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Takeaways from DSCC’s Latest Display Supply Report

1/29/2018

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Last week we delivered our latest Powerpoint report dedicated to the findings from our Quarterly Display Capex and Equipment Service. Deliverables included
  • LCD and OLED fab schedules from 2016 - 2022
  • # of process steps by tool type for 11 different a-Si, LTPS and oxide TFT processes as well as frontplane processes
  • Tool prices at 10 different glass sizes for 23 different backplane segments.
  • Equipment spending and bookings for LCDs, OLEDs, 40 different equipment segments, etc. in units and revenues by region, manufacturer, fab generation, etc.
  • Display capacity segmented into OLEDs, LCDs, mobile, TVs, region, fab generation, panel manufacturer, etc.
Some of the key takeaways included:
  • LCD capacity will remain significantly higher than OLED capacity throughout the forecast despite significantly faster growth for OLED, 36% CAGR vs. LCDs at 6%. OLED’s share of total display capacity is only expected to reach 12% by 2022. Total display capacity is expected to grow at an 8% CAGR.
  • Conversely, in comparing LTPS/oxide LCD vs. mobile OLED capacity, we show mobile OLED capacity overtaking mobile LTPS/oxide LCD capacity in 2018 with LCDs growing at a 3% CAGR vs. OLEDs growing at a 35% CAGR as shown in Figure 1.. By 2022, OLEDs are expected to have a 72% share of advanced mobile display capacity. Capacity growth along with form factor, display performance, battery life, etc. contribute to why smartphone brands will increasingly adopt OLEDs going forward.
  • China is expected to account 70% of display equipment spending from 2018 – 2022. In just LCDs, China is expected to account for a 79% share, 64% in OLEDs.
  • While Samsung Display led in display equipment spending in 2016 and 2017, BOE is expected to lead in 2018 and 2020 with LG Display leading in 2019 and China Star leading in 2021. From 2018 – 2021, BOE is expected to lead with a 24% share followed by China Star at 15.5%, LG Display at 14.7% and Samsung Display at 13.9%.
  • China’s display capacity is expected to grow at a 17% CAGR from 2017 – 2022 with no other region growing at more than a 3%. As a result, China’s share of display capacity is expected to rise from 35% in 2017 to 50% in 2022 as shown in Figure 2. Interestingly, Taiwan’s capacity is expected to be slightly higher than Korea’s this year due to Taiwan not closing or converting older fabs while Korean suppliers do. In addition, Taiwan suppliers have avoided more capital-intensive OLED production, but may convert older fabs to less capital-intensive micro-LEDs. In the case of LCD capacity, China’s dominance is slightly higher reaching a 52% share from 2021 with Taiwan ahead of Korea as shown in Figure 3. In the case of OLED capacity by country, Korea holds a huge advantage over China at 91% to 7% in 2018, but that is expected to narrow to 57% to 40% in 2022 due to China’s spending plans as shown in Figure 4.
  • In terms of display capacity by fab generation, 8.5/8.6G is expected to lead throughout the forecast, peaking in 2018 as shown in Figure 5. It will rise at a 7% CAGR, but will lose share to 10.5G from 2019 which will rise to an 18% share. 6G for mobile displays will grow at a 10% CAGR and maintain a 15% share. 10/10.5G is expected to grow at a 46% CAGR. Looking at just LCDs, 10.5G will rise to a 19% share on 44% CAGR with the 6G LCD share smaller at just 11%. Looking at just OLEDs, 5.5G actually led in 2016 and 2017 in capacity, but 6G is expected to lead from 2018 reaching a 49% share in 2022 as most new fabs install capacity at this size. 6G is expected to remain the largest size LTPS backplanes that can be produced in our forecast. 8.5G is expected to overtake 5.5G in 2019 as LG adds 8.5G capacity in China. 10.5G OLED production is expected to start in 2021. 

