Everyone in the display industry already knows that Apple announced its iPhone X (pronounced “iPhone TEN”) today. Many other sources will give you the details on the features, if you don’t have time to watch the full event: but here’s a quick summary: 5.85” edge-to-edge OLED screen with an unusual 19.5x9 aspect ratio and 2346x1125 resolution, no home button and no fingerprint sensor but these replaced by face recognition, wireless charging, improved camera and battery, all starting at $999, and available for orders on October 27th, with shipping starting November 3rd.
The panel goes edge to edge and has rounded corners and a notch. Thin film encapsulation is used to make it ultra thin and light, but it is not curved losing the added functionality and appeal of an edge on each sides. It is 14% lighter than the iPhone 8+ as shown below, despite having a larger display. Losing the curve and edge does reduce costs as the cover glass doesn't have to be formed to the shape of the curved panel.
The iPDSCC sources have learned some other insights on the iPhone X that are likely of interest to readers of this blog. As most readers know, the OLED panel in the iPhone X is made by Samsung Display, but DSCC has learned that Samsung is the source not only of the display but also the X/Y touch panel and the cover glass lamination, while TPK makes the Force Touch panel. The full package of display, touch panel and cover glass costs $120.
Some columnists “blame” the OLED screen for the higher price of the iPhone X. Perhaps because I’ve spent my whole career in the display world, I don’t think of this as a bad thing. Yes, higher display prices are a factor in higher phone prices, but the display (including the touch interface) is the most valuable part of the phone. A bigger, better display delivers value to the consumer in higher productivity as well as a better user experience, in a more convenient and attractive form factor. Consumers can certainly choose less expensive phones with inferior displays, but the top brands believe and many consumers are demonstrating that these screens add more to the value of the phone than to its cost.
As most of the features of the iPhone X were rumored months ago, the biggest surprise to me was the announced release date at the end of October. Some difficulties in the display plus touch module production may be a factor in this delay: DSCC sources indicate that production of iPhone X panels started in July 2017 with only 1 million panels, with 5 million in August and an estimated 13 million in September, with around 50 million to be produced in Q4. The iPhone X is supposed to be the best seller of the new iPhones. The iPhone 8 looks just like the 7 and may face tough competition outside of North America where bezel-less phones are becoming quite popular.
Since the original iPhone was the debut of Corning’s Gorilla Glass, it seemed fitting that the iPhone X claimed a new level of performance (I won’t call it a breakthrough) in cover glass. Apple announced that both its iPhone 8 and 8 Plus products and the iPhone X will have a new generation of cover glass on both the front and back of the phone.
Since Corning has already launched Gorilla Glass 5, the glass in the iPhone X must be even better than 5, so it’s likely we can expect Corning in 12-18 months announce a Gorilla Glass 6 (if they decide to call it that). Based on the timing of this launch, it’s very unlikely that this new generation of glass is a product of Apple’s investment in Corning’s Harrodsburg, Kentucky operations – any investment that Apple makes in 2017 in a new glass production process is not likely to find its way into a product until 2018 at the earliest. This means that it’s likely that Corning has yet another step in performance improvement in Gorilla Glass in the works.
Display equipment revenues for the 20 publicly traded equipment companies we are tracking were up 2% Q/Q and 67% Y/Y to a record $3.2B. Display equipment revenues have been up double-digits Y/Y for at least 10 consecutive quarters, quite a run which should continue for at least a couple more quarters on the dramatic increase in capex primarily for flexible OLEDs.
Figure 1: Quarterly Display Equipment Revenues
Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
By supplier, as shown in Figure 2:
Figure 2: Q2’17 Display Equipment Revenues and Growth
Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
Based on the display capex discussed in the previous blog, we believe the entire display equipment market was over $5B in Q217, a record high, and possibly the peak quarter of 2017.
Margins improved for equipment suppliers across the board as shown in Figure 3 with operating margins improving from 13% to 15% and net margins improving from 10% to 12%, both record highs. By supplier:
Figure 3: Q2'15 - Q2’17 Display Equipment Margins
While fewer and fewer Japanese and US equipment companies are showing bookings, most Korean companies publicly reveal their PO amounts and bookings. Q2’17 was a slow quarter for bookings for leading Japanese and Korean companies, down 20% Q/Q but up 57% Y/Y. As a result, backlog fell vs. Q1’17. Note, we are showing all POs and equipment awards in our PO database available to Capex Service customers.
Looking at balance sheets and cash flow statements:
As revealed in our latest Quarterly Display Supply Chain Financial Health Report and shown in Figure 1, display manufacturer revenues rose 1% Q/Q and 25% Y/Y to $26.8B, the 2nd highest quarter over the past 8. It wasn’t certain that Q2’17 revenues would grow given the weakness in small/medium demand and pricing and high large-area prices slowing demand. However, there was enough output and shift in product mix to squeeze out 1% growth. These results are based on all publicly traded panel suppliers listed below which account for over 95% of display revenues.
