The Chinese touch panel market no longer seek vertical integration
The Chinese touch panel industry had sought vertical integration from 2011 to 2013 to lower production costs, but they don’t anymore.
During those years, the supply cost of touch panel modules for smartphones amounted to a whopping $12 to $18 per unit. Cover glass made up 25–35% of the cost, followed by touch sensors taking 22–28%, and touch controller integrated circuit (IC) with 14–17%. These three key components alone represented as much as 70–75% of the entire touch panel module production cost. Since the touch controller IC required a good knowledge of semiconductors to be produced, touch panel makers naturally sought out to produce cover glass and touch sensors themselves in an attempt to lower production costs and thereby to improve yields.
Until now, Chinese and Taiwanese touch panel makers have invested hefty amounts of money to secure vertical integration, building materials factories or acquiring small-sized companies. Some examples include TPK Holding Co. acquiring Cando Co., Truly Opto-electronics Ltd. subscribing shares in Buwon Advanced Coating Technology Co., Wuhu Token Science Co. taking over Shenzhen DPT Touch Co., and Zhejiang Firstar Panel Technology Co. (FPT) merging with Top Touch Electronics Co, while O-film Tech Co. and Biel Crystal Manufactory Ltd. both achieved vertical integration by investing in their own company rather than by acquiring other companies.
Among Chinese and Taiwanese companies that have annual production capacities of over 30 million sheets of touch panels, O-film, TPK, Truly, Chung Hua EELY Enterprise Group, Success Electronics Ltd., Biel, DPT Touch, Each Opto Electronics Co., and Top Touch have the annual cover glass production capacity amounting to 30–50% of the volume of their touch panel modules produced each year. Though they are supplied with indium tin oxide (ITO) film from outside vendors to manufacture GFF and GF touch panels, all companies have the capacity to manufacture 100% of GFF and GF touch sensors applied on the panels. Also, they sometimes buy glass sensor from glass sensor makers during the high seasons, but they produces at least 80% of glass sensors used in their glass sensor-based touch panels themselves, which is revealed by comparing the annual production capacity of glass sensor and the actual shipments of glass sensor-type panels.
Through these efforts, 5-inch touch panel prices plummeted by 30–50% every year, from $15 per unit in 2013 to $5–7 in 2015, nearing its break-even point. Dozens of touch panel makers are mired in losses, and with in-cell and on-cell touch panels rapidly increasing their shares in the smartphone-use touch panel market, it seems difficult to expect any improvements in profitability in the near future.
Under the circumstances, touch panel makers cannot rely on their vertical integration strategy to lower costs any longer. Now horizontal integration becomes a new normal in the touch panel market.
Chinese touch panel makers turning their eyes to smartphone-use key components
The falling touch panel prices seriously damages the profits of most touch panel companies. In an effort to overcome the difficulties they are facing, Chinese touch panel makers are looking toward other key components that are needed for smartphones, rather than touch panels. For example, O-film has extended its business to laser capture microdissection (LCM), camera modules, and fingerprint recognition modules. TPK has expanded to LCM and fingerprint recognition modules. Truly is focusing on camera modules and fingerprint recognition modules as well as its LCD panels and touch panels. Holitech Technology Co. is investing in fingerprint recognition modules.
Since touch panel makers have built strong relationships with smartphone companies, they can achieve a great synergy if they make use of their existing supply chain. In addition, they can sell in bundles of various components, contributing to raising profitability.
Horizontal integration in the Chinese touch panel market is definitely a topic that requires more attention.
David Hsieh is a display senior analyst for IHS
Posted on 20 September 2015