Global Market Prospect of DDIC (Display Driver IC）in Supply and Demand

“In 2022, in the DDIC industry, supply and demand gradually enter a relatively balanced state, and price shows a high and flat price trend.

I. Supply and demand conflict eases gradually, but structural supply shortage continues

Since the Q4 of 2020, due to the increasing shortage of mature wafer manufacturing processes in foundries and the additional problem of capacity allocation priority, IC supply constraints gradually emerge.

After the supply and demand ratio of DDIC dropped from 15.6% in Q1 of 2020 to -16.5% in Q4 of 2020, it shows a gradual narrowing trend, and the relationship between supply and demand gradually eases.

It is expected that supply and demand will gradually enter a relatively balanced state in the first half of 2022, but the supply capacity is still tight, and there is still a risk of shortage in the second half of 2022.

- While the balance of supply and demand continues to be tight, the price of driver IC keeps rising quarter by quarter

Due to the continuous supply and demand imbalance in the first half of 2021, superimposed on the crowding-out effect in manufacturing, the price of DDIC for LCD and OLED has risen sharply for several consecutive quarters.

However, as the terminal inventory grows, the demand fluctuation coefficient increases, and the willingness of the demand side to accept the price increase of DDIC will gradually weaken.

Looking ahead to 2022, with the continuous release of additional production capacity, including wafer foundry, and the steady demand return of terminals after the epidemic, the price of driver IC will likely show a high and flat price

II. Demand side: Chinese display panel manufacturers will have absolute negotiating power

The demand for DDIC depends on the overall display panel capacity.

In another word, the upper limit of the production capacity of display panels directly determines the upper limit of the demand for the driver IC.

Even if the terminal demand is relatively weak, the LCD factory still has a considerable motivation to maintain the full utilization rate in the condition of not breaking down the cash cost. Because, it can obtain a positive cash flow, even if the loss can still urge industrial restructuring.

From the perspective of the utilization rate of the LCD industry in the second half of 2021, even though the price of LCD panels has fallen from a high position, the manufacturer still maintains a high utilization rate of about 90%.

- In the future, Chinese LCD manufacturers will have strong bargaining power and influence to supply end

The production restructuring and shutdown of Korean LCD suppliers, and the cautiousness in capacity investment by Taiwanese suppliers indirectly released the global capacity share to display panel suppliers from mainland China.

According to Omdia’s forecast, after several acquisitions and capacity expansion, the top three Chinese manufacturers will reach 52% of the global capacity share in 2023. Therefore, China will be in the main position of the industry and have a strong influence on the upstream.

- With the gradual OLED production investment by the panel suppliers from mainland China, the demand for OLED drivers is also increasing

According to data from UBI research, in the AMOLED market, Samsung ranks first in the world with a market share of 68.2% in 2020; LG ranks second with a market share of 21%, mainly due to the contribution of large-size OLED panels (TVs); BOE ranked third with a market share of 5.7%.

But in terms of demand, China is the largest buying market, accounting for about 50% of the purchasing.

As the Gen 6 OLED lines of domestic factories are put into production, the demand for DDIC continues to increase.

III. Supply side: The cooperation of upstream and downstream gradually improves the industrial eco

Overall, as the scale of the domestic display panel industry ascends to the top of the world, the supporting upstream industries such as foundry, packaging and testing contractors will gradually move towards localization.

- Wafer foundry: Binding mode is the current development direction

The DDIC for the large and medium size screen is mainly based on mature processes.

From the process point of view, the display technology of terminals with medium and large size panels is relatively mature, the integration requirements are lower than those of mobile phone screens, and they can use the DDIC fabricated by the mature process of 90 nm and above.

Due to the IC consumption for large and medium-sized panels being larger, DDIC with processes of 90nm and above still account for the major share in the global market, which will take about 80% of the global share in 2020.

Under the trend of IC moving towards more advanced technology nodes, the market share of 90nm and above range will gradually decline, but will still occupy the majority position.

According to the forecast by Frost & Sullivan, this range will still exceed 70% in 2024.

The wafer fabrication capacity of display IC mainly concentrates in Korea and Taiwan areas

According to the data from Frost & Sullivan, in 2020, exclusive of the capacity from Samsung Electronics and other IDM (Integrated Design and Manufacture) companies, only the wafer foundries provided an annual capacity of around 2 million pieces (equivalent to 12-inch wafers), foundry companies such as UMC, Vanguard, PSMC, and Dongbu HiTek all have layouts in the field of DDIC foundry.

In the large screen field, the production capacity of SMIC and Nexchipis relatively small.

In the small-screen area, the cooperation of Nexchip and Chipone, has promoted the technology of 90nm TDDI (Touch Display Driver Integration), and the proportion in the small-screen market has achieved more than 30%; however, it accounts only less than 1% of the OLED display driver. Because the OLED driver IC basically adopts 40nm/28nm and a small amount of 55nm process, and China is still relatively weak in these processes, only a few foundries are capable of these processes, resulting in the structural imbalance in domestic supply.

The LCD driver gradually shifted its production capacity to other fields as the share of South Korean TFT LCD manufacturers shrank, and Taiwan manufacturers still occupied the majority share.

