>TOUCH PANEL SECTOR

From over-supply to tight supply: Risk and Opportunity in touch panel sector



After prolonged oversupply and margin decline, we now expect oversupply in the touch panel industry to reverse on the back of the launch of Windows 8 along with low-cost tablet PCs. Our analysis suggests the demand from touch-on-PC and ever-growing tablet would outstrip realistic mid/large-size touch panel supply. This would likely create tight supply in 4Q12 onwards especially for One-Glass-Solution (“OGS”) capacity. We believe TPK stands out in this trend. Other touch panel makers could also see spill-over effect in 2H12.


 Touch panel likely penetrates into an untapped market: Major PC brands plan around 10% of NBs to be equipped with touch panels in 2013. Given the high price points of Win 8 NBs, however, we make conservative estimate of 2%/6% touch penetration into NBs for 2012/2013. Regardless, we forecast touch-on-NBs will account for 7%/18% of the mid/large touch panel demand in 2012/2013. The penetration rate will continue to increase along with price elasticity.


 Demand outgrows supply: Since most of the touch panel makers barely breakeven with mid/large size touch panel, we estimate the industry capacity sees only mild growth by 39%/16% in 2012/2013 vis-à-vis demand growth of 59%/41% for 2012/2013. In the worst case scenario where demand for touchscreen PCs turns out to be disappointing during holiday seasons, second-tier touch panel makers could likely see more de-stocking risks in 1Q13, but the trend of touch-on-PCs is inevitable, in our view.


 Shortage likely in 4Q12 onwards – Currently, the market remains skeptical about touch panel penetration into NB and PC markets. Our base case suggests a supply glut of mere 2% if touch penetration in NBs reaches 6% in 2013 and tight supply will return if the penetration exceeds 7%. Hence, we believe touch panel adoption rate in NB will be the major swing factor for supply/demand dynamic in 2013.


 Risk of in-cell in iPad – We currently do not expect Apple to use in-cell for iPad in 2013. If Apple adopts in-cell for iPad in 2013, however, this could change the supply/demand dynamics of the touch panel industry. iPad represents 40~50% of the total mid/large touch panel demand, or equivalent to around 40 million units of NBs. Nevertheless, non-Apple devices would likely prefer OGS over in-cell to avoid high front-end costs for photo masks and tooling


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