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Musings From an OLED Advocate

Musings From an OLED Advocate

The OLED Association, an industry-based organization, provides a forum for the interchange of technical and market information and regularly updates its members on developments.

Financials

AUO Revenues Down 15.9 Percent YoY in Q1 2018

Despite growth in small and large panel shipments, AUO’s Q1 2018 saw sales of NTD 74.45 billion, down 7.7 percent QoQ and down 15.9 percent YoY, as the impact of lower panel prices pressured full quarter sales. All in, AUO pulled through a difficult quarter at least on the revenue side. March sales were NTD 25.554 billion, below their typical 5-year pattern for March, and were down 17.7 percent YoY with large panel shipment slightly ahead of expectations, up 11.9 percent MoM and up 2.2 percent YoY, while small panel shipments were also above expectations, up 36.6 percent MoM and 35.8 percent YoY. Given that March revenue was up 12.7 percent MoM and both large and small panel shipment were up, it is to assume that AUO saw less price pressure than most during the month.

HKC Sues Innolux for Patent Infringement

Chongqing HKC Optoelectronics, an LCD panel maker with a plan to build a Gen 10.5 fab has filed a counter lawsuit against Innolux for alleged patent infringements. The China-based panel maker claimed that two of Innolux’s TV set manufacturing subsidiaries in China are producing TVs using Innolux-produced panels made using five patented technologies owned by Chongqing HKC. Chongqing HKC has also requested the Patent Reexamination Board of China’s State Intellectual Property Office (SIPO) to invalidate nine patents related to panel production claimed by Innolux. The move by Chongqing HKC was apparently retaliation against Innolux with attempts to confuse the patent issues, Innolux said in response to Chongqing HKC’s counter lawsuit. Innolux filed a complaint on February 12 in China, alleging that Chongqing HKC has been illegally manufacturing, using, and selling flat panels made using 17 of its panel manufacturing patents.

JDI Expects to Raise USD 518 Million through New Share Issue

Japan Display Inc. plans to raise USD 518 million through a new share issue and an asset sale, in a stopgap measure to shore up its finances as it struggles to find partners for a tie-up. The fundraising underscores the challenges being faced by the company, which is staring at a fourth straight year of net losses amid rising competition from cut-price Chinese players and slowing growth in smartphone demand. The newly raised funds will provide Japan Display with the financial flexibility it needs in the current competitive environment that requires continuous capital investment as well as research and development. Japan Display plans to issue new shares worth 30 billion yen (USD 282 million) to 30 overseas funds and about 5 billion yen to Japanese LED maker Nichia Corp. The latest fundraising is in addition to a line of credit worth 107 billion yen that Japan Display received from its main lenders last year and 75 billion yen it got in 2016 from INCJ.

JDI is selling its Gen 5.5 LCD plant in Nomi with 20,000 sheet/month capacity to INCJ, JDI’s largest shareholder, who will transfer the plant to JOLED, where INCJ also holds a stake. JOLED hopes to have the Nomi plant back in production by Q3 2019.The company will receive 20 billion yen (USD 188.3 million) from INCJ and also plans to raise capital to finance the production of its bezel-less display. On the positive side, the company noted that previously estimated losses expected as the company restructures will be less than the previously expected, which was 170 billion yen (USD 160 million), but did not specify the amount. JDI also has a 107 billion yen (USD 100.7 million) credit line with three banks that is guaranteed by INCJ.

Japan Display wants to start mass-producing OLED screens to better compete with its South Korean rival Samsung Electronics, and that it needs capital partnership to do so. But funding talks, expected to conclude by the end of March, are taking more time than expected.

Displays

Samsung’s New Line of QLED TVs Targets the Premium Category

Samsung Electronics is expecting to sell 1.5 million QLED TVs this year, up from last year’s 1 million, while reducing the overall TV unit volume that it expects this year from 50 million to 41-42 million. The QLED lineup, which Samsung had laid out a few weeks ago, expanded the QLED offerings to four models, each with sizes ranging from 49-inch to 88-inch, and while Samsung prices their QLED TVs at lower price points than LG Electronics’ OLED TVs, and up to 37 percent lower than they were last year, they generate better margins than Samsung’s more typical LCD TVs.