Of these suppliers:
As shown in Figure 2, aggregated panel margins were down slightly with gross margins, operating margins and EBITDA margins higher in Q2’17 than in Q4’16. With TV panel prices expected to fall 10% or so in Q3’17, operating margins should fall to mid-single digits in Q3’17 from 13% in Q2’17. By supplier:
Figure 1: Q2'15 - Q2'17 Display Revenues
Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
Figure 2: Q2'15 - Q2'17 Display Margins
Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
Looking at the balance sheet and cash flow statements:
Figure 3: Q2'15 - Q2'17 Display Capex
Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
With lower large-area prices stimulating large-are demand and boosting fab utilization, we should see revenue growth continue into seasonally strong Q3’17. Taiwan suppliers recently reported an 11% blended reduction in prices in July and 3% in August leading to 14% M/M large-area unit growth and an 8% M/M increase in revenues.
See our Quarterly Display Supply Chain Financial Performance Report for even more details.
As the Wisconsin legislature works its way toward approving the $3 billion subsidy deal for a $10 billion Foxconn LCD Manufacturing complex, I had an opportunity this week to get some first-hand perspective on southeast Wisconsin, the area which seems likely to be chosen by Foxconn as the site of the first LCD manufacturing outside Asia. After dropping my youngest son off for his freshman year at DePaul University in Chicago, I headed north for about an hour into US House Speaker Paul Ryan’s congressional district in Wisconsin. If this Foxconn deal goes through and the investment is made, southeast Wisconsin will become the most important area for the display industry in the US, so I figured I ought to get to know something about the area and relate that to our blog readers.
Before I relate my visit, first let me update readers on developments in the Foxconn deal. The Wisconsin legislature’s Joint Finance Committee scheduled a vote for Tuesday, September 6th, on the incentive package. If approved, the package would move to the state Senate for a vote. The MOU signed by Foxconn Chairman Terry Gou and Wisconsin Governor Scott Walker requires the incentive package to pass by the end of September, and it appears to be well on track to do so.
Assuming the subsidy packages passes, it will fall to Foxconn to select a specific site. Local newspapers have indicated that farmers in Mount Pleasant have been approached about selling their land, with the price for such a deal 10x the typical rate of $5000 per acre. The most likely site has been related as the area of route 11 near Interstate 94, designated with a star on in the figure below.
The area has two small lakefront cities, Kenosha and Racine, each the county seat of a county with the same name. Both cities have long industrial pasts, but like many other cities in the northern “rust belt” have seen most of the manufacturing and industry go away. Of the two cities, Kenosha is a bit larger at about 100,000 residents to 80,000 for Racine, and as it is the last stop on the commuter rail line from Chicago Kenosha serves as a bedroom community for Chicago.
While some in Wisconsin have expressed concern that workers in Illinois would benefit from the subsidies, the pattern of work between the two states suggests that this is not a major threat. A study by the Wisconsin Department of Workforce Development showed that the number of residents of Kenosha County working in Illinois outnumbered Illinois workers in Kenosha by 22,000 to 5,000.
For the most part, a drive through Kenosha seems like a drive through any town in the US. Major retailers like Wal-Mart, Target and the like, along with fast food and fast-casual chain restaurants line the major routes into the city center, and the side streets hold single-family homes that appear solidly middle-class.
If you ask a random American what they think of when they hear the word Wisconsin, the most likely answer you will hear is “cheese”. From the Cheesehead gear of its Green Bay Packer fans to the “Wisconsin Dairyland” on its license plates, the state is known for cheese, and this was borne out this weekend in Kenosha, which held a “Cheese-a-palooza” festival of local bands in a lakefront park.
Cheese-a-palooza in Kenosha, Wisconsin: Some Sharp Cheddar for Foxconn?
On Sunday, there was fair weather and enough wind to encourage sailboats out to Lake Michigan. For those readers unfamiliar with the Great Lakes, from the shore they resemble the ocean: from Kenosha the lake is 70 miles (112km) across to the east, you can’t even come close to seeing the other side. As mentioned in last week’s DSCM (“Foxconn Could Start with Assembly Plants”, DSCM 08.28.2017), it is expected that Foxconn would tap water from Lake Michigan for use in the manufacturing processes. Prominent along the lakefront in Kenosha is the water treatment plant.
Perhaps even more than its larger sister city, Racine has made an effort to develop its harbor for boating enthusiasts, and several hundred pleasure craft settle in their marina, see Figure #. Some residents I spoke to said that Racine allowed great access to the lake at a fraction of the cost of having a boat in Chicago.
Marina at Harbor in Racine, WI
While the harbor area was filled with upscale apartment buildings highlighting a lake view, a few blocks inland Racine seemed far less attractive, with many empty storefronts and other signs of a city in economic distress.
Residents of the area that I spoke to were generally pleased at the news of the Foxconn deal, although one said that “for most people, their opinion of the deal goes with their political opinion, the Republicans like it and the Democrats don’t”. Many of the residents were pleased at the promise of thousands of jobs, and at the prospect that the likely influx of new residents would increase real estate values in the area. None that I spoke with had any special understanding of displays.
Outside Racine, along Route 11 towards I-94 (about 7 miles or 11 km) there was an abundance of farmland that could be made available for a large manufacturing site, mostly planted with corn but also some cabbage and soybeans. Along I-94 between Racine and Kenosha there is some evidence that the area is well positioned for efficient logistics, as there is a large Amazon Fulfillment Center just east of the highway. An hour drive south on I-94 takes you to Chicago’s O’Hare Airport, where it’s likely that engineers and managers from Japan and Taiwan will be arriving in a few years to work on the US’s first flat panel display plant.
