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Musings From An OLED Advocate

Musings From An OLED Advocate

Major LED firms in Taiwan and China have made ambitious moves developing mini LED devices for backlighting applications and displays, with the focus of competition expected to swing from product offerings in H2 2018 to production cost in 2019.

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

Financials

LGD expects financial turnaround in H2

LG Display posted net losses of 98.3 billion won and 228.1 billion won in Q1 and Q2, respectively. But the company is expected to turn around in H2 of this year on the back of growing global demand for its OLED panels. In H1 2018, LG Group’s display business unit posted an operating loss amid falling global prices for large LCDs and intensifying competition. But the company is expected to become profitable in the third quarter and beyond as its OLED business segment lifts up overall performance.

According to Euromonitor International, global demand for OLED TVs is expected to increase from 2.54 million this year to 3.91 million next year, 6.56 million in 2020, 9.95 million in 2021, and 20 million in 2023. LG Display mass-produces the panels at a plant in Paju, Gyeonggi Province, and plans to begin production at a Guangzhou plant in China next year. The firm aims to produce 4 million panels next year, 7 million in 2020, and 10 million in 2021. Seoul-based financial data provider FnGuide said the firm is expected to post 59.3 billion won and 825.2 billion won in operating profit next year and in 2020, respectively.

LG Electronics took a 74.9 percent share in the premium TV market last year, according to Euromonitor. Being aware of the market outlook, an LG Display official said, “We will accelerate efforts to change our business structure to OLEDs and solidify our position as a leader of the global display market.”

Applied sees 2019 drop in CapEx for the display industry

Applied Materials expects the display industry to be down in 2019 but up in 2020. The company reported their Q3 2018 operating income was USD 1.3 billion, which was up 22 percent Y-o-Y. In Q4, they expect overall revenue to be in the range of USD 3.85–4.15 billion. Within the outlook, semiconductor systems revenue should decline by about 4 percent Y-o-Y. This forecast includes the impact of recent foundry CapEx reductions; services revenue should increase by about 15 percent Y-o-Y, and display revenue should grow by about 2 percent Y-o-Y. Non-GAAP gross margin should be around 45.4 percent and non-gap operating expenses should be in the range of USD 765 million plus or minus USD 10 million, and non-GAAP EPS should be in the range of USD 0.92–1.

Gary Dickerson, CEO, said that they scaled their display business from about USD 600 million in 2012 to approximately USD 2.5 billion in 2018. In both TV and mobile, customers are investing in new technologies and that plays directly to Applied’s strengths. We expect display to remain a powerful growth driver for the company over the long-term. 2018 is going to be around USD 2.5 billion, up more than 30 percent from the previous year. And we still see 2019 down in the 15 percent range and 2020 to be higher than 2018. Overall we see 2020 up over 2018 and continue to see display as a great growth driver for the company. Future technology inflections are more capital-intensive and we have a pipeline of new capabilities that create a strong opportunity for future growth.

eMagin reports highest revenue in 5 years

eMagin’s Q2 2018 revenue was USD 7.1 million, up 34 percent Y-o-Y, the highest quarterly revenue in over 5 years. Product revenue for the quarter was USD 6.2 million versus USD 4.7 million Y-o-Y also a 34 percent increase and at its highest level since Q2 2014. The company continues to progress in its consumer initiatives and advancing direct patterning technology for the highest brightness OLEDs in support of the AR/VR market. They recently achieved a maximum brightness of more than 7500 nits in full color, which is a significant improvement from the previously announced 5300 nits. Their roadmap for brightness is 10,000 nits and then to a final goal of 15,000 nits. The company recently completed the final design review for their next-generation AR/VR microdisplay and expects the first prototypes using their direct pattern technology, will be available in the early 2019. Additionally, they are actively engaged with one of their newer consumer electronics prospects. While the consumer AR/VR market is going to be a substantial growth opportunity for the company, the urgency which they experienced last year is not as prevalent today, it is their assumption that many of the companies pursuing this market recognize that widespread consumer adoption will take more time and development work than originally contemplated.

