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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
Figure 1: Mobile Capacity by Technology (OLED vs. LTPS/Oxide LCD)  Source: DSCC’s Quarterly Display Capex and Equipment Service Figure 2: Display Capacity by Country  Source: DSCC’s Quarterly Display Capex and Equipment Service Figure 3: LCD Capacity by Country  Source: DSCC’s Quarterly Display Capex and Equipment Service Figure 4: OLED Capacity by Country  Source: DSCC’s Quarterly Display Capex and Equipment Service Figure 5: Display Capacity by Generation  Source: DSCC’s Quarterly Display Capex and Equipment Service
Figure 6: Display Capacity by Manufacturer  Source: DSCC’s Quarterly Display Capex and Equipment Service Figure 7: OLED Share of Internal Capacity  Source: DSCC’s Quarterly Display Capex and Equipment Service
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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:  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:
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  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  Source: DSCC Quarterly OLED Shipment and Fab Utilization Report Figure 3: OLED Smartphone Panel Output by Manufacturer, 2016-2022  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. |
AuthorsRoss Young Archives
December 2018
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