Although last week in the Display Supply Chain Monitor we covered some of the top developments from the IFA conference in Berlin (“Sharp Makes Splash at IFA with 8K Intro”, DSCM 09.05.2017), the conference had too much to cover in a single week. DSCC’s Yoshio Tamura spent a day and a half in the IFA exhibit halls, and had the following observations.
Overall, from a pure display perspective, there was not a lot new at the conference. Generally, this should not be a surprise: as a consumer-focused conference, IFA’s exhibits are targeting consumer-ready products, so the type of cutting-edge display technology that we see at SID does not appear (or if it does, only in private rooms by invitation only).
However, in TV the OLED vs. LCD war rages on, and OLED can stake a good claim to have won the IFA battle. The number of TV brands highlighting OLED TVs as their flagship premium models increased, whereas the number of brands with LCD (including Quantum Dot designs such as Samsung’s QLED) in the flagship spot declined. The table below highlights this discrepancy:
TV Brands with OLED Flagship TV Brands with LCD Flagship
LGE Samsung (QD)
Sony TCL (QD)
Skyworth/Metz Sharp (8K)
Panasonic Hisense (ULED)
Philips Changhong (8K)
A number of the OLED brands had some of the most advanced features. For example, Skyworth introduced an OLED TV with LGD’s Crystal Sound technology, which uses the display panel as the audio speaker, and also demonstrated their version of “Wallpaper TV”, see Figure # (as in 2016, Skyworth held a joint exhibition space with the European brand Metz):
I list Changhong in both the OLED and the LCD column because while they staked a claim in the OLED camp with a Wallpaper TV of their own, they also demonstrated an 8K 65” LCD TV, see below, with a panel supplied by BOE:
Although LG has led the charge for OLED TV, they demonstrated again at IFA (as they did previously at CES) their Nano Cell technology for LCD TV.
From LG’s description (below, from their web site), they are using nanoparticles but not quantum dots, and these nanoparticles embedded in a light-guide-plate (LGP) or diffusion film are absorbing some of the light from the standard white LED (based on a blue LED with YAG phosphor) which falls in the yellow part of the spectrum, thus allowing for more pure colors.
Presumably the Nano Cells in the backlight can be coupled with a redesigned color filter in the LC cell, allowing for the slightly higher peak of each primary in their diagram.
TCL, on the other hand, remains firmly in the LCD camp with their connections to Samsung technology and their growing capacity with panel maker CSOT. TCL showed a line of Quantum Dot based LCD TVs, and even adopted Samsung’s QLED nomenclature.
Samsung continued to highlight its QLED line, and extended the technology into a line of high-end gaming monitors, including this 47” model with a 32:9 aspect ratio:
The monitor as 4K resolution in the horizontal direction at 3840, but Full HD in the vertical direction with 1080. To get the most out of HDR content, the monitor hits 600 nits peak brightness, and the quantum dots allow it to reach 95% of DCI color gamut. Whereas in the TV space Samsung has pulled back on its emphasis on curved, they continue to push it for these gaming monitors, where it makes more sense to a single viewer.
IFA has generally not served as a major venue for introduction of phones; the Mobile World Congress in Barcelona in February takes that role. However, as reported last week in the DSCM, LG demonstrated their OLED smartphone, and many brands showed 18:9 aspect ratio LCD models. One prominent brand that seems lagging on the 18:9 trend is Chinese giant Huawei.
The surge of new investment in both LTPS LCD and LTPS OLED capacity in recent years has led to an oversupply situation, and many of the fabs in the industry have been slowing their utilization in recent months. While LTPS OLED panels from SDC are profitable, the competing LTPS LCD fabs are having trouble with the overcapacity, and difficulty managing further price decreases.
Since the third quarter of 2016, LTPS LCD capacity has increased by 30% as four major new fabs have come online:
While LTPS LCD fab UT was greater than 80% in Q4 2016, the surge in new capacity has overwhelmed market demand, leading to sharp price drops on LTPS LCD panels, and UT levels have declined to 60% in Q2 2017. In comparison to the 30% increase in capacity, DSCC estimates that demand has increased only 7% from Q3 2016 to Q3 2017.
Figure 1: Fab Utilization at Selected LTPS Fabs, Q3 2016 to current
The difficulties are not confined to LCD fabs. OLED Capacity has increased 54% in the last year, and this has led to some cases of excess supply. Chinese brands Oppo and Vivo, heavy users of AMOLED panels from SDC, had some excess supply earlier this year, leading to UT adjustment in Q2 and Q3 at SDC’s Gen 5.5 Rigid OLED panel fab in Tanjeong.
This adjustment for OLED seems a more temporary phenomenon, though, as OLED unit demand for these two brands is expected to increase in 2017 from 2016 levels. As reported in the DSCC Quarterly OLED Supply / Demand and Capital Spending Report, Oppo and Vivo are expected together to consume 100 million OLED smartphone panels in 2017, up from 82 million in 2016.
Figure 2: LTPS OLED and LTPS LCD Capacity, Input, UT% Q3 2016 – July 2017
While OLED panel prices have declined as a result of the oversupply, LTPS LCD panel price declines have been more sharp. While the dominant OLED panel maker SDC continues to make robust profits on their OLED lines, LTPS LCD suppliers are losing money and have little room to cut prices further.
