Since the beginning of the year, demand in the LED display industry has been sluggish. The second half of the year requires transformation from both the supply and demand sides, breaking through the current predicament by adjusting production capacity structure and exploring new markets.
I. Performance of the Sluggish Demand in the LED Display Industry Since the Beginning of the Year
Overall Demand Declined Significantly: According to research by Industry Insights Research, domestic LED display market demand was weak in the first half of this year. With the recurring pandemic, the overall market for LED displays is estimated to decline by 20-30% in the first half of the year. Looking at the first-quarter reports released by listed companies, although most LED display companies still reported growth, there is a time lag between order and revenue recognition, and the supply chain performance has already reflected the decrease in market demand.
Diverse Reasons for the Decline in Demand:
Off-Season and Natural Demand Decline: Part of the demand decline is due to the off-season and natural demand decline.
Weak Overall Market Environment: The most significant factor is the impact of the pandemic. The rebound in display demand spurred by the 2021 pandemic has not materialized. Furthermore, the pandemic has brought new challenges to logistics and production. Continued lockdowns, even extending to neighboring cities, have made it extremely easy to disrupt the procurement of production line components.
Chain Reactions of Weak Demand:
Price Impact: The tight overall economic environment makes demand more sensitive to prices, even leading to project delays.
Supply Chain Impact: Reduced utilization rates at packaging plants have resulted in a decline in LED chip prices.
II. Supply-Side Strategies for the LED Display Industry in the Second Half of the Year
Focusing on Corporate Strengths and Adjusting Capacity Structure
Optimizing Capacity and Product Structure: Compared to the continuous expansion of demand in 2021, capacity may be slightly excessive in 2022. Optimizing capacity and adjusting product structure are fundamental strategies to alleviate industry "involution." Due to logistical impacts and demand fluctuations, companies need to be cautious about expansion and inventory buildup, maintaining sufficient cash reserves to cope with risks.
Adjusting Based on Own Strengths: Structural optimization should be based on the company's own strengths. Declining market demand intensifies price competition. Companies with cost or market advantages can increase investment and strengthen upstream supply chain relationships. For example, new entrants with high equipment efficiency have greater bargaining power. Opportunities for Leading Companies: The "downturn" and "price competition" benefit leading companies, who have more capital and talent to manage risks, often resulting in further industry concentration. According to the "2021 Micro-pitch LED Display Survey White Paper," the top five domestic companies are estimated to hold nearly half of the total market share in 2021. While concentration increases, most outdated production capacity will be gradually eliminated, and high-quality resources will concentrate on leading companies. These leading companies will then engage in more comprehensive competition regarding gross profit margins and the three main expenses (sales expenses, administrative expenses, and R&D expenses).
III. Strategies for Demand Transformation in the LED Display Industry in the Second Half of the Year
Focusing on Growth Markets Under the Pandemic: In the context of the pandemic, market selection should be approached rationally, considering both demand changes under the pandemic and demand less affected by the pandemic. Changes in Demand Under the Pandemic:
Increased Demand from Command Centers: With the normalization of the pandemic, governments have spent significant funds and energy on epidemic prevention and control, leading to a decrease in outdoor shopping mall consumers and a decline in demand for commercial large-screen displays. However, large enterprises and cities need to respond quickly to the pandemic, increasing the demand for intelligent, digital, and visual command centers.
Shifting Demands from Large Enterprises: Large enterprises are gradually shifting from a TOG (ToG) to a TOB (ToB) model, establishing professional operational teams, no longer relying on traditional local distributors, adopting direct sales models, focusing on key markets, deeply cultivating different industry needs, and applying customized solutions, such as in the energy industry (coal, water conservancy, etc.).
Demand Less Affected by the Pandemic:
Overseas Markets Show Significant Recovery: Compared to 2021, the overseas market showed a significant recovery in the first quarter. LED display companies indicate that based on current order signings, the overseas market has basically recovered, and orders are expected to continue in the second quarter. A stable overseas environment will benefit companies with overseas channel advantages.
Emerging Markets Continue to Grow: While overall market demand declined in the first quarter, emerging markets such as irregularly shaped screens, XR, and immersive displays remained in a growth phase, with orders continuously increasing. Furthermore, less competition in the high-end market is conducive to the continued development of emerging markets. With the growth in emerging markets, small-pitch products are gaining new opportunities. For example, XR virtual shooting requires the use of cameras, and the immersive market, requiring closer-range displays, necessitates continuously reducing the pixel pitch. The XR market had already entered a billion-dollar innovation market in 2021. Meanwhile, the standardization and large-scale production of small-pitch LED displays have further propelled LED displays towards the high-end market. The "2021 Micro-pitch LED Display Survey White Paper" shows that the cost and price of small-pitch LED displays are gradually decreasing. Currently, the price of a P2.5 pitch display is approximately 4,500 yuan/㎡, and the price of a P1.8 pitch display is approximately 7,500 yuan/㎡, entering the price range of LCD screens.
IV. Outlook for Future Development Although the current environment presents many challenges, the industry's technology is steadily progressing, and the application market is showing promising signs, such as the second growth curve of XR photography and naked-eye 3D, as well as the recovery of overseas markets, all bringing new vitality to the industry. This year's market performance is a brief "downturn" between two peaks, and confidence in the future remains. On May 18th, the 2022 Industry Experts' Conference on LED Display Innovation Applications and Mini RGB Commercialization will be held in Shenzhen. Many leading international and domestic companies will attend, and some will showcase their latest products and technical solutions at the conference, jointly exploring the development direction of the Mini/Micro LED second incremental market.
