Coronavirus Could Reduce Utilization at Wuhan Panel Fabs by 20%, Says IHS
The escalating coronavirus crisis is disrupting display panel production in China, leading to supply shortfalls and rising prices, reported IHS Markit Friday. Panel factories located in Wuhan, ground zero for the deadly outbreak, produce LCD and OLED panels for TVs and other products.
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Wuhan is home to five display factories: China Star Optoelectronics Technology’s T3 low-temperature polysilicon LCD fab, CSOT’s T4 Gen 6 OLED fab, Tianma’s TM8 Gen 4.5 LTPS LCD and TM17 Gen 6 OLED plants, and BOE’s B17 Gen 10.5 LCD fab.
China is expected to have 55 percent of global display manufacturing capacity this year, IHS said. A production falloff due to the Wuhan quarantine has led to a worldwide drop in availability and higher prices for LCD TV panels, it said. Suppliers and buyers are scrambling to adjust to swiftly changing market conditions, leading to “turmoil” in the supply chain, said analyst David Hsieh.
The labor shortage at Wuhan plants is also partly the result of the Chinese government’s move to extend the Lunar New Year holiday by three days to reduce travel and cut down on public gatherings in hopes of containing the spread of the disease, Hsieh noted. After workers return, many will have to undergo health checks, also reducing productivity, he said.
Leading Chinese panel makers believe total capacity utilization for all LCD fabs in the country could fall by at least 10 percent "and perhaps by more than 20 percent” in February, said the researcher.
Factories are facing labor and key components shortages resulting from government mandates designed to limit the virus’ spread, said Hsieh: Suppliers have told IHS a near-term production decline is “unavoidable.” Chinese suppliers of LCD TV panels, notebook PCs and PC monitors are planning to raise panel prices aggressively: Open-cell LCD-TV panels were originally expected to rise by $1-$2 in February; the increase could now be $3-$5 for the month, Hsieh said.
China’s LCD panel suppliers may also face an “acute” shortage of essential LCD modules, said Hsieh. Though panel makers outsource a lot of module manufacturing, production at several key third-party module suppliers has halted, “impacting panel production severely throughout the country.” Key module supplier SkyTech is sharply reducing production until mid-February, said the analyst.
Panel makers maintain their own captive LCD module factories, but they, too, are facing production bottlenecks, Hsieh said. The module shortage could have a domino effect at display manufacturers worldwide, he said.
Contract manufacturer Flex deployed “response teams” in China, taking “proactive steps” to help employees weather the coronavirus outbreak, said CEO Revathi Advaithi Thursday on a call for fiscal Q3 ended Dec. 31 . “We are actively monitoring this developing situation, and we'll work hard to limit business disruptions.” It’s too early to “quantify any potential impact as the situation is evolving,” she said.
Flex has no factories in Hubei province, the epicenter of the outbreak, the CEO said. It also cut its “assets” in China “significantly” the past year through supply-chain “diversification efforts” that reduced its U.S. Trade Act Section 301 tariff exposure, she said. “We have very detailed plans that are executed across our factories already, and we're working with the government agencies to see what the actual shutdowns are going to be and looking for exceptions wherever possible.”