The LTPS UT decline can also be attributed to the conversion to 18.0-18.5 x 9 panels in the smartphone market. Many new programs are launching in 2H'17 and demand is waning for 16x9 panels. Most panel suppliers have indicated they expect demand to rebound in 2H'17 and prices to rise due to tight supply for 18x9 panels as these programs launch. The seasonality in 2017 is expected to be unusual due to this panel conversion and Q4, which is usually seasonally soft, is expected to be strong in 2017. Taiwan small/medium shipments were up 12% M/M in July, so the pent-up demand for full frame 18x9 panels should temporarily alleviate this weakness.
As the capacity for OLED panels will continue to grow, the surplus of LTPS LCD capacity is expected to continue indefinitely, causing a big financial headache for LTPS LCD panel makers.
In an event today at the White House, Foxconn Chairman Terry Gou was joined by President Donald Trump, Vice President Mike Pence, Wisconsin Governor Scott Walker, US House Speaker Paul Ryan, and others to announce the first ever investment for LCD manufacturing in the USA.
The planning for this investment stems from before the election, but certainly accelerated after the election. As many of you have read in this blog in the succeeding months, there were as many as seven states in the running for the deal, which in the end will be invested in the congressional district of House Speaker Paul Ryan in southeast Wisconsin.
The event started late, and with the conspicuous absence of President Trump, but Terry Gou thanked the attendees and discussed two main technologies behind the push. Gou referred to the “iPhone revolution”, and discussed the importance of 8K displays (TV displays with a resolution of 7680 x 4320) and 5G networks for mobile phone communications as transforming people’s lives in coming years.
Perhaps addressing questions asked by many in Asia in the display industry, Gou asked the rhetorical: “why in the USA?” answering that “TV was invented in the US, but the US does not have a single LCD fab. We are going to change that.” Gou said that the Hon Hai group, Foxconn and Sharp were all committed to this project.
Gou praised Governor Walker and thanked Jared Kushner for his work in the Office of American Innovation, and said (this was before Mr. Trump had arrived) that he had met three times with the President, and each time he had emphasized the importance of manufacturing in America, and providing high-skill jobs for American workers. Gou indicated that he was joining Trump in supporting ‘Buy American’.
(Pictured L-R) Wisconsin Governor Scott Walker, Vice President Mike Pence, Foxconn Chairman Terry Gou, US Speaker Paul Ryan, Wisconsin Senator Ron Johnson
Gou’s remarks did not include any details on the investment, and that was left for Governor Walker, who spoke next. Walker called this “a great day for the USA, for Wisconsin, and for Foxconn” as this project will be “the single largest economic development project in the history of the state of Wisconsin, and one of the largest in US history” including being the largest investment in terms of the number of jobs. Walker then gave some specifics about a Memorandum of Understanding (MOU) to be signed tomorrow between Foxconn and the state of Wisconsin:
Ryan and Pence also had short speaking points, Pence highlighting this as an “historic day for American jobs in the American heartland”, and saying that companies will continue to invest because “America is back”. Pence then introduced President Trump.
President Trump Remarks on LCD Investment as Vice President Pence and Speaker Ryan look on
In thanking Terry Gou, Trump called him “one of the great businessmen of the world” and praised the Foxconn chairman for vision by saying that “Gou put his faith and confidence in the future of the American economy.” Then, true to form, Trump said that “In other words, if I didn’t get elected he definitely would not be investing $10 billion.” While President Trump sometimes is challenged to distinguish between reality and his personal wishes, I think in this case he has a valid point. One of the main factors behind this investment is the threat of a more restricted trade environment (i.e. a potential trade war with China and Mexico) that Trump made a key part of his campaign message. Trump concluded the remarks with references to other administration priorities: health care, tax reform, infrastructure spending, etc.
What are the implications of this investment to the display industry? While the announcement did not give any specifics about the display fab, based on the discussions in the last few months, we can make some informed guesses:
Last week in the Display Supply Chain Monitor I reported that LGD was considering the use of a TADF (Thermally Activated Delayed Fluorescence) blue emitting material in their OLED devices (DCSM 07.10.2017, “LG Aiming to Adopt Blue TADF Emitter in 2018”). To follow up on this topic with more depth, I had a discussion with Dr. Andreas Haldi, CMO of Cynora, the likely supplier of such a material.
A short description of TADF may be helpful. TADF is one of several different ways to enable OLED material to emit light, as shown in Figure 1. In Cynora’s description, TADF is described as a third-generation material for OLED emission, following Fluorescence and Phosphorescence.
Figure 1: Thermally Activated Delayed Fluorescence – TADF (Cynora)
In all the mechanisms of OLED emission, the task is to take the electrical energy associated with an electron-hole pair (at the top of the chart) into light energy from the organic molecule. Both phosphorescence and TADF make use of Intersystem Crossing (ISC) to capture all of the energy and direct it to emit a photon. TADF also utilizes Reverse Intersystem Crossing (RISC) but redirects the energy into the same emission mechanism as fluorescence. While both phosphorescence and TADF can theoretically reach 100% internal quantum efficiency (IQE), as a practical matter for displays IQE is not a useful metric, and companies in the industry talk about external quantum efficiency, or EQE.
