecting Gen.7-7.5 production lines primarily focused on monitor panel wafer starts. Therefore, utilization rate performance of Gen.7-7.5 generational fabs is estimated to continue its decline and present a downward trend.

HKC originally planned to increase wafer starts at each of its factories in 4Q22. However, due to some panel manufacturers recently planning to increase the price of certain TV panel sizes to accelerate the achievement of TV panel supply/demand equilibrium, the company has shifted to reducing wafer starts at all sites except its IT product focused Mianyang factory. In addition, CSOT has also decided to take a one-week annual holiday in October, resulting in an estimated 1.6 percentage points quarterly decrease in overall Gen 8.x utilization rate.

Nearly 90% of Gen 10-10.5 production capacity is utilized for TV panels while only a small amount is used in the production of commercial display panels. As quotations of 65-inch TV panels has been close to BOM cost, BOE and CSOT have decided to reduce production volume in response. Wafer starts of BOE B17 in 4Q22 is expected to fall 14.2% compared to 3Q22, precipitating a 3.5 percentage points QoQ drop in Gen. 10.5 utilization rate.

As panel manufacturers implement production reduction plans in 2H22, the single-quarter supply-demand ratio has clearly settled and inventory deferred from 1H22 will experience declining levels along with significant drops in production. Consumer demand will suffer as global economic and geopolitical risk remains high in 2023. Rising inflation will suppress consumer demand as the demand-side perspective remains neutral to conservative. Although the supply side is constrained by the planned closure of LG Display, the addition of CSOT T9(Gen.8.6) will drive overall panel supply higher compared to 2022. TrendForce indicates that this also means the market will continue to confront high oversupply risk next year. If panel makers can maintain their low utilization rate strategy, it will be a great boon to the health of the industry.