AUO July revenues down 8.5 percent Y-o-Y

AU Optronics (AUO) reported July sales of NTD 25.801 billion, up 3.9 percent M-o-M but down 8.5 percent Y-o-Y. Typically July for AUO is down between 4.7 percent (3-year average) and down 4 percent (5 year average) on an M-o-M basis and down 6.8 percent
(3-year average) and down 1.6 percent (5-year average) on a Y-o-Y basis, which makes the month mixed, better on a sequential basis but worse than normal on a Y-o-Y basis. Large panel shipments were 9.79 million; up 1.7 percent sequentially and up 10.9 percent Y-o-Y and small panel shipments were 15.54 million units, up 14.4 percent sequentially and up 1.6 percent Y-o-Y.

2017 was a strong sales year until it peaked in August and panel prices began to decline. August is typically a sequentially up month, but given the peak in August last year, another negative Y-o-Y comparison is expected. Although TV panel price may increase to both increase the company’s percentage of revenue from TV to something closer to the mid 40 percent range (it had dropped to 38 percent in Q2) and potentially boost TV ASP in August and the quarter. The sustainability of TV panel price increases is key to the overall outlook for Q4 and more importantly H1 2019 and capacity oversupply in the TV panel space could derail such increases.

TVs

4K TVs reach 28.8 percent market share; ready for 8K?

In 2017, the 4K TV penetration rate was 28.8 percent, or a bit over 61 million units. By 2020 there could be more 4K TVs sold than non-4K TVs and just as the industry is getting used to 4K, here comes 8K. While 8K TVs have been shown at every CES since 2013, the 2018 show seemed to have a new push behind the higher-resolution behemoths. Major TV players like Samsung, LG, and Sony all had 8K TVs on display at the show, but while at least two 8K models may come out in 2018, mass introduction is years away. In the early days of 4K TVs and HDTVs, first models were very expensive but many affordable models are now available. Early adopters can likely expect to pay high premiums for the very first 8K models. Sharp’s first 8K TV went on sale for professional use in Japan in 2015 for USD 133,000. In September 2017, the company announced that its LC-70X500 would be the first consumer-ready 8K TV to ship in 2018, at just USD 73,000. There is not much 8K content but native 8K content is not the only reason to have an 8K TV, which will upscale 4K content to 8K, and the difference in clarity will be stark. Samsung put two 85-inch TVs side by side, one playing 4K content in 4K, the other upscaling 4K content to 8K. The difference was apparent, with the upscaled 4K video playing on the 8K TV looking visibly superior.

8K content, in a very limited way, is already available. In November 2017, video streaming site Vimeo added support for 8K, along with a handful of videos. NHK launched a test channel dedicated to showing 8K content in December 2017, but like the 2016 Olympics footage, viewers can only watch this channel at special dedicated viewing stations throughout Japan. The 2020 Tokyo Olympics will be a major showcase for 8K broadcast, at least in Japan, but how much of the games will be broadcast in that resolution in the United States or Europe remains to be seen. 8K cameras are available, and companies are preparing to offer 8K content at some point, but simply take a look at where 4K content is right now. Streaming services like Amazon, Netflix, Vudu, and others offer 4K streaming, and there is a large and growing collection of 4K UHD Blu-ray discs, but it has a long way to go before 4K reaches anywhere near the ubiquity of HD. The ATSC 3.0 digital broadcast standard will eventually lead to 4K broadcasting over the air and through cable and satellite providers, but the standard was only finally approved by the FCC in November 2017. Technically, 8K is compatible with ATSC 3.0, but right now, it is an easy bet that most cable, satellite, and other content providers are focused on rolling out programming for viewers eager to make the most out of their 4K TVs. It may not be long before 8K TVs are readily available, but like the early days of both HD and 4K, it will be a lot longer before they are practical for most people.

LCD TV panel prices drop 27 percent between August 2017 and February 2018, but only 9 percent in last 6 months

LCD TV panel prices continue to drop, which looks at TV panel prices over a 12-month period beginning August 2017, for 32-inch, 40-inch, 43-inch, 49-inch, and 50-inch. The price/sq. inch in August 2018 is quite steady for each size at around 10¢, which would indicate that there is relatively the same efficiency for each size. However, the Y-o-Y price reductions are greatest for the
40-inch size at ~40 percent, while the 55-inch has the least Y-o-Y change at ~20 percent. However, in the first 6 months the average price reduction was 27 percent, while in the last 6 months it was only 9 percent.

