Display Dynamics – August 2021: AUO and Innolux are focusing on notebook and monitor modules - Chuyên Trang Chia Sẻ Kiến Thức Thời Trang Mới Nhất

AUO and Innolux have good reason to keep their notebook and monitor LCD module assembly in-house for their competitiveness when facing capacity competition from China.

Key findings

AUO and Innolux have good reason to keep their notebook and monitor LCD module assembly in-house for their competitiveness when facing capacity competition from China.

Taiwanese panel makers AUO and Innolux are quite competitive in the IT display field (notebook panels and LCD monitor panels).

Meanwhile, Chinese LCD makers have been expanding their capacity aggressively and they currently lead in global TFT LCD capacity. However, Chinese LCD makers, especially those that emerged in recent years like China Star, HKC Display, and CHOT, are mainly focusing on the LCD TV market rather than the notebook and LCD monitor market. The newly built Gen 8.5, Gen 8.6, and Gen 10.5 TFT LCD fabs in China are specializing in LCD TVs.

AUO and Innolux have continued to maintain their competitiveness and are currently the key suppliers of notebook and LCD monitor displays.

However, these two companies’ competitiveness in the notebook and monitor display market is facing the following challenges:

Samsung Display is advancing and progressing with notebook OLED panels, which are aimed at the high-end market with advanced features like lower power consumption, fast response time, slim bezel, slim thickness, and lighter weight. It takes some of the market away from LCD panels.
BOE is the leader in TFT LCD capacity; the company also leads in the capacity and shipments of notebook and LCD monitor panels. BOE is moving aggressively into the high-end LCD market. AUO and Innolux’s capacities are smaller than BOE, which allows BOE to remain at the top.
Chinese LCD makers like BOE, China Star, HKC, and CHOT are shifting more Gen 8.5 and Gen 8.6 LCD fab capacity to produce IT panels while AUO and Innolux are mainly producing IT panels in Gen 5 and Gen 6 legacy fabs. China Star is planning to build a T9 Gen 8.6 fab dedicated to notebook and LCD monitor panels.
AUO and Innolux must continue to advance their notebook and LCD monitor panels in the high-end market with features such as gaming, high resolution, new aspect ratios, mini LED backlight, four-sided slim borders, ultra-wide aspect ratio, oxide TFT, and IPS wide view angle, among others. However, there are cost and technology readiness challenges.

Figure 1 and Figure 2 show the Gen 8.5 and Gen 8.6 TFT LCD capacity shifting to notebook and LCD monitor panels from their original LCD TV allocation.

Figure 1: Gen 8.5 glass substrate input by application

Source: Omdia

Figure 2: Gen 8.6 glass substrate input by application

Source: Omdia

Figure 3 shows the 2020–21 display specifications integration. It represents the high-end features of IT panels.

Figure 3: IT panels’ advanced features

Source: Omdia

With these challenges, AUO and Innolux are relying on their LCD module competitiveness as the key to survive.

LCD module competitiveness

Panel makers have two kinds of production and shipment form factors—the open cell and the module. A complete TFT LCD panel is manufactured through four major processes—array, color filter, cell, and module. The open cell is the panel without the backlight and bezel components but with the display driver IC (DDIC) and printed circuit board (PCB).

An open cell is a semi-finished product, but the downstream system integrator can make their own module through cost reduction because the modulization is traditionally a labor-intensive process. At the opposite end, a module shipment means that panel makers complete the entire display module themselves and complete the shipments with all the value added kept at the panel makers’ site.

LCD TV has become an open cell business. Since most LCD TV brands and OEMs have their own LCD module assembly lines or BMS (backlight module system) integration workshops, they only need to purchase open cells from panel makers. Because of the huge capacity and the standardization of LCD TV open cells, LCD TV supply demand and panel prices have become very cyclic and are fluctuating.

However, unlike LCD TVs, the majority business of the notebook and LCD monitor display market is modules.

AUO and Innolux are planning to use their notebook LCD module capabilities and cost advantage to be competitive when facing the surge in capacity shift to IT panels in China.

AUO is partially outsourcing notebook LCD module manufacturing to Coretronic, Radiant, and Darwin. But most of AUO’s LCD modules are still being produced in-house. These companies are the original backlight unit makers that have expanded their LCD module assembly capabilities.

Innolux is not outsourcing notebook LCD module manufacturing to other subcontracting manufacturers as the maker typically produces LCD modules in-house.

