“As the new capacity of Chinese panel makers increases the demand for glass substrates, the glass manufacturers do not have enough capacity of cutting glass sheets for Gen 6 or more advanced fabs,” says Julian Lee, the assistant research manager of WitsView. The polarizers see a tight supply in 3Q18, as Nitto’s fab in Japan experienced discontinued production and transportation for several days due to the continual rain in July. Meanwhile, other polarizer manufacturers have been unable to increase the supply, since their production lines have already been operated with a full availability during the peak season. However, the tight supply of glass substrates and polarizers is expected to be eased in the fourth quarter.

The supply of driver ICs has also been insufficient in 1H18 due to the foundries’ adjustment in wafer starts. The undersupply has become more severe in the traditional peak season, and is expected to continue to the fourth quarter. Meanwhile, the capacity for testing and packaging, as well as Film (COF) also faces an undersupply, as TDDI solutions for smartphones see higher demand and the production of new iPhones is scheduled in the short term.

In addition, it is difficult for panel makers to bargain with backlight module suppliers, because the prices of backlight module components, such as optical coatings and LEDs, have reached almost the lowest level.

The TV panel prices have already rebounded since July, although the cost reduction of panels is lower than expected. IT panel prices have shown a flat trend or even a slight increase, which may improve the profitability of panel makers. For example, the cash cost of 32-inch TV panel is about US$43~44/piece, but the quote for it has rebounded higher than that in the third quarter. Similarly, the cash cost of 65-inch panel is about US$210~ 220/piece, of which the quote is at least US$230~240/piece in the third quarter. Overall, the profitability of most panel makers in 3Q18 is expected to be better than in 2Q.