Sony is rebuilding its reputation as a TV powerhouse with OLED TVs. On March 27, Sony released its A8F series of OLED TVs this year by lowering its price 40 percent compared to OLED TV products sold last year. The 55-inch model, which cost USD 5000 last year, was released at USD 2800 this year, a 44 percent cut. The unit price of 65-inch products sold at USD 6500 last year slid to USD 3800 this year, down 41 percent.

TVs

TV Backlight Market Continues to Fall

Demand for TV-use LED backlighting has not been picking up in Q2 2018 despite expectations that the upcoming FIFA World Cup in Russia could push up LCD TV sales. Backlighting orders for May and June remain opaque. As new China-based LED packaging capacities have come online, oversupply is likely to occur, bringing down prices in Q2. But LED packagers see strong demand from the smartphone camera flash segment and the AlGaInP LED segment for lighting and fine pixel pitch display. Taiwan-based LED epitaxial wafer and chipmaker Epistar plans to begin production of mini LED chips for smartphone screen backlighting in Q3 2018. However, a 5.5-inch full HD smartphone panel needs 2000–10,000 mini LEDs for backlighting, and the total cost for such a touch panel is estimated at USD 35–40, which is not competitive compared to OLED.

LG Display ups OLED TV Target to 10 Million by 2021

LG Display’s Lee Sang-hoon, SVP said LG could produce 10 million OLED television panels in 2021, an increase of 6× versus last year’s 1.7 million. He said that demand for OLED TV panels had increased sharply over the past few years and would explode in the coming years. The company said that sales of OLED TVs accounted for half of sales in its high-end segment of items of USD 2000 or more last year, and is expected to reach 70 percent this year. “We will be able to produce 10 million or 20 million OLED TV panels easily as consumers are willing to pay for better products,” said Lee. “We plan to produce 2.8 million this year, and aim to reach 10 million by 2021.” To meet this ambitious goal, Lee said that the company would invest 20 trillion won (USD 18 billion) in OLED technology by 2020, seeking to generate more than 40 percent of its revenue from this segment. LG Display would maximize cash flow to fund the investment, taking out affordable loans if needed. “We [are betting] all on OLED while minimizing our operational investments in LCD,” said Lee. “We made this adventurous decision to create new value and products for customers.”

LG currently has two Gen 8.5 OLED fabs operating and a third in China is expected to reach MP in 2019. The capacity of these fabs by 2021 with LG’s improving yields and utilization should reach 4.8 million units by 2022, ~double their 2018 capacity. The current plans as outlined by LG are around 45 million substrates/month beginning in 2021. But the Gen 10.5 only has a capacity of 1.6 million (65- and 75-inch) panels or 6.4 million.

Production

New OLED Capacity Continues to be Subsidized by Government

The Kunshan government had funded Black Cattle Foods as they build out their Gen 6 flexible OLED fab. The Municipal People’s Government of Kunshan recently added another 1 million yuan (USD 159,000) to their coffers (and USD 79,000 to Visionox) who is building the fab. The Kunshan Development Zone committee also granted 52.8 million yuan (USD 8.3 million) to the project as a subsidy to construct or otherwise form a long-term asset, and the project seems to have no difficulty getting financed.

The Black Cattle OLED project seems to have the ability to encourage a myriad of local and regional government agencies and funds to finance the project. The concern however, is not the funding, but the profitability of such ventures, and the longer term impact on the industry.

The politicians that are approving the funding will be involved for a while, but will likely move up the political or party chain in a year or two and will no longer bear the responsibility for the project. If the fab faces difficulty becoming profitable, it will then be the responsibility of the new administration, which will look for a way to defer any action until they have moved on, and the fab will languish, eventually being combined with other local projects and restructured.

