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After the ceremonial groundbreaking at Foxconn’s “Wisconn Valley” complex in Mount Pleasant, Wisconsin (see my last blog post), President Trump visited a nearby Foxconn pilot TV production site where, with leaders from the Wisconsin political scene and from Foxconn, Trump celebrated the launch of the first LCD manufacturing site in the USA (and the first outside of Asia). The political presentation started with Wisconsin Governor Scott Walker, speaking in full campaign mode as he is running for re-election this fall. Walker highlighted the project as good for the people and the taxpayers in Wisconsin. In response to critics in his state who have said that the $3 billion in state subsidies (and $4.5 billion in total subsidies, including local government subsidies and infrastructure improvements) is too much, Walker claimed that the Foxconn plant would bring a total of more than $50 billion in business to the state in the coming years, eighteen times as much as the state subsidy, and that along with the 13,000 jobs promised by Foxconn, an additional 20-25,000 secondary jobs would be created. Wisconsin Governor Scott Walker  Walker described the promise of the Foxconn complex as turning Wisconsin from a “brain drain to a brain gain”, a theme repeated by the next speaker in the line-up, US House Speaker Paul Ryan, in whose district the Foxconn site sits. Speaking about the long-term promise of the deal and the strong economy in his own state and the US as a whole, Ryan said that “Our best days are ahead of us because of projects like this.” After Ryan, there was a short interlude where staffers put the presidential seal on the podium, leading the audience to expect the president, but instead followed Foxconn Chairman Terry Gou. Gou praised President Trump for his support of manufacturing, saying “If it were not for you, President Trump, I would not be here today.” Gou noted that over the last 18 months he has talked with the president several times, and “every time I see President Trump, he always says 3 things – jobs, jobs, and jobs”. Foxconn Chairman Terry Gou at Wisconn Valley Groundbreaking Celebration  Gou noted that this plant would be “the first and only TFT LCD fab in the USA” and praised the people of Wisconsin for their warm spirit and hard work. He said that he was pleased to contribute to the economy in Wisconsin, because “a strong Wisconsin is good for the MidWest, a strong MidWest is good for the USA, and a strong USA is good for the world”. Finally, President Trump arrived to take the scene, and marveled at the size and scope of the project, with the total manufacturing area exceeding 20 million square feet (2 million square meters). Then the president called to the stage the Japanese CEO of Softbank, Masayoshi Son, whose visit to then-President-elect Trump in Trump Tower in December 2016 formed the genesis of the Foxconn deal. President Trump with Softbank CEO Masayoshi Son  According to Trump, at the initial meeting Trump thought that Son wanted to invest $50 million in the US, when his real plan was $50 billion. Son stated that he promised that Foxconn would make a big investment in the US without requiring any input from Foxconn CEO Terry Gou “because Terry is my best friend”, to which Trump asked “what about me, Masa?”
Son also praised the 45th president, saying that he “could not have decided for this investment before this president.” Trump praised Son in return, saying that Softbank’s investments exceeded the initial $50 billion and had now reached $72 billion, not including the Foxconn project. Trump also stumped for Governor Walker, praising his role in the project, and said that “America is open for business.” Trump then turned to the subject of trade, stating that “we are demanding fair and reciprocal trade” and “I have a lot of respect for China, President Xi is a friend of mine, but we want to have a fair and balanced relations” and that the current trade deficit ($375 billion in 2017) must come down. Trump rambled through his justifications for other recent trade actions against Canada, Mexico, and the EU, saying about the euro zone: “If you don’t want our agricultural products, we don’t want your cars.” After discussing several other political topics such as health care and the upcoming Supreme Court vacancy, Trump closed with a characteristic overstatement of the Foxconn project, calling it “the Eighth, really the Eighth Wonder of the World”. If Foxconn eventually follows through with building a Gen 10.5 LCD plant next to the currently-planned fallback Gen 6 facility, then it may end up being the eighth Gen 10.5 plant in the world, and we may wonder at how Foxconn will manage to compete with the first seven.