Competitive technology

Taiwanese panel makers target 2019 for mini LED displays and backlights

Major LED firms in Taiwan and China have made ambitious moves developing mini LED devices for backlighting applications and displays, with the focus of competition expected to swing from product offerings in H2 2018 to production cost in 2019. Demand for LED products has remained weak since H1 2018, and has not yet rebounded in the third quarter despite it being the traditional high season. However, maturing technological development for mini LED is offering business opportunities. In Taiwan, LCD panel maker AUO plans to launch mini LED-backlit applications for gaming monitors by year end 2018, while Innolux will launch mini LED-backlit panels for public information displays. Vertically integrated LED maker Lextar Electronics will begin shipments of mini LED backlighting devices for high-end notebooks and gaming monitors in the third quarter. LED packaging service provider Everlight Electronics will begin production of mini LED backlighting devices for automotive displays in the fourth quarter.

LED chip maker Epistar will offer mini LED backlit-panels for gaming devices in the Q4, while packaging service providers Unity Opto Technology’s and Harvatek’s mini LED backlighting devices are being validated by clients. In China, LED chipmakers San’an Optoelectronics and HC SemiTek have signed contracts to supply Mini LEDs to Samsung Electronics, and will soon start production of mini LEDs. LED packaging service provider Foshan Nationstar Optoelectronics is cooperating with international vendors to develop mini LED backlighting devices for smartphones and LCD TVs, while Shenzhen Refound Optoelectronics has exhibited samples of mini LED backlighting devices for 55-inch LCD TVs and small to medium-size panels. Mini LED backlighting was originally expected to be initially applied to smartphones in H2 2018, but such applications have yet to come out. Instead, applications for high-end notebooks and gaming monitors will take off first, as mini LED’s local dimming design enables excellent HDR function – a feature appreciated by users of high-end notebooks and gaming monitors, according to LED supply chain sources. Besides, OLED panels are rarely adopted for high-end notebooks and gaming devices.

Production

Sharp’s gen 10.5 fab in Guangzhou targets mass production in October 2019

Sharp and the city of Guangzhou, China officially launched a 1.5 km2 Display Industrial Park that is the home of Sharp’s new gen 10.5 LCD fab and associated infrastructure. The gen 10.5 fab, which will have a raw capacity of 90,000 sheets/month when fully built out, was capped last month, along with the color filter fab, and the Corning glass facility is to be capped on October 15. The construction of the TFT clean room was completed in July and the Nikon exposure tool will be installed in February of 2019, leading to initial production in August 2019 and mass production by October 2019, but full capacity should reached in October, 2020. When both phases are complete, the fab will have a raw capacity of 891,700 m2 or 41 percent of Sharp’s total LCD capacity and ~34 percent of gen 10+ LCD capacity worldwide, second only to BOE, although it will be passed by CSoT, when their 2nd gen 10.5 fab is complete.

The industrial park that was built to house the Sharp fab and the large number of upstream and downstream facilities, in the park and nearby, are expected to generate the equivalent of ~5 percent of Guangzhou’s GDP (2015), and while it is hard to give an accurate reference point as to the city’s actual size, the population is estimated to be ~14.5 million with an urban estimate of 11.5 million. The park is expected to generate USD 65 billion when completed and the fab, which is expected to cost ~USD 8.9 billion, could generate USD 14.5 billion in revenue when fully operational. The progress Sharp is making could be a key reason why Hon Hai backed off its gen 10.5 fab in Wisconsin.

Magnachip

MagnaChip, similar to Coherent, Applied, and UDC benefited from being an early participant in the OLED market. MagnaChip made the first drivers for LG’s OLED TVs. Its strategy to concentrate on higher-margin business like OLED drivers has paid off. Their Q2 2018 results provide the proof.

The company has two divisions:

Standard products. 59.5 percent of revenues, 39.4 percent from display drivers and 20.1 percent from power products

Foundry. 40.5 percent of revenues

Even with a stagnant phase Magna has been busy producing a raft of new OLED display drivers, and these have caught on with the Chinese OEMs, which were waiting for Apple to come out with its new phone and have since ramped up design activity for their new models. And there is likely to be a resurgence in the market, which is slowly shifting toward OLED displays. (Smart2Zero: smartphone panel growth paused as the industry absorbed excess inventory built in 2017. OLED smartphone panel growth will resume in the second half of the year with 47 percent area growth forecast for the last six months of the year in this segment.)

