Taiwan’s producers must move up the value chain as Chinese competitors undercut them on price in the mass market.
The optoelectronics sector, a fixture in Taiwan’s science parks, has faced intensifying competition from China in recent years. Like the Taiwanese before them, the Chinese have focused on making products of acceptable quality at a low price, but have enjoyed the added advantage of strong state support.
The Chinese are now even edging out long-dominant Korean firms in the liquid crystal display (LCD) sector. Chinese panel maker BOE surpassed Korean’s LG Display to be become the world’s No. 1 maker of TV panels by shipments in 2018, according to data from Beijing-based Sigmaintell Consulting. BOE shipped 54.3 million units compared to LG Display’s 48.6 million.
Taiwanese manufacturers remain competitive in the notebook computer display market, but behind No. 1 BOE. Taichung-based AU Optronics Corp. (AUO) and Miaoli-based Innolux are the world’s No. 2 and No. 3 makers of notebook panels by shipments, according to Sigmaintell.
In Taiwan’s science parks, the bedrock of the nation’s tech hardware industry, optoelectronics remains a core industry. In particular, AUO’s capacity expansion was an important factor in the nearly 33% increase in revenue of companies in the Central Taiwan Science Park in the first eight months of 2018.
Chen Ming-huang, Director General of the park, says that Taiwanese optoelectronics makers struggle to compete with Chinese firms in the largest market segments, like LCD displays. “China’s subsidies to its companies are huge and allow the companies to adopt a very aggressive pricing strategy while ramping up capacity,” he says.
The price wars will drag on in the LCD panel market this year as Chinese manufacturers seek an even greater competitive edge, analysts say. Jiangsu-based CEC-Panda LCD Technology Co. and Guangdong China Start Optoelectronics Technology Co. could adopt even more aggressive pricing than BOE as they boost capacity, according to Sigmaintell Consulting.
The supply glut of cheap LCD panels is expected to boost demand 5-6% between 2018 and 2020, but also drive some panel makers out of business “because of cash losses and poor prospects,” says David Hsieh, senior director of display research for London-based information provider IHS Markit.
Given the challenge posed by China, Taiwanese manufacturers could focus more on niche market segments where their advanced technology gives them an edge over the Chinese, says Wayne Wang, Director General of the Hsinchu Science Park. He notes that optoelectronics’ share of company revenue in the Hsinchu Science Park peaked at 40% in 2007-2008 and has since fallen to 25% as competition intensified from Korea and then China.
Mini LED segment
Taiwan’s best strategy might be to concentrate on the Mini LED (light-emitting diodes) segment, analysts say. Taipei-based market intelligence firm TrendForce is bullish on Mini LEDs, noting that their strengths in brightness and contrast could make them competitive with the more common OLED (organic light-emitting diodes) in the home-theater and cinema display segments. Further, compared with the typical RGB LED digital display, Mini LEDs are more cost effective because they rely primarily on energy-saving blue light.
TrendForce estimates that the global Mini LED market will grow to US$1.7 billion by 2022. The research firm expects that over the next two years mobile devices, virtual reality applications, televisions, and automotive displays will be the sectors most likely to adopt Mini LED technology.
“Taiwanese manufacturers currently do not have key competitive strengths in other optoelectronics markets, such as OLED or QLED, both technology-wise and capacity-wise,” says Julian Lee, an analyst at TrendForce. Since Taiwan’s competitors in those markets are so far ahead, local manufacturers would be better focusing on the Mini LED segment, he adds.
Taiwanese optoelectronics makers AUO and Innolux are both vying for market share in this nascent market. AUO began shipping Mini LED products in the second half of 2018. At the Touch Taiwan 2018 exhibition, it showcased gaming monitors and notebooks with Mini LED backlighting that generates high contrast and a wider color gamut. At the exhibition Innolux showcased its prototypes of 65-inch 8K Mini LED TV panels – which will be available from the second quarter of 2019 – and Mini LED automotive panels.
“Each Mini LED on the automotive panels can be controlled individually to display sophisticated differences of colors and brightness to show fine contrast,” TrendForce notes.
The research firm expects that China could be the first market to use Mini LED automotive panels. However, for safety reasons – always a paramount issue in the auto industry – it will take some time for the panels to be approved for road use and adopted in cars.
Meanwhile, industry sources say that Apple may work with Taiwanese firms on an even more advanced display technology called Micro LED, which are one-hundredth the size of typical LEDs. Like OLED, “Micro LED displays should offer perfect blacks, excellent color, and near-perfect off-angle viewing…but they should also be even brighter, very slim, immune to burn-in” and ultimately cheaper to produce than OLED, according to a December 2018 report in Digital Trends.
According to local media reports, Apple has met with Taiwan’s AU Optronics and Epistar to discuss Micro LED. To date, Japanese and Korean firms have dominated this part of Apple’s display supply chain, one of the few areas in that supply chain where Taiwanese firms are largely absent. Gaining a foothold there would be good for their business but would make Taiwan even more dependent on Apple than it already is.
AMOLED (active matrix light-emitting diodes) is another niche market Taiwanese optoelectronics manufacturers are exploring. AMOLED is used in the much hyped flexible and foldable displays of some mobile devices. This year, demand for flexible AMOLEDs will be relatively flat as smartphone brands are still focused on full screen or notch rather than edge-curved models, says Hsieh of IHS Markit. “To overcome the low utilization of flexible AMOLED fabs, a few panel suppliers will try to launch foldable AMOLED,” he says.
That could provide an opportunity for Taiwan, although not all analysts are sanguine about their prospects. In terms of production capacity and technologies, “Taiwanese manufacturers are still lagging behind other competitors in foldable AMOLED,” says TrendForce’s Boyce Fan.
In September 2018, the Hsinchu-based Industrial Technology Research Institute unveiled a prototype of its rollable soft display AMOLED panel. Featuring a protecting layer and stress buffer, the panels can be folded more than 20,000 times, ITRI says.
One potential problem with foldable AMOLED is the value proposition. Consumers may balk at the price. The foldable Galaxy phone that South Korea’s Samsung recently unveiled costs almost US$2,000. To be sure, the phone folds seamlessly into a tablet and has six cameras. Impressive, but one could buy two high-end phones with that money.
Some Taiwanese manufacturers are developing other types of AMOLED technology. INT Tech, also based in Hsinchu, in January unveiled its ultra-high pixel-density (UHPD) AMOLED display platform at the Consumer Electronics Show in Las Vegas. The technology offers 2,228 pixels per inch (PPI), which the company says delivers a 400% improvement in resolution compared to current smartphone displays.
The technology could be of great value to the medical and defense industries, the company says. With the advent of faster flowing data powered by 5G technology, INT Tech’s AMOLED displays could be used in surgical procedures as well by soldiers to access key information on the battlefield.
At present, ITRI and INT Tech are outliers among Taiwanese optoelectronics firms, which are largely focused on mass-market applications. But looking ahead, more Taiwanese manufacturers should narrow their focus, says Hsu Yu-Chin, Deputy Minister of Science and Technology.
He notes that giant Chinese and Korean firms largely dominate the mass market. But with their smaller size, nimble Taiwanese companies can focus on key niche markets. “Taiwanese companies should leverage their strengths in technology and move into more small vertical markets where they can be competitive,” he says. “They don’t necessarily have to focus on the mass market.”