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Recent observations by market intelligence firm TrendForce suggests that the ongoing expansion of the US semiconductor trade restrictions against China could eventually spread to the display panel industry. Agencies within the US government are taking notice of China’s certain advantages in the development of display technologies and build-up of panel production capacity. However, the US will unlikely attempt to directly impose control over panel supply with new trade restrictions in the short term. On the other hand, the upstream portion of the supply chain, especially the sections concerning driver ICs and other related semiconductor chips, are starting to react to the tightening of the US sanctions against Chinese semiconductor companies. Furthermore, some electronics OEMs have recently been re-examining their panel supply chains to evaluate the sourcing of semiconductor components. While OEMs have yet to explicitly ban the use of panel-related chips from Chinese suppliers, they are actively developing backup plans that would seek alternative supply sources in case the US further broadens the scope its technology export rules on Chinese companies.
The continuation and strengthening of the restrictions on semiconductor trade is starting to have an effect on the supply chain related to driver ICs. TrendForce’s latest investigation finds signs of decoupling or bifurcation. Specifically, there is a divergence towards both extremes: a supply chain that totally excludes Chinese content versus a counterpart that is “de-Americanized”. Again, looking at OEMs, they have not rejected panels from certain suppliers for now, but they might start to prefer or exclude particular IC design houses that offer driver chips. As for foundries and OSAT providers, decoupling has begun in accordance with the decisions of some downstream customers. In the future, there is a distinct possibility that Chinese IC design houses, foundries and OSAT providers could be barred from participating in the supply chains for the product models targeting the US market.
Conversely, the ban on Chinese suppliers will not apply to product models targeting the Chinese market. Instead, OEMs might actually increase Chinese suppliers’ participation in order to raise the chance of a successfully entry into this region. Component suppliers such as IC design houses, too, could adopt a similar strategy so as to insert themselves into the Chinese market. To comply with and support the localization policy of the Chinese government, component suppliers could increase the portion of partners or clients from China and establish a separate local supply chain.
Presently, Chinese foundries have steadily raised their collective market share for large-sized driver ICs to around 25%. They still have much ground to catch up when compared with the 40% held by Taiwan-based foundries, but this share figure is still significant. If the US government imposes new restrictions seeking to prevent Chinese foundries from using mature semiconductor process technologies to manufacture chips such as driver ICs, then the supply chains for panels and related ICs will likely face another huge wave of capacity crunch and supply shortage.
Nevertheless, since there are no direct orders from the US government targeting panel supply and related components at this moment, TrendForce believes the decoupling process in the supply chain for driver ICs is going to be a slow and drawn-out process. In the long run, decoupling as an overarching trend will make the supply chain more fragmented and inefficient. This development, in turn, will increase the overall cost for all parties involved. Furthermore, due to the need to mitigate the potential risks resulting from the decoupling process, the supply chain could even see an elevation of minimum inventory level and a prolonging of order lead time.
TrendForce holds the view that both risks and opportunities exist in the decoupling and rearrangement of the supply chain. Some IC design houses could gradually redirect wafer input to fabs outside China for some of their offerings in order to eliminate the possible risks associated with the US sanctions or satisfy some customers’ demand for non-Chinese components. Thus, IC design houses and foundries that operate in Taiwan could gain new orders as the supply chain undergoes an internal shakeup. On the other hand, their counterparts in Mainland China could have more opportunities to rise as major players thanks to their government’s strategy for localizing supply chains.