Figure 1: Mobile Capacity by Technology (OLED vs. LTPS/Oxide LCD) 
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Source: DSCC’s Quarterly Display Capex and Equipment Service
Figure 2: Display Capacity by Country 
Picture
Source: DSCC’s Quarterly Display Capex and Equipment Service 
Figure 3: LCD Capacity by Country 
Picture
Source: DSCC’s Quarterly Display Capex and Equipment Service
Figure 4: OLED Capacity by Country
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Source: DSCC’s Quarterly Display Capex and Equipment Service
Figure 5:  Display Capacity by Generation
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Source: DSCC’s Quarterly Display Capex and Equipment Service
  • By manufacturer in terms of total display capacity, BOE is expected to become the #1 supplier on a capacity basis in 2019 and widen its advantage over LG and Samsung on significantly faster growth with BOE growing 16%, LG Display 3% and Samsung flat as shown in Figure 6.  China Star is expected to rise to #4 in 2022, overtaking Innolux. Looking at just LCDs, BOE overtakes LG Display for the #1 position in 2018 and is expected to have an even larger advantage as LGD and SDC’s LCD capacity shrinks over the forecast period at a -2% and -3% CAGRs respectively. The top 10 are the same between LCDs and total displays.  In total OLED capacity on a square meter basis, LG Display is expected to overtake Samsung in 2020 with BOE #3. In just mobile OLED capacity, Samsung will maintain a dominant position throughout the forecast, with its share not falling below 50% until 2021.  LG Display is expected to be #2 until 2022 when BOE overtakes them.
  • In terms of LCD suppliers’ transition to becoming OLED suppliers, we can see some interesting results in Figure 7. This figure only shows companies producing both OLEDs and LCDs. As indicated, Tianma is expected to have the highest share of their capacity producing OLEDs from 2020, which makes sense given their smartphone and small/medium display focus. LG Display is expected to be second from 2021 followed by Samsung. Samsung currently has the highest share of their capacity dedicated to OLEDs at 20%, but lack of large-screen OLED investments will cause them to fall in the rankings. . 
For more information on DSCC’s Quarterly Display Capex and Equipment Service, please contact Dustin@displaysupplychain.com or call 832-451-4909.
Figure 6:  Display Capacity by Manufacturer
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Source: DSCC’s Quarterly Display Capex and Equipment Service
Figure 7:  OLED Share of Internal Capacity
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Source: DSCC’s Quarterly Display Capex and Equipment Service
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Are OLED Phones Worth the Premium?

1/3/2018

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Perhaps the most important development in the display industry in the last few years was the decision made by Apple to shift to OLED displays for its flagship iPhone.  That decision, made in the first quarter of 2016, set off a chain of expansions in OLED capacity that has driven the display equipment industry to new heights, and sorted the display industry into ‘haves’ and ‘have-nots’ depending on each company’s OLED capabilities.  Now that Apple has released its iPhone X at a substantial price premium, we’ve seen and heard a few signs that suggest that Apple might be asking for too much, so it’s worth considering: is the OLED display worth the price?
 
Apple stock took a hit on Tuesday, December 26th, the first trading day after the Christmas holiday weekend, falling about $5 or nearly 3%, after several analysts cut their forecast for iPhone shipments.  While the Tuesday drop knocked $25 billion out of Apple’s valuation, a bit of perspective is in order, since the stock is still up 47% for the year.
 
The main reason for the slowdown in iPhone production and sales, as cited by several analysts in this article in Bloomberg (
https://www.bloomberg.com/news/articles/2017-12-25/analysts-cut-iphone-x-shipment-forecasts-citing-lukewarm-demand), is the high price of the iPhone X.  Cowen was cited as saying that customers are opting for cheaper models of the iPhone, and JL Warren Capital LLC said the cutback stems from “weak demand because of the iPhone X’s high price point and a lack of interesting innovations”. 
 
Some other analysts, notably well-known Apple analyst Gene Munster, formerly of Piper Jaffrey but now Co-Founder of Loup Ventures, have suggested that the pullback on production schedules is part of the normal cycle of an Apple product launch: Apple ramps up huge volumes at start-up, ordering more than necessary, then pulls back in December.  Munster believes that the iPhone X will represent as much as 50% of iPhone sales in 2018, driving Apple’s average selling price (ASP) up by 15%.
 
On top of the Apple question, DSCC has heard reports that several Chinese phone makers have lowered their plans for flexible OLED panels due to the high prices for these panels from Samsung (“Will There be a Slowdown in Equipment Bookings?” DSCM 12.18.17), potentially shifting to rigid OLED or LCD panels.

​Apple’s current product line is an excellent test case of the value of flexible OLED display panels.  With the iPhone 8, iPhone 8 Plus, and iPhone X, we see a smaller LCD, a larger LCD, and an OLED with very similar specifications at increasing price points.  The following table gives the comparative specifications of the three models:

Picture
So, to summarize, the only meaningful differences between the iPhone 8 Plus and the iPhone X that are not directly related to the display are the security system and the price.  While Face ID may be considered a remarkable technological achievement, reviews of the system describe it as a drawback as often as a benefit.  Which leaves the conclusion that consumers are paying $200 for the OLED display, as a premium over the LCD display.
 