The advantageous characteristics can be attributed to the following points:

AUO and Innolux are focusing heavily on models with higher-end features such as high brightness, ultra-slim bezel, gaming with higher frequency like 120Hz/165Hz/240Hz, LTPS TFT LCD, high resolution (FHD, QHD, 4K), and high color. These features are mostly accomplished in the “module” design and process, and it is important to combine the “design-to-manufacturing assembly” to achieve these high-end features. Therefore, AUO and Innolux will keep their module processing in-house to enable these features.
Excluding BOE, which is currently covering all notebook display segments, the new Chinese LCD makers that have penetrated the notebook PC market are mainly focusing on entry-level and mid-end level displays. For example, 11.6” a-Si TFT LCD with HD resolution, 13.3” a-Si TFT LCD with HD resolution, and 14” a-Si TFT LCD with HD resolution; these models are based on quantity while the module is very standardized. These models also have comparatively lower panel prices in the notebook display market. Thus, new notebook LCD makers, like HKC, are focusing on this. They do not have their own module assembly lines, so they must outsource to the backlight and module makers.
AUO and Innolux have decades of know-how and experience in the component supply chain management of LCD modules as they have been manufacturing these modules for over 20 years. AUO and Innolux know that once Chinese makers enter the open cell business, the market will suffer from harsh price reductions during oversupply and the panel price fluctuation will greatly affect profitability. So, AUO and Innolux will keep their notebook and LCD monitor module production in-house while simultaneously increasing the competitiveness of their in-house LCD modules through investments in automation.
Quality control and quality assurance are also major reasons. By manufacturing LCD modules in-house, AUO and Innolux can manage any quality issues themselves. In the meantime, AUO and Innolux are also concerned that if they start to sell open cells rather than modules, then some of the degraded panels will end up in the white box market at lower prices. This would influence AUO and Innolux’s panel prices and reputation.
Automation in the LCD module process is important. LCD module assembly is a traditionally labor-intensive job but AUO and Innolux have been changing that by introducing many automation processes. For example, robots, automatic assembly, smart conveying system, CIM (computer integration manufacturing), MES (manufacturing execution system), AGV (automatic guided vehicle), workshop-style mechanics, and so on. Innolux’s factory automation can be seen in

Figure 4

below. AUO and Innolux are also aggressively introducing AI (artificial intelligence) management to the LCD module assembly lines.
Along with the capacity growth in the past, AUO and Innolux have established a lot of LCD module capacity in China with a certain economic scale and sufficient labor, such as AUO in Suzhou and Xiamen, China, and Innolux in Ningbo and Nanhai, China. Meanwhile, they are also getting local government subsidies for the operations of these LCD module assembly lines. AUO and Innolux cannot simply shut down their LCD module factories and outsource the assembly.
Most of the major notebook LCD module subcontracting manufacturers like Wistron, Coretronic, Longil, and Radiant were originally backlight unit makers. They may be less competitive than panel makers in terms of LCD module capability.
Notebook LCD panels for mid- and high-end models are in IPS (in-plane switching) liquid crystal mode, not VA (vertical alignment) liquid crystal mode, while all Chinese makers have VA mode capacity at their Gen 8.5 and Gen 8.6 fabs except BOE. Until recently, HKC was implementing both IPS and VA modes at its new Gen 8.6 fab. So, new Chinese LCD makers that want to penetrate the notebook market must ramp up their technology and know-how in the IPS mode. This is because IPS requires more expertise and experience than VA. AUO and Innolux believe that Chinese newcomers (excluding BOE) will need to work on TN-type models for a while before they can ramp up their IPS capability and produce mature IPS panels. AUO and Innolux believe that they can still have the advantage over HKC Display or China Star in terms of IPS mid- to high-end models.
Taiwanese panel makers aim to manufacture more mini LED backlight models for their notebook panels aimed at the high-end market. This means it is advantageous to produce LCD modules in-house as panel makers will design the mini LED backlight and module together.
Touch panel integration in notebook LCD modules is increasing. It makes sense for panel makers to manufacture their own LCD modules with touch function integrated.
Unlike LCD TV panels, which have been standardized, panel makers are continuing to develop new sizes (e.g., 16”) and new aspect ratios (e.g., 16:10) to achieve better profit margins through better production efficiency. If panel makers only sell the models with new sizes and new aspect ratios in open cells, then the cost and profitability benefits are lower on the panel makers’ end. Therefore, AUO and Innolux intend to keep working on the modules for these panels that come in new sizes and aspect ratios.

LCD monitor module business vs. open cell business

For LCD monitor panels, the situation is somewhat different from notebook modules, but with more similarity to LCD TVs.