Cynora has been steadily improving its performance for blue TADF, and last week announced a new milestone reached in June. Back in April, Cynora announced that it expects “to introduce a market-ready material by December, with an EQE above 15% and with more than 100h lifetime (LT97) at a typical display brightness and a CIEy color coordinate of <0.1.” At the SID Business Conference in May, they stated that their blue emitter has achieved 15% external quantum efficiency (EQE) at “1000 cd/m² with an emission peak at < 470 nm and a LT97 of > 90 hours (at 700 cd/m²) on a device level.”
I distinctly recall that Mike Hack of Universal Display Corporation commented that “you should not underestimate how difficult it can be to get 10 nanometers”, referring to the difference between Cynora’s claimed performance of 470nm and the target of 460nm. However, in a paper presented last week at the ERPOS conference in the UK, Cynora announced that they had made it halfway there, achieving a 15% EQE with a emission peak at 464nm and a full-width half-maximum (FWHM) of 58nm, although the lifetime performance degraded to 15 hours and will require optimization, according to Haldi.
Figure 2: Cynora Hits New Milestone in TADF Blue Performance
In my discussion with Dr. Haldi, I asked for an explanation of the target performance for lifetime. On its surface, the specification of more than 100 hours to 97% brightness seems woefully inadequate. With an exponential decay, this implies that at 1000 hours emission is more than 25% lower than the start, and at 5000 hours you’ve lost almost 80% of the initial emission. Smartphones will often be used for 6 hours per day, which is 2000 hours per year. LCDs are routinely capable of 50,000 hours to get to 50% brightness; while that may be overkill, in a consumer device the minimum expectation is 10,000 hours of good performance.
Haldi related several factors that explained this seeming discrepancy. The 100h/LT97 spec is specifically constructed as an accelerated lifetime spec to overcome the practical limitation of testing device life – a true test of a 50,000 hour lifetime spec would take almost six years to conduct. First, in a real device, the average brightness of blue will be substantially lower than 700 nits. Second, although the brightness may have a decay, if the decay is predictable it can be compensated (and this compensation is built into devices today). Finally, it is expected that materials used for mass production will have a longer life than those produced in an R&D setting, because the R&D tools and equipment are subject to many changes that can contaminate the material, while mass production systems are maintained in a cleaner state.
A similar question on the specification involves the color point, where the initial claim of Cynora (to achieve a CIEy color coordinate of <0.1 would seem to be inadequate to reach DCI-P3, let alone BT 2020 performance. The specified blue color point for DCI-P3 is (0.150, 0.060) and for BT 2020 it is (0.131, 0.046), as shown in Figure 3, which is close to a monochromatic blue at ~465nm.
Figure 3: BT 2020 Specification on CIE 1931 Color Coordinates
It should be apparent from Figure 3 that small changes in the peak emission affect the CIEy point, and according to Haldi each few nm of change achieves a big jump in CIEy. With reference to the milestones above in Figure 2, the April material had a CIEy of 0.29, with the June material at 0.20. Still these numbers seem nowhere close to the BT2020 spec, but again, according to Haldi, the differences between the R&D environment and performance in the device favors mass production. First, the R&D performance quoted refers to bottom emission, and a CIEy at 0.100 for bottom emission will translate to a CIEy of 0.050 at top emission. Second, for TV, the RGB filter used on LGD’s WOLED structure helps narrow the color point to achieve 0.05.
So what about Hack’s comment on the difficulty of achieving 460nm? According to Haldi, the differences between the phosphorescent mechanism pursued by UDC and the TADF mechanism favored by Cynora favor the TADF approach. In phosphorescence, the higher energy involved in blue emission acts to destabilize the host material, so improvements in color point go hand-in-hand with reduced lifetime. TADF has many more unexplored avenues for research compared to phosphorescence, and the fluorescence mechanism does not harm the surrounding material (as much).
Assuming that they actually achieve their goal of commercialization, Cynora’s blue TADF would represent a major efficiency improvement, and would disrupt the fluorescent emitter material business of Idemitsu Kosan. With respect to efficiency, the TADF performance of 15% EQE represents roughly a factor 2x compared to the incumbent fluorescent emitters, which have an EQE in the 7-9% range today. This is a moving target, though, because fluorescent emitters (presumably from Idemitsu Kosan) have been steadily improving over the last few years. Similarly, Haldi says that TADF will be able to squeeze out more EQE with improvements over time.
Longer term, Cynora plans to introduce green and red TADF emitters, which would represent a direct threat to UDC’s phosphorescent emitter business. Haldi said that up to now, Cynora has spent little time or effort on green or red, concentrating on the biggest opportunity space for OLED in blue, but once they have a business in blue, the other colors will be easier. Haldi mentioned that in Cynora’s research toward achieving a blue emitter, they have already found some materials that are closer to green, and these materials have more efficiency and lifetime. Reaching BT2020 may be a big challenge, though, because it requires a very narrow emission peak (small FWHM) and this is not the strong point for TADF (nor for phosphorescence). With red, they have a different challenge, because with a wide emission spectrum some of the emitted light is infra-red, and therefore the efficiency gets reduced.
When they introduce TADF green and red, Cynora will target to have a better performance product than UDC, Haldi said. Phosphorescent green has a lifetime issue, and phosphorescent red had an efficiency issue, so there are opportunities to have a higher performance product in each case. Further, panel makers are looking to avoid the licensing payments to UDC, and TADF is expected to be introduced without licensing fees.