The main process nodes of LCD DDIC are 110-150nm and a small amount of 90nm.

In domestic, Nexchip is recorded with the biggest growth. According to its public reveal, the production capacity of Q4 grew by about 20K per month by comparing to Q1, about 90% of which was for driver IC.

While breaking through advanced technology, SMIC also shifted some of its production capacity to the mature driver IC. While UMC’s strategy is to continue to maintain its leading position in the field of driver IC by increasing part of 28nm capacity to AMOLED DDIC.

As for the Korean wafter fabricators, especially the Samsung-based Korean fabs, with the decline of the local display panel supply, the production capacity of DDIC has been gradually shifted to other fields.

In the process of the rise of Korean and Taiwan manufacturing, both upstream and downstream have formed a binding relationship.

The process of DDIC belongs to a high-voltage analog, although there are 40nm options, the long-term sluggish ASP(Average Sales Price) market before 2020 makes DDIC for medium and large size TFT LCD unable to afford the high-cost of 12-inch wafers.

Its coping method is to switch the production to a second, third, or even fourth gen OEM, to maintain the supply to important customers by the business model of combining the contracting capacity of the downstream panel suppliers.

Due to the business model of the DDIC industry differing from that of the ordinary IC industry, and the demand is large, mastering the supply chain may be a breakthrough.

At present, driver IC manufacturers mainly have two business models, one model is the whole industry chain integration model like South Korea, a group that integrates from IC design, manufacturing and packaging, panel manufacturing to terminal manufacturing.

The other module is the upstream and downstream binding mode, like Taiwan, driver IC design suppliers bundled with foundries to form an IDM model to ensure process development and production.

The wafer foundry for AMOLED is even limited, the production capacity is monopolized by South Korea and Taiwan.

Currently, according to Omdia, only five foundries are able to provide mature capacity for AMOLED driver IC in HV 40nm and 28nm processes, including Samsung, UMC, TSMC, GF, and China’s SMIC. Among them, Samsung, TSMC, and UMC take 90% of the wafer production capacity.

Samsung: The main plant is Austin S2, which supplies goods for high-end iPhone and Galaxy models, and only provides 28nm to Samsung LSI.

UMC: At present, to maintain its position as the leading foundry in the field of driver IC, it is expanding its 28nm capacity which is expected to be up to 15-16K/M in 2022. Samsung LSI is the main customer, and the remaining 5K/M capacity is supplied to LX Semicon (formerly Silicon Works), Novatek, and other small and medium manufacturers; Novatek occupies a major share of its HV 40nm capacity, and it is difficult for small companies to obtain capacity from UMC.

TSMC: It is still difficult to open 28nm production capacity, and will mainly provide 40nm production capacity to LX Semicon in 2022, about 10K/M, whose terminal customer is Apple. The remaining production capacity available to other companies may be less than 5K/M, such as Ilitek, Viewtrix, and Synaptics, they will still rely on TSMC in 2022, but each with less than 1K per month.

GF: Mainly provides 28nm production capacity to Magna; LX Semicon and Synaptics will start to establish a partnership in 2022; Chipone plans to introduce its 40nm process, which is expected to be put into production in the second half of 2022.

SMIC: The production capacity continues growing, and is expected to reach 7-8K/M by the end of 2022. The amount of RAYDIUM’s wafers is increasing, and it currently occupies about half of the 40nm production capacity. As to Chipone, ESWIN, Huawei HiSilicon, and OmniVision, it is in the process of sample output or verification, and the earliest expected production time will be the second quarter of 2022, which are sourced from the new capacity developed by SMIC.

Nexchip: It plans to develop a 40nm production capacity of AMOLED driver IC, which is expected to be put into production by 2023

- Packaging & Testing: China is moving to the top tier with the trend of display industry transfer

The global DDIC packaging and testing industry is highly concentrated and shows obvious leading effects.

Except for some manufacturers specializing in internal display driver packaging and testing services, which are concentrated in South Korea, the leading enterprises in the industry are concentrated in Taiwan and mainland China.

DDIC suppliers in Taiwan and mainland China all adopt outsourcing supply mode, while the foundries produce the wafer, packaging factories process the gold bumps for the foundry, after, the quality and yield rate of the wafer is testified by the testing lab (internal lab or subcontracted). In the end, the cutting and COG/COF process is subcontracted to professional packaging suppliers to finish.

Data from Frost & Sullivan, in the global DDIC packaging and testing industry in 2020, companies that provide services independently and have a high market share include CHIPBOND, ChipMOS Technologies, Union Semiconductor, Chipmore Technology, and Nantong Fujitsu Microelectronics.

Synchronous transfer of the supply chain, the industrial pattern may change.

Similar to the display panel industry, the global DDIC packaging and testing manufacturers mainly concentrate in South Korea, Taiwan, and mainland China.

Along with the transfer of the DDIC industry, the packaging and testing supply chain is also shifting sequentially from South Korea, Taiwan, to mainland China.