In other words, for $200 the iPhone X buyer is getting:
  • 11% more screen area (the reality is slightly less, if you account for the “notch” required for the Face ID).  Note that for only $100 (or less, considering the other features in the mix) the buyer of the 8 Plus gets 37% more screen area)
  • 30% more pixels (again, the 8 Plus buyer gets 107% more pixels)​
  • 18% smaller device size (area) – as the owner of an iPhone 7 Plus, I think this is quite important; the Plus phone is too big to fit comfortably in my pocket
  • 14% less weight
  • Better contrast, viewing angle, response time, etc. from the OLED

​Aside from the physical and performance attributes, an important part of the value proposition of any phone, especially a premium phone like the iPhone, is as a status symbol.  A phone is far more likely to be observed by friends, acquaintances, co-workers and family than any other electronic device, and more than other potential status symbols like cars or jewelry.  So we shouldn’t underestimate this intangible aspect of the OLED display. The iPhone X’s rank as a status symbol is closely related to its physical appearance being different than its 8 predecessors – if it’s not noticeably different, it’s not an effective symbol.  This will come into play again when the successor or step-up model appears in 2018. With this value proposition, Munster expects that fully 50% of iPhone buyers in 2018 will take the X.
 
While Apple (and Samsung brand) can manage to charge an extra $200 for the flexible OLED display, the major Chinese brands have concluded that they can’t, or at least they have concluded that they can’t charge such a premium and expect to sell high quantities of these phones. However, the omission of OLED by these brands is likely to reinforce the reputation of the OLED ‘brand’ as a premium technology.
 
As a marker of their premium status, flexible OLED panels in phones are dominated by the top two brands.  Figures 1 and 2 show some figures from DSCC’s recently released Quarterly OLED Shipment and Fab Utilization Report. This report tracks OLED panel shipments for 11 different applications by screen size, form factor, resolution, supplier and brand, and includes forecasts for the major brands. 
 
 
Apple and Samsung combined to capture nearly 95% of all flexible OLED panels in 2H 2017, and are expected to consume almost 90% of these panels in 2018:
Figure 1:        Flexible OLED Unit Share of Smartphones by Brand 
Picture
Source: DSCC Quarterly OLED Shipment and Fab Utilization Report
Rigid OLED phones, not expected to figure in Apple’s product line-up, are dominated by Samsung brand, with many of the Chinese smartphone brands using these panels.  The Chinese brands may be betting that consumers will recognize the picture quality benefits (and the ‘brand’) of OLED without caring whether the panels are made on flexible substrates.  I’m inclined to agree that as long as the smartphone device itself is rigid, consumers don’t care what substrate material is used, but China brands will need to work to get the best performance out of rigid OLED on such items as device thickness, weight, and fill factor.
 
All of this leaves Samsung Display in an enviable position in the industry, as the only company with the capability to produce large volumes of flexible OLED displays.  They can charge a substantial price premium for their phone displays (DSCC understands that the iPhone X display, inclusive of touch and cover glass, costs $120, compared to $55 or less for the comparable iPhone 8 Plus) and build volume and experience while the rest of the industry struggles to make a few (a few million, which is still a tiny portion of the smartphone market). DSCC’s Quarterly OLED Supply/Demand and Capital Spending Report quantifies just how big an advantage this is, as shown in Figure 3.
Figure 2:        Rigid OLED Unit Share of Smartphones by Brand 
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Source: DSCC Quarterly OLED Shipment and Fab Utilization Report
Figure 3:        OLED Smartphone Panel Output by Manufacturer, 2016-2022
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Source: DSCC Quarterly OLED Supply/Demand and Capital Spending Report
While Samsung’s share of OLED panel output is expected to fall from 96% in 2017 to just over 50% in 2022, its share of revenue will be higher since Samsung will be making larger screens with more complex form factors, and its share of profits may approach or even exceed 100% of the industry.
 
With the huge capacity expansions taken in 2017 in their A3 and A4 fabs in Tanjeong, Samsung has decided to delay its A5 expansion there. As of October 2017, they had planned four phases of A5 for installation in 2018, and as of today they plan only the first phase installed in October of this year, with additional phases in later years. They have apparently decided to keep OLED panel prices high, and realize that they have enough capacity to meet market demand.
 
Back to the title of the article: are OLED Phones worth the premium?  Apple thinks so, and so does Samsung. For a technology product that has a greater connection with an individual’s personality and lifestyle than any other product in history, I think a lot of consumers will agree.
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    • US Events >
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      • 4th DSCC Japan Seminar
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      • 2nd DSCC Korea Conference
      • 2019 IMID / DSCC Display Industry Forum
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