With respect to manufacturing, Cynora plans to adopt the same outsourcing approach taken by UDC. UDC has contracted with PPG for manufacture of phosphorescent OLED emitter materials, and Cynora has been working with several companies, and will select a partner when needed. The German chemical industry is well suited to this type of work, Haldi said, and the capacity to make the materials will not be any problem. Cynora is looking at 2019 as the real milestone for production, with the expectation that if they have a product available in December 2017, both panel makers and then device makers will require at least 6 months to optimize their products to use TADF.
Finally, Haldi noted that Cynora is looking forward to their TADF Symposium on September 7 in Frankfurt. DSCC’s Yoshio Tamura will be presenting our view of OLED Supply/Demand, and a number of speakers from industry and academia will present the latest findings in the field. Based on the progress of Cynora in recent months and viewing their December milestone, we may see them announce another breakthrough there.
We collect, aggregate and analyze all the publicly traded display supply chain companies’ financial results in our Quarterly Display Supply Chain Financial Performance Report. In the case of the panel suppliers, some of the Chinese and Taiwanese suppliers did not report their Q4’16 results until late April. However, now that they have, we can report their aggregated results. As indicated:
Q1'15 - Q1'17 Display Revenues and Growth
Source: DSCC's Quarterly Display Supply Chain Financial Health Report
Q1'13 - Q1'17 Display Supplier Margins
Source: DSCC's Quarterly Display Supply Chain Financial Health Report
These results invite the question how long will elevated returns last? If we look deep into the past, as shown in the figure below, we see that in both 2003/2004 and 2007/2008 we had periods where gross margins remained above 20% for 4 consecutive quarters. This would imply we have two quarters left. Certainly, both Q2’17 and Q3’17 look to be high gross margin quarters with prices still significantly higher than a year ago. Panel manufacturers appear poised to close more older fabs as new capacity comes online in order to try and keep capacity tight. Companies focused on higher end LCDs for smartphones without OLED capacity coming appear to be the most vulnerable. TVs look to be in tight supply/demand for at least a year which should benefit all large-area a-Si suppliers. However, as more 10.5G capacity comes online in 2H’18, the large display situation may change. Until then, it appears to be one of the best times ever for display companies. In addition, with panel suppliers building capital intensive flexible OLED fabs simultaneously with 10.5G large-screen TV fabs, it is clearly the best of times for display equipment companies. We will discuss these trends more at the upcoming SID Business Conference on May 22nd.
Historical Panel Supplier Gross and Pre-tax Profit Margins
This article is an excerpt from the May 1st issue of The Display Supply Chain Monitor.
As revealed in our Quarterly Display Supply Chain Financial Health Report, which includes a pivot table of all the key results released by publicly traded companies in the display supply chain along with 5-20 slides per company consisting of charts and analysis, a significant number of companies released their Q1’17 earnings results last week. Two companies, BOE and TCL/CSOT, released both Q4’16 and Q1’17 results last week. As a result, it has been a busy past few days for DSCC digesting all this info.
Q1’17 revenues were 3% ahead of consensus and earnings were 45% ahead of consensus Pre-tax profit, net profit and EBITDA margins were all the highest in at least 4 years. AUO management said on the call that this upward business cycle for the display industry may be the longest in the history of the display industry resulting in elevated margins through the year. We made similar comments in a February 13th blog in response to sharp downgrades by Bernstein and JP Morgan, indicating results would grind higher.
AUO guided to 95% utilization, and reported greater than that. They also guided to large-area shipments down mid to single digits and they were down 4%, but average size increased. They guided to low single digit increases in ASPs and they wre up 2.5%. They guided to flat small/medium shipments and they were up 2%. Their component costs were down 1.8%.
For Q2’17, AUO guided for utilization to remain high, similar to Q1 which was over 95%. They guided large-area panel shipments to be down low to mid single digits on capacity limitations and demand for larger sizes. They indicated small/medium panel shipments would remain flattish. Bullish BoAML indicated Q2’17 revenues would be up 1% Q/Q.
For 2017, expect supply/demand growth to be tight all year. Expecting 5% demand and 3% supply growth on an area basis. Their CapEx expected to be up 24% Y/Y to $1.77B. Supply very tight for bezel-less and 65”/75”. For LTPS, although pricing pressure is significant in smartphones, they are allocating LTPS capacity to 13.3” NBs as well. They expect in-cell to rise from 20% - 30% to 40%-50% of their smartphone panel shipments.
On OLED wearables, traditional watch volumes down past 2 years, Swiss watch exports down. 11 types of smartwatches recently introduced at BaselWorld Watch conference. AUO was designed into 9 of those smartwatches. New smartwatch has a narrower bezel. Expects smartwatch shipments to ramp to 1M units per quarter in 2H’17.
BOE’s revenues reached a new record high of $3.4B in Q4’16 and fell 6% Q/Q in Q1’17 to $3.2B, which was up 69% Y/Y. Gross profits fell slower than revenues on higher prices, allowing gross margins to rise to a new high of 29%. Operating income reached a new high of $429M, up 36% Q/Q and over $632M higher than Q1’16. Operating margins also reached a new high of 14%. Net profits of $350M in Q1’17 were also a new high, up 37% Q/Q and over 2000% Y/Y with net margins at 11%.