South Korea: Taking Steco and LB Lucem as representatives, they are DDIC packaging and testing service providers respectively for Samsung and LG eco, and do not provide services to external companies. As the leading companies in the display panel industry, Samsung and LG have adopted the whole industry chain integration model, and have strong technology and scale advantages.

Taiwan: Represented by Chipmore and Nanmao. Due to the relatively complete development in the LCD industry, more than 10 packaging and testing manufacturers have entered the field of packaging and testing of DDIC, which resulted in more intense competition, and after a long period of industry integration, small and medium-size factories have been acquired by the large ones. Until now, there are only two key players, Chipbondand ChipMOS, forming a duopoly market pattern.

As mentioned above, the upstream and downstream binding mode in the display supply chain Taiwan is mature, such as between Novatek and UMC, between UMC and Chipmore, Fitipower together with Sharp and Innolux, between BenQ AUO and RAYDIUM, forming a whole industry chain model to ensure process development, production, and downstream clients.

Mainland China: Due to the late start of the overall industry, lagging behind Korea and Taiwan in terms of technology and scale, the representatives are Xiamen Tongfu, Union Semiconductor, and Napes. At present, with the rapid growth of the display driver design industry and the increasing capital investment, the DDIC packaging and testing business has gradually begun to transfer to mainland China.

Tight production capacity drives up the packaging and testing market

Since 2015, due to the breakthrough of domestic leading LCD manufacturers such as BOE, the panel had been commercialized, and the overall panel and its components had been in a period of downward price. Therefore, the market size of DDIC packaging and testing has no significant change at this stage.

In 2020, despite the short-term impact of the pandemic, home-based economic effects such as home quarantine and telecommuting have stimulated the outbreak of terminal demand related to the display industry.

At the same time, due to the tight production capacity of wafer foundries, the continuous rise in overall display IC prices has driven the growth of the display packaging and testing market.

According to Frost & Sullivan, the global DDIC packaging and testing market reaches 3.6 billion $ dollars in 2020, an increment of 20% from 2019, and is expected to reach $4.5 billion in 2021, an increase of 25% YoY.

The market share of suppliers from mainland China is expected to be close to Taiwan by 2025

Benefiting from the leading wafer foundries and mature IC design industry, the DDIC packaging and testing market in Taiwan in 2016 was 5.73 billion yuan.

Subsequently, through M&A (mergers and acquisitions), the core competitiveness of the industry has been further enhanced. In 2020, the market size will reach 8.89 billion yuan, with a compound annual growth rate (CAGR) of 11.61%.

In contrast, manufacturers from mainland China started relatively late, the market size was only 1.91 billion yuan in 2016.

With the rapid growth of the IC design industry and the increment of domestic capital investment, the industry has gradually begun to shift to mainland China. At the same time, benefiting from the rising price of DDIC in the world, the market size of DDIC packaging and testing in mainland China reaches 4.68 billion yuan in 2020, and the proportion has increased.

In the future, with the development of domestic IC design manufacturers and the irreversible situation of shortage of wafer production capacity in the short term, the demand for China’s DDIC packaging and testing industry will grow rapidly.

It is estimated that the overall display driver packaging and testing market in mainland China will improve from 6.73 billion yuan in 2021 to 12.76 billion yuan in 2025, with an average CAGR of about 17.34%. In 2025, the aggregate market share of mainland China and Taiwan will be up to 77.01% of the global share.

With the rise of the domestic display panel industry, DDIC will accelerate the localization, in consequence, the packaging and testing supply chain will transfer synchronously.

With the continuous support to IC design companies and the continuous maturity of the technology in mainland China in recent years, the significant rising demand for packaging and testing of DDIC will promote the continuous expansion of existing players and attract more leading players to enter the industry.

IV. Supply chain challenges and risks

1. The risk of cyclical fluctuations in the industry

The FPD (Flat Panel Display) industry is highly cyclical and is greatly influenced by the market supply and demand relationship. It is a typical supply-driven cyclical industry that relies on technological innovation, and there is a concept called a “liquid crystal cycle” in the industry.

After experiencing the industry recovery period from 2016 to the end of 2017 due to the structural shortage of panels causing the prices to go up, some high-generation lines in mainland China were put into operation in 2018.

The rapid increase in the capacity and the oversupply had caused the prices of products of all sizes to drop sharply, and the profits of enterprises in the industry had been greatly reduced and suffered losses.

Since the second half of 2019, with LCD manufacturers actively adjusting production capacity and increasing demand for mobile phones and smart screens driven by 5G, industry supply and demand have begun to improve, and panel prices have stabilized and rebounded.

2. Pandemic situations lead to supply chain risk

Due to the repeated outbreak of the epidemic and the overall impact of the government’s control measures, the delivery capacity of related suppliers in the industry chain has weakened, the logistics and transportation capacity has declined, and the procurement of raw materials may be affected to a certain extent, some suppliers are at risk of late delivery.

In the future, if the epidemic continues or further intensifies, it may lead to supply chain risks in the overall display driver industry.

3. The procurement cycle upstream is prolonged, and the production expansion progress is slower than expected

At present, the equipment and materials suppliers of wafer foundry are mainly from overseas, the stability of the global supply chain will affect the expansion, production, and delivery of domestic manufacturers.