  • 15 instead of the (Q1CC) predicted 10 smartphones with Magna’s OLED display drivers hit the market in Q2
  • An additional six smartphones will hit the market in Q3
  • At the end of Q2, the company had 32 design wins with a dozen smartphone makers for its 40 nm chip
  • The product mix will shift toward more complex and higher-margin drivers (for stuff like high-density, flexible, and even bendable displays), like its new ultralow power 28-nm OLED display driver

Demand will remain elevated, but Q2 was a little bit of an outlier with USD 62.2 million, as the company predicts a combined Q2 and Q3 revenue of USD 120 million, which supposes a mild sequential decline.

LCD display drivers. Here is where Magna is cutting back, because management wants to concentrate on higher-margin business. LCD revenues have declined to just 21 percent of display revenues (this was 69.5 percent in Q2 2017).

CEC Panda gen 8.6 timeline delayed for ISO certification

Chinese panel producers tend to play fast and loose with announcements concerning display fabs, particularly production timelines. State-owned CEC Panda is a good example with a number of photo oriented press releases and glorious exultations about how the fab was completed in record time, and while the first phase of the project was completed in October of last year, the fab did not receive ISO 9000 certification until June of this year even as Panda produced panels for customers not concerned about ISO certification, but customers outside of China (and a number on the mainland) needed that quality check before ordering more than sample production. The second phase of Panda’s plant is under construction with a goal of full production by the end of the year. Each phase of the project is for 60,000 sheets/month and Panda is also building a duplicate fab in Chengdu, which is still under general construction, but is due to open (phase-I) later this year. After evaluating the timeline on the Xianyang fab, we will likely be pushing back the Chengdu ramp in the near-term. The Panda gen 8.6 LCD fab timeline:

  • December 2015 – Site work begins
  • June 2016 – Pilings complete
  • January 2017 – Fab cap placed
  • September 2017 – Exposure tool delivered
  • December 2017 – Fab lit
  • June 2018 – ISO certification

Foxconn Nixes gen 10.5 fab in Wisconsin

Foxconn Electronics and Wisconsin celebrated an agreement to build a gen 10.5 fab, but the recent glut of large LCD panels and the potential of 7–10 new gen 10.5 fabs has caused a scaling down of the original project and instead will build a gen 6 line. Major reasons for adjusting the investment project include: total investment for a gen 10.5 line is too vast to be paid off in a short period of time and the availability of new production capacity from gen 10.5 lines in China, which is expected to affect the global display industry, eventually undermining panel prices and profits.

Foxconn declined to comment on market speculations. However, the construction of a gen 6 fab will allow Foxconn to roll out panels for automotive, mobile, and medical devices so that the investment risks can be alleviated through an expansion of shipping outlets. Sources said the planned gen 6 fab will also enable Foxconn to utilize the advantage of proximity to provide Apple with small- and medium-sized panels, if Foxconn sets up assembly lines in the Wisconsin plant to make iPhones to help Apple avoid tariff risks arising from escalating trade rift between the United States of America and China. In line with the scale-down of investments in Wisconsin, the Foxconn Group has also decided to cancel a plan to spin off its LCD panel arm, Innolux, into several smaller entities depending on the nature of products they produce: such as large- or small-to medium-sized panels or end-market devices. Instead, Foxconn is undertaking a sweeping restructuring of the management team of its entire display business group as it is making efforts to stave off increasing competition coming from rival companies in China. Under the new arrangement, former Innolux chairman Jyh-chau Wang has been assigned to work together with Hideo Taniguchi, president of Japan-based Sakai Display Products (SDP) to oversee the construction of the group’s gen 10.5 line in Guangzhou, China, which is slated for volume production in 2019. Meanwhile, Innolux incumbent executive vice president Chin-lung Ting and SDP director Yuehway Sun will co-work to speed up the investment project in Wisconsin.

Foxconn did not indicate whether the gen 6 would be for LCDs or OLEDs, but making LCDs would be risky if Apple decides to go all OLEDs as rumored. Given Sharp’s recent success with its gen 4.5 OLED pilot line, the Wisconsin site could be a natural place to house the mass production OLED facility.

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