In addition to displays, BOE also has a monitor and TV OEM business as well as an Intelligent System and Health Services division and has been continuously making investments. Display devices (includes OEM business) was 88% of 1H’16 revenues and 89% of CY 2016 revenues. However, just looking at the panel business, panel revenues 78% of Q4’16 revenues at $2.64B and 71% of Q1’17 revenues at $2.25B. Based on DSCC surveys, BOE’s #1 application on a revenue basis is mobile phones with a 34% share in Q4’16 and a 35% share in Q1’17. TVs were flat at 28% with ASPs rising 2% to $81.3. BOE’s TV panel shipments are around 75% at 32”. On an area basis, TVs dominate with a 54% share in Q1’17, down from 56% in Q4’16. Monitors and tablets gained share in Q1’17 with TVs weaker in Q1.
BOE’s Capex was over $2B per quarter in both Q4’16 and Q1’17. Free cash flow was -$1.7B in Q4’16 and -$1.1B in Q1’17 due to the high capex. The net change in cash was also down over $1B in each of these quarters. It had to issue debt to cover the Capex, amounting to $2.4B in Q4’16 and $1.04B in Q1’17. Fortunately, BOE Technology has a large cash position, over $7B, and a large market cap, over $20B. However, its debt continues to rise causing it debt to equity position to reach a new high of 89%. However, due to its cash position, its net debt/equity ratio is just 26%. BOE Technology also benefits from local co-investors to share the burden of these investments. BOE has often bought these companies out as the business becomes profitable. It has also received around $100M per year in asset and R&D subsidies from the central government and receives even larger subsidies from local governments.
Canon’s revenues rose 24% Y/Y in Q1’17 to $8.6B, its fastest annual growth in years. While its office business rose just 2% and its camera business rose 5%, its Industry/Other business rose 129%. This business consists of its lithography, evaporation, network camera and newly acquired Toshiba Medical Systems businesses and a host of other smaller industrial businesses as well. Operating margins also jumped for this division from 2% to 6%. It sold 20 litho tools in Q1’17, up from 12 in Q4’16 which we believed generated around $310M in revenues. For evaporation, we believe they sold over $400M worth in Q1’17 resulting in total display equipment revenues of $725M and the #1 spot in display equipment. For 2017, they are expecting to sell 86 litho tools v. 37 in 2016.
China Star (CSOT)
China Star is a subsidiary of TCL and only limited information is made available to the public.
China Star’s revenues rose 11% in Q4’16 to $1.03B, its first quarter over $1B. In Q1’17, revenues were down 8% Q/Q while rising 44% Y/Y to $950M. It reported EBITDA results for the first time in Q1’17 which were $376 million producing EBITDA margins of 40%. The company expects its 2017 net profits to rise 50% over 2016.
In Q4’16, its T2 8.5.5G factory reached full production and it began small volume shipments from its new LTPS fab in Wuhan, T3.
Note, it has spun Wuhan off into a separate company that is now publicly listed in Hong Kong. In Q1’17, Wuhan did $118M in revenues, up 30% Q/Q. Wuhan T3 is expected to reach full production by the end of 2017.
CSOT also indicated its 10.5G project started in November and T6 is expected to begin mass production of 43”, 65”, 70” and 75” panels in Q2’19. Its flexible OLED fab, T4, has been launched and will begin production in 2020.
Jusung Engineering announced its preliminary Q1’17 results last week. Revenues were $65.7M, up 46% Y/Y while falling 6% Q/Q and 6% ahead of consensus. Operating income was $10.9M resulting in 17% operating margins, the highest in at least 4 years. Pre-tax profits were $12.8M, resulting in pre-tax margins of 19%, also the highest in years and likely a record. Revenues were led by displays at $35.8M or 54.5% of revenues. According to Dongbu Securities analyst Hul Kwon, Jusung should win LGD’s E6 encapsulation business in Q2’17. For Q2’17, Jusung’s revenues are expected to be $69.7M, up 6% Q/Q and 17% Y/Y. Operating income is expected to be $11.8M, up 8% Q/Q and 50% Y/Y.
LG Display’s revenues fell 10% Q/Q while rising 23% Y/Y to $6.1B. Its revenues were 12% ahead of consensus. Gross margins rose from 20% to 24%, the highest in at least 4 years. With their ASPs declining Q/Q, it appears that the shift in gross margin was largely a result of a mix shift, with lower margin mobile phone shipments down on seasonal weakness and higher margin TV panels up. Operating margins reached 15% with operating income a record high of $891M. EBITDA did rise 8% Q/Q and 113% Y/Y with EBITDA margins rising from 20% to 25%. Growth was certainly impressive Y/Y, but without the non-operating gains EPS was down 17% to $1.65. Net income was $589M, 36% above consensus.
LG guided to ~5% decline in panel shipments on an area basis, and they were down 6.5%. However, producible capacity was down 6.1%, higher than expected, due to allocating capacity to R&D, converting 8.5G and 6G LCD lines to OLEDs, etc. Utilization of that capacity was flat at 82%. They also guided to an increase in blended ASPs. However, blended ASPs were down 5% on smartphone panels under pricing pressure and lower than expected smartphone volumes which carry higher ASPs on an area basis. It is also more difficult for LG Display to raise prices on its LCD and OLED TV panels to its largest customer LGE.