A number of maturing segments can be seen, such as TVs, smartphones, laptops, enmeshed with a number of technological changes that can shift the players significantly, but will not materially change the maturity level of the industry. There could be a significant breakthrough in holography that would change the way content is seen, or AR contact lenses could provide 24/7 personal entertainment or data, but another flexible OLED fab, at a cost of almost USD 4 billion, just to encourage growth in a province or city seems counterproductive. It is realized that the goals of a few are not always looked at on an industry wide or global scale, and such projects will continue to get funded until money becomes tight or they start to fail.

BOE Announces Yields on Gen 10.5 Fab

BOE responded to recent information leaked concerning issues at two of their LCD fabs and released a statement concerning the issues. BOE was reported to be facing yield issues at its Gen 10.5 LCD fab in Hefei and its Gen 8.5 LCD fab in Fuzhou. The gist of BOE’s reply was to clarify the details, and debunk the specific information, which was that the Gen 10.5 fab’s mass production progress was not smooth and yields were substantially below 70 percent, while the Gen 8.5 fab was experiencing quality problems. In their response, the company stated that the Gen 10.5 line, which started MP in December 2017, was experiencing smooth mass production this month and a combined yield exceeding 70 percent, while the production rate of the Gen 8.5 fab had been rapidly stabilized and the product quality from the factory to the client was in good condition. In addition, they gave the specific data concerning the fabs for Q1 2018:

BOE Stated Production ñ Hefei
& Fuzhou Fabs ñ
2018

Month

Sheets

Month Comprehensive
Yield (%)

January

131,000

96.7

February

128,000

97.1

March

150,000

97.4

Competitive Technology

HKC and CEC Panda to Increase Production of LCD TV Panels

Chongqing HKC Optoelectronics and Nanjing CEC-Panda LCD Technology are expected to increase annual TV panel shipments to 10 million each in 2018 partly to meet the growing demand for smaller size TV panels in emerging markets. HKC would continue ramping up the capacity at its Gen 8.6 plant to 70,000 glass substrates/month by the end of 2018. The company now delivers monthly shipments of 800,000 32-inch TV panels, and such shipments may decline to 700,000 to allow some capacity for rolling out
23.6-inch TV panels starting in Q2 for sales in emerging countries’ procurement markets. HKC expects its 2018 shipments to almost double to 11-12 million panels from 6 million in 2017.

In 2018, CEC-Panda will have two new plants reach MP, with the Gen 8.6 fab at Xianyang, Shaanxi Province set for volume production in late March, followed by Gen 8.6 plus plant in Chengdu, Sichuan Province in May. This, coupled with the capacity at its Nanjing plant, will sharply boost the firm’s annual shipments also to 11-12 million pieces in 2018 from around 7 million in 2017. The two new Gen 8.6 fabs will mainly turn out 50-inch and 58-inch panels, but CEC-Panda may adjust the product portfolios to include smaller panels to secure better profits, as quotes for mainstream 50-inch panels are affected by lackluster TV sales. This may affect the firm’s shipment figures for the year.

VR/AR

IDC Forecasts CAGR Growth at 50 percent (2017–2022)

Despite the recent evidence the VR headset shipments actually slowed in 2017, down 4.3 percent, IDC remains optimistic about the VR/AR category projecting VR shipments to grow from 8 million in 2017 to 43 million in 2022 and AR shipments to grow from 0.9 million in 2017 to 26.3 million by 2022.

Augmented reality. IDC expects head-mounted displays to see market-beating growth over the next 5 years as standalone and tethered devices grow to account for more than 97 percent of the market by 2022. IDC expects AR screenless viewers, the overall market leader in 2017, to peak in 2019 as standalone and tethered products become more widely available at lower price points. The rise of screenless viewers geared toward consumers tilted shipment volumes away from commercial viewers in 2017 and that is likely to continue in 2018; by 2019 the segment will shift back toward more commercial shipments.

Virtual reality. IDC expects head-mounted displays to see a shift in product mix. Screenless viewers, once the overall leader, will see share erode quickly over time. Meanwhile, standalone and tethered devices – in the minority in 2017 – will comprise 85.7 percent of total shipments by 2022. Consumers will account for a majority of headset shipments throughout the forecast, but commercial users will slowly occupy a larger share, growing to nearly equal status in 2022.

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