AUO and Innolux’s LCD monitor module business can be analyzed as follows:

AUO and Innolux are selling some open cell desktop monitor panels to desktop monitor OEMs and ODMs; this accounts for about 30–40% of their monitor panel shipments, but this percentage fluctuates. During a monitor panel shortage, they reduce the percentage down to less than 20%; they do this especially when DDIC supply is tight. AUO and Innolux secure DDICs for their modules, not for their open cells, which means they plan to either sell more modules than open cells or outsource module production to other companies. LCD monitor modules have a higher price than LCD monitor open cells and are therefore a more valuable business for AUO and Innolux.
AUO and Innolux prefer to manufacture their own LCD monitors for the same reasons as mentioned previously. During the panel shortage, AUO and Innolux increased open cell prices more than LCD module prices as they wanted to focus less on their open cell business.
However, in the desktop monitor market, there is a big competitive system integrator TPV, which makes its own modules and monitor sets. TPV is the largest LCD monitor system integrator and a subcontracting manufacturer for many monitor brands that do not have their own factories like HP, Dell, Lenovo, and Acer. Meanwhile, the TPV group also owns brands like Philips and AOC, which are strong too. TPV’s panel purchase volumes are huge, and the company has a certain volume requirement for open cells. AUO and Innolux offer open cell monitor panels to TPV because of their business relationship. AUO and Innolux must also rely on the open cell business to sell to white box monitor makers during the oversupply period.
Unlike notebook panels, LCD monitor panels come in several liquid crystal modes—TN with wide view film, IPS, and VA. The split in 2021 is 63% for IPS, 13% for TN with wide view film, and 24% for VA. AUO and Innolux are focusing on both IPS and VA monitor panels. Chinese newcomers like HKC Display and China Star are also implementing VA technology in their monitor panels because when they build the Gen 8.5 and Gen 8.6 fabs, the VA LCD TV mode is adopted. In other words, the VA mode in the monitor panel market makes it easier for the Chinese newcomers to penetrate the LCD monitor panel market. When the TV market slows down, Chinese LCD makers can shift VA LCD capacity to monitors, but not notebooks, because notebooks are only available in IPS mode. This puts pressure on AUO and Innolux to offer more open cells to their customers.
In the meantime, AUO and Innolux will keep higher-end models with features like mini LED backlight, slim bezel, QHD/WQHD/UHD/QUHD resolution, gaming (165–360Hz) capabilities, and HDR, among others, for their in-house LCD modules. Excluding TPV and Samsung VD, which have their own module assembly lines, leading brands like HP, Dell, and Lenovo prefer to purchase the monitor modules manufactured by panel makers, rather than the open cells and modules from A+B makers.
Top-tier monitor brands are more conservative toward open cell LCD monitor displays. The reasons are as follows:
- Open cell monitor panel prices are too dynamic; they are much more affected by open cell TV panels, but not easily stabilized.
- Brands must manage the panels’ BOM (bill of materials) and credentials if they adopt the open cell business as they need to supervise the components at the LCD module subcontracting manufacturers’ site. This requires additional resources from brands and OEMs.
- Many module and system subcontracting manufacturers have their own brands. Monitor brands tend to be conservative in awarding open cell orders to these system integrators as that would make them stronger and allow them to compete with monitor brands.
- Quality issues—Since panel makers’ production is in-house, it puts the responsibility of quality control on the panel makers’ end.
- Panel makers are developing advanced features such as 8K, gaming, curved monitor, mini LED backlight, slim bezel, and so on. These advanced features are based in a module, not an open cell. And top-tier brands are relying on these advanced features to maintain their market leadership position.
Chinese local monitor subcontracting makers and ODMs are growing stronger in the lower-end market. Top-tier brands are not awarding premium monitor orders to the Chinese local monitor subcontracting manufacturers. Panel makers like HKC may be aggressive in offering monitor open cell supply to Chinese local monitor subcontracting manufacturers. Hence, to make these makers stronger in offering the cheaper models, especially when LCD TV panel demand is poor, panel makers like HKC and CHOT may have to produce more monitor open cells to digest their capacity.
Panel makers are continuing to develop new sizes and products in the monitor market, such as 21.45” displays with a 16:8.7 aspect ratio to gain more glass efficiency from Gen 8.5. If they only sell these new sizes and new aspect ratios in open cells, then the cost and profitability benefits are lower on the panel makers’ end. Therefore, AUO and Innolux intend to keep working on the modules for these panels that come in new sizes and aspect ratios.

Figure 4: Innolux’s LCD module automation

Source: Innolux

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