1月27日 (金) のLG Displayを皮切りに、今後数週間でFPDメーカー各社の第4四半期決算発表が相次ぐ。2022年第1四半期から第3四半期まで明らかな下降トレンドにあったFPD業界だが、これからは最悪の事態が終わり、回復し始める兆候を探すことになる。FPD価格は2022年9月に長きにわたる下落に終止符を打ち、第4四半期にはわずかに回復したが、需要は依然として低調だった。FPDメーカーは業界の過剰供給を反転させるべく第3四半期に稼働率を引き下げたが、これは第4四半期まで継続した。Q4’22は大半のFPDメーカーが営業損失を報告するものと予測される。
Panel Maker Q4 Earnings Preview
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In the next few weeks, we will see the Q4’22 earnings announcements for flat panel display makers, starting with LG Display on Friday, January 27th. The industry was clearly on a downward trend in the first three quarters of 2022, and we will look for signs that the worst is over and the industry can start to recover. Panel prices ended their long decline in September 2022 and rebounded slightly in the fourth quarter, but demand was still weak. Panel makers slowed their utilization in the third quarter in a bid to reverse the industry oversupply, and this continued into the fourth quarter. We expect that mot panel makers will report another quarter of operating losses.
First, let’s set the stage with an industry overview of margins. Margins peaked in Q2’21, capping a five-quarter run from the bottom of the Crystal Cycle to the top, as shown in the chart here. After a sharp decline in margins In Q4’21, margins declined again in Q1’22 but at a slower pace, matching the pattern of panel prices, and then the decline accelerated in Q2 and Q3’22. LCD TV panel prices declined by an average of 32% Q/Q in Q4’21, the largest Q/Q price decline ever, but this slowed down to 13% in both Q1 and Q2’22. Prices declined another 16% in Q3’22, and although they increased slightly in the fourth quarter, the Q/Q increase was less than 1%.
Display Maker Quarterly Margins
The second chart shows the operating margins of the larger companies in the industry. While the trend of the Crystal Cycle is clear to see, there is a wide divergence of outcomes.
- SDC has continued to report positive operating margins and SDC is now immune to declines in LCD panel prices since it stopped all production of LCD in June 2022. SDC had its best quarter ever in Q3’22 with robust shipments of OLED smartphone panels.
- AUO, Innolux and LGD have been more sensitive to the cycle with margins falling sharply from Q3’20 through Q2’22. LGD fared better than the two Taiwanese companies in Q3’22 based on its emphasis on OLED panels.
- BOE fell to an operating loss in Q3’22 for the first time since 2016. BOE continues to benefit from government subsidies which cushion the company against downturns, but these vary widely from quarter to quarter.
Display Maker Quarterly Operating Margins
Panel makers were helped by currency tailwinds in the fourth quarter, as Asian currencies fell against the US dollar. Although the currency depreciation was less in the fourth quarter than in the third, the Japanese yen fell 2% in Q4 and the Korean won fell 1% while the Taiwan New Dollar fell 3% and the Chinese yuan fell 4%. Since panel prices are generally expressed in US$, and these companies have costs in local currency, the strong dollar should provide a modest boost to margins.
In terms of guidance, in October these companies expressed caution for Q4, and the first indications are that they have exceeded guidance:
- LGD expected area shipments to increase by a low-to-mid single digit % Q/Q, and area ASPs to increase by a low-to-mid single digit % based on an increase in mobile product launches. The combination of higher shipments and higher price implied a revenue increase of 5-8% Q/Q, and since ASP is expressed in US$ terms, when translated into Korean won this would imply a revenue increase approaching 10%.
- AUO expected area shipments up by a low-to-mid single digit % Q/Q and ASPs down by a mid-single digit % Q/Q, implying revenues flat to slightly down Q/Q in US$ terms but slightly up Q/Q in TWD terms.
- In October , Innolux expected large panel shipments to be flat Q/Q, small/medium panel shipments down low-single digit % and blended ASP down by a low teens %, implying revenue down by 15-20%.
For the Taiwan players, because they report monthly revenues and shipments, we now know that AUO’s revenues increased by 6% Q/Q, better than their guidance, and AUO’s ASP fell by about 7% Q/Q, slightly worse than its guidance. Innolux’s revenues were flat Q/Q, well above guidance.
The table below shows analyst expectations for Q4’22 for the panel makers with analyst coverage, according to marketscreener.com. The analyst expectations for margins anticipate that margins in Q4 were almost as bad as Q3. The Taiwan panel maker revenues are 5% and 2% higher than expectations for AUO and Innolux, respectively, so operating profit margins are likely to be correspondingly better.
LGD’s guidance implies an increase in revenues (in KRW) of less than 10% but consensus estimates predict a more optimistic 12% revenue increase Q/Q, so LGD would need to outperform their guidance to meet consensus estimates.
According to DSCC’s Quarterly OLED Shipment Report, LGD revenues in US$ for OLED shipments increased by 43% Q/Q in Q4, with a huge increase in revenues for smartphones and a modest increase in revenues for OLED TV panels. However, OLED represented less than half of LGD revenue in the third quarter, and LGD was unlikely to generate a similar increase in LCD revenue.
Perhaps more important than the results will be the guidance given about Q1’23 and the full year. With LCD panel prices hovering near all-time lows, and no obvious demand drivers, we believe that panel makers will again be cautious about prospects for 2023.
Quarterly Display Supply Chain Financial Health Report
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