We believe LG sold 12.5M TV panels in Q1’17, making it the #1 TV panel supplier. In terms of revenues by applications, TVs rose 5% and mobile fell 5%, with monitors gaining 1% vs. notebooks/tablets. The shift in mix between TVs and mobile explains the changes in ASPs/area.
LGD generated over $1B in cash flow from operations for the second consecutive quarter. Its cash position fell by $364M.
In terms of guidance for Q2’17, it expects Q1’17 shipments on an area basis to be similar to Q1’17 with TV panel shipments flat to down on trends towards larger panels. Prices are expected to remain stable.
For all of 2017, we believe they are targeting 52M TV panels. They indicated their 60”+ panel volumes will grow 30%. They are targeting more than 10M flexible OLED panels in 2017. CapEx is expected to rise more than expected, they have not yet published their 2017 CapEx data. However, ~70% will go to OLEDs. They expect OLED TV panels to show positive EBITDA in 2017 and positive EBIT in 2019. OLED TV panel production is expected to be 300K/qtr. in 1H’17 and 500K qtr. In 2H’17. OLED TV input capacity is expected to reach 60K substrates/month in 2017. Flexible OLED production at E5 is expected by the end of Q2’17. Flexible OLED production at E6 is expected to start in 2H’18. LG also announced it will start production of OLED lighting panels on an old 5th gen line at 15K substrates/month in 2H’18. LGD’s ADR stock fell 8% on the day earnings were released. Unfortunately, the day earnings were released, a story came out that indicated LGD’s flexible OLED quality was poor and would not be designed into Apple until 2019. In addition, CLSA downgraded the stock after earnings from market perform to underperform.
Revenues fell 1% Q/Q while rising 26% Y/Y to $6.3B. OLEDs drove the quarter with OLED revenues up 12% Q/Q and 32% Y/Y. LCDs were down 17% Q/Q while rising 17% Y/Y. OLEDs were 61% of revenues. Operating income fell with revenues, down 2% Q/Q, and up $1.35B vs. Q1’16. Operating margins were maintained at 18%, vs. -4% in Q1’16. OLEDs accounted for 65% of operating margins.
DSCC believes SDC sold 80M rigid OLEDs and 17M flexible OLEDs for smartphones in Q1’17. Despite seasonal weakness in the smartphone market, OLED revenues continue to grow on strong demand as brands look to sell more OLED-based smartphones which command higher ASPs and generate higher margins. OLEDs appear to be the only display category growing in Q1’17 in smartphones. Samsung’s OLEDs have achieved double-digit Y/Y revenue growth for at least the last 5 quarters and are expanding into more markets. We also showed SDC’s Q1’17 shipments for smart watches, touch bars, VR glasses, tablets, notebooks and digital cameras.
We also believe Samsung sold 8.8M LCD TV panels. LCD revenues were strong Y/Y as Samsung’s yield issues are in the past and prices are significantly higher for large-screen TVs which are also in high demand, although Q1’17 was seasonally weak compounded by a sluggish Q1 Chinese market.
Samsung’s OLED operating profits were up 1% Q/Q and 86% Y/Y in Q1’17 on higher revenues and Samsung’s dominant position in this market. On the other hand, LCD operating profits were down 8% Q/Q in Q1’16 on lower revenues. OLEDs accounted for a 65%/35% share advantage of Samsung’s operating income. OLED operating margins did decline from 21% to 19% on some seasonal weakness while capacity expanded, leading to lower utilization. LCD operating margins are approaching OLEDs at 19% vs. 16% as large-screen, high end TV panel prices continue to rise. In the figure below, we see that OLEDs have accounted for greater than a 50% share of Samsung's operating margins since Q3'15. In Q4'15 - Q2'16, LCDs suffered operating income losses while OLED operating income remained in the black.
Samsung's Display's Revenues and OLED Share
Samsung’s Q2’17 CapEx rose 7% Q/Q and 143% Y/Y to $3.6B. Samsung is outspending the competition in OLEDs, at least in 2017, widening its capacity advantage. Samsung has not yet announced its 2017 target, but is on pace for $14-$15B.
In Q2’17, we believe SDC will produce 15-16M flexible OLED smartphone displays for Apple, but may not be able to ship them due to fingerprint technology issues. Non-Apple shipments are expected to be 80M (15M flex/65M rigid) in Q2’17, down from 97M in Q1’17 due to reductions in orders from Chinese brands Oppo and Vivo where the market has slowed. SDC guided to intense competition in mid-range and lower price categories with LTPS LCD in oversupply. In LCDs, we expect LCD TV panel volumes to rise to 9.2M units in Q2’17 as demand improves. Strong focus on most profitable categories - large-size, UHD and curved.
For all of 2017, for LCDs Samsung will continue to focus on UHD, large sizes, bezel free, etc. DSCC expects Samsung to ship TV 37.8M LCD TV panels in 2017, down 20% from 2016 on the closure of L7-1. In the case of OLEDs, SDC will continue to focus on flexible OLEDs and expanding OLEDs into new applications. For smartphones, rigid target is 350M, flexible target is 160M. Shipment targets for other applications are revealed in this report. With utilization down in Q2’17, there maybe some opportunity to increase other applications more.