Japan
Technology Electronics/Consumer
27 November 2008
Oct Taiwan tech sales (1)
Recent trends at foundries and TFT
LCD companies
Yasuo Nakane, CMA
Research Analyst
(+81) 3 5156-6709
yasuo.nakane@db.com
Deutsche Securities Inc.
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208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Digest
Global Markets Research Company
Capacity utilization at large TFT LCD panel plants could fall to under 30% in 1Q
2009
Foundries
Front-end service providers: Consolidated October sales rose 0.6% YoY at front-end
foundry operator TSMC. October sales declined 2% MoM at UMC.
Back-end service providers: Consolidated sales declined MoM at ASE and parent sales
were down MoM at SPIL.
IDMs and fabless IC design companies
October sales declined 10% MoM at Macronix International, a major supplier of
MaskRom for the Nintendo DS platform. MaskRom sales rose 28% YoY but declined
9% MoM.
Consolidated sales declined 7% MoM at MediaTek, Taiwan's largest maker of
chipsets for optical disk drives.
TFT LCD panel shipments
Aggregate shipments of large TFT LCD panels declined 20% MoM at major
Taiwanese manufacturers in October, to 13.65m units. Although panel makers have
sharply lowered output, expectations of monitor panel demand for October and
beyond have been revised down again, and TV panel demand declined sharply from
around the middle of the month in the US and Europe because of changes in markets
there. There was little improvement in the balance of supply and demand anywhere.
October panel prices and supply and demand trends
Monitor panel prices were down again in October. Buying interest at the computer and
monitor brands has declined markedly. Prices of notebook panels were lower as well.
Demand for notebook panels has been comparatively strong, but weakening. Supplies
are excessive. Prices of TV panels were sharply lower again. Demand has peaked and
final demand remained stagnant in October, resulting in a further deterioration in the
balance of supply and demand.
LCD panel prices and panel supply and demand: November outlook
We expect prices of notebook panels to decline more slowly in November, but we
believe supplies will remain considerably in excess of demand. We expect prices
of monitor panels to decline more slowly as well, but supplies of these, too, will
remain very much in excess. We expect TV panel prices to continue to fall rapidly,
with prices approaching cash cost of production in all size categories.
Notes: 1) Translation of Japanese-language report, issued 20 November.
2) Opinions in this report about listed Taiwanese companies are those of our
analysts covering the companies. Opinions about the industry in general and
implications for Japan are those of the author. See page 25 for analyst coverage,
valuation, and risks.

A worst-case scenario would now include panel production declining 20% YoY in 1Q
2009 in terms of panel surface area
The worst-case scenario we described in these pages last month now suddenly looks
increasingly likely to become a best-case scenario. Three main factors have been at work.
First, demand for monitor panels has declined further. Second, weak sales of flat-panel TVs
have meant a sudden decline in demand for TV panels. Third, Sharp and other Japanese
panel makers have finally begun to make meaningful production cuts. We believe capacity
utilization in 4Q 2008 will average 80–85% at the Korean panel makers and at the Japanese
companies but decline to 40–45% at Taiwanese and Chinese panel makers. The fall-off has
been particularly rapid since the start of November. Capacity utilization in 1Q 2009 will
depend on the strength of the 2008 holiday season, but operating rates look likely to decline
another 5–10 points QoQ. That would suggest panel production (in terms of panel surface
area) down 15% QoQ in 4Q 2008 and 16% in 1Q 2009, or a decline of 4% YoY in 4Q 2008
and a sharp 23% YoY in 1Q 2009. The prospect of a big decline in production in YoY terms is
bad news particularly for the materials and components makers. Even if we look for a bottom
in capacity utilization in February and a gradual recovery from March, panel production in
2009 would rise only about 14% YoY, a substantial slowdown from around a 27% YoY
increase in 2008.