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In a glitzy and gala ceremony today in Mount Pleasant, Wisconsin, Foxconn broke ground on the first large-scale TFT LCD fab outside of Asia, and the first in the USA, in a ceremony highlighted by the appearance of President Trump. I had the good fortune, and apparently the right connections, to receive an invitation to the event, which was accompanied by an extensive demonstration of the technologies that Foxconn hopes to bring to the project, ranging from Artificial Intelligence to personal fitness, and from farming to brain surgery. Invitees (I was given a “VIP” badge) were asked to park at a nearby mall, and were driven to a Foxconn site for a celebration ceremony. We did not observe the actual groundbreaking, which took no more than a few minutes, but saw it on a large-screen presentation: (R-L: Paul Ryan, Terry Gou, Donald Trump, Scott Walker, Foxconn employee #1 C.P. Murdoch)  The building for the Groundbreaking celebration was a facility built recently by Foxconn for pilot production, training, and small-scale assembly of TVs. The facility was a 120,000 square foot (11,000 square meter) site a few minutes’ drive from the site of the future “Wisconn Valley Science and Technology Park” where the TFT LCD fab will be located. For the site of the celebration, Google Maps shows only a partially completed shell, but the site entrance is a shiny new building: Site of Foxconn Wisconsin “Wisconn Valley” Groundbreaking Celebration per Google Maps  Entrance to Foxconn Wisconsin “Wisconn Valley” Groundbreaking Celebration  Inside the building we were treated to an impressive presentation of Foxconn technology, covering a wide gamut of subjects. The presentation included a 1:1000 scale model of the future vision of the Foxconn complex. I decided to place my car keys at the bottom of the scene to give an impression of the size of the model. Scale Model of “Wisconn Valley” Science and Technology Park  The scale model seemed to me to be about the same size as a Gen 10.5 glass substrate (2940mm x 3370mm). I may have been the only one in attendance to understand the irony, though, as most of the attendees had little or no knowledge of TFT LCD manufacturing or Foxconn’s recent decision to shift to a much smaller Gen 6 fab (1500mm x 1850mm). The scale model, though, still represents Gen 10.5 manufacturing, because near the center of the picture I can see the model of the Corning glass plant, the long building taller than its neighbors. Since Corning’s fusion forming process is a vertical draw process, their glass melting buildings tend to be much taller than typical manufacturing sites. With a closer view of what Foxconn labels Area 1b (1a is a commercial site), the Corning site is on the left in the picture, TFT LCD and color filter fabs are in the center, and assembly operations are on the right. Scale Model of “Wisconn Valley” TFT LCD area  Across from the technology demonstration was a pilot assembly line for LCD TV. We had heard from prior discussions that Foxconn was training workers on a pilot assembly line, and the line was ready for all visitors to see. LCD TV Assembly Line at Foxconn Site  The facility included a manufacturing “command center” with extensive information available for analysis of performance: Command Center in Foxconn LCD TV Manufacturing Site  One of the banners in the Command Center area indicated that the daily production plan was for 380 70” TVs. Undoubtedly this was not the actual plan for Thursday June 28th (because of the groundbreaking celebration), but it’s a plausible figure for production at an early stage as Foxconn works to ramp up TV assembly. I spoke with one of the workers on the production line, who was responsible for quality audits. The man said that he greatly enjoyed his work; he started the work in November and expressed pride in building a new venture. At the end of the production line were some boxed Sharp 70” Aquos TVs. It’s unclear what was the destination for this product, since Sharp does not have the rights to sell Sharp brand TVs in the USA (Sharp sold the rights to its brand for TVs in the USA to Hisense in 2015, and the Chinese company holds these rights until 2020). Perhaps the TVs are destined for Canada, but they are labeled as “Assembled in the USA”. 70” Sharp Aquos TVs Assembled at Foxconn Site   While the TVs on the production line were from Sharp brand, we did see a representation of another brand associated with Foxconn’s efforts in the USA: Flying Eagle. Whereas we had heard a rumor that Sharp would introduce Flying Eagle brand TV sets in the USA later this year, and I saw a Flying Eagle logo on one of the production robot arms used on the assembly line, the Flying Eagle portion of the technology demonstration featured the use of displays in a type of virtual reality set-up for a fitness exercise, with performance indicators on screens to the left and right Flying Eagle Technology Demonstration at Foxconn Groundbreaking Celebration  The technology demo also included Innolux, highlighted as a Foxconn company. One banner labeled Innolux and Sharp as “Foxconn Group LCD”, and claimed that this group was #1 worldwide in commercial and military aircraft cockpit LCDs, with >95% market share. The Innolux section also included a demonstration of “mini LED”, actually a full array miniLED backlight with 1296 zones. The 65” display had impressive performance of 1,000,000:1 contrast, 8K resolution and a color gamut of 94% of BT-2020. 65” LCD with Full Array MiniLED Backlight  After viewing the technology demonstration, attendees were asked to sit for speeches by the visiting dignitaries. I will cover those presentations in my next blog.
By Bob O'Brien I wrote this piece originally for our weekly newsletter, the Display Supply Chain Monitor, right after the 2016 election. Originally published on November 14th, 2016, it holds up pretty well and is likely interesting to DSCC blog readers. The astonishing and unexpected election of Donald Trump for President of the United States brings the issue of free trade and protectionism to the front of the national agenda. Since the Flat Panel Display industry consists of a global supply chain that depends on free trade, a shift towards protectionism may have a profound impact on the industry in the coming years. The political firestorm against free trade is not limited to Donald Trump; during the campaign both Trump and Hillary Clinton stated their opposition to the Trans-Pacific Partnership (TTP) trade deal, and in the primaries Clinton’s opponent Bernie Sanders drew tremendous crowds with a political program that (among other things) strongly opposed trade deals. The Belgian region of Wallonia recently held up an EU-Canada trade agreement (CETA), and a corresponding deal between the EU and the US, the Transatlantic Trade and Investment Partnership (TTIP) is now considered dead. Far beyond blocking future trade deals, free trade opponents want to roll back existing trade agreements, and/or alter the terms of trade in profound ways. Trump has promised to renegotiate the North American Free Trade Association (NAFTA), and to impose up to 45% tariffs on goods imported from China. He has criticized US companies, like Apple in consumer electronics and Ford in automobiles, for building their products outside the US. Before discussing the possible policy changes of a Trump administration, it’s worth looking at some of the history of the display industry and the impact of free trade deals on the structure of the industry. The growth of the flat panel display industry was co-incident with an historic growth in world trade. After the end of the Cold War, EU expansion brought Central and Eastern Europe into a common trade bloc. NAFTA was signed in 1994 by President Clinton (a fact hyped by Trump during the campaign) and ratified by a Republican Senate. International merchandise trade grew much faster than GDP, as shown in Figure 1, but more recently this trend has slowed, and the WTO recently estimated that trade growth in 2016 will be less than GDP growth for the first time in decades. Figure 1: World Merchandise Trade & GDP Growth  One of the most important factors driving trade growth in general, and the growth of the flat panel display industry in particular, was the Information Technology Agreement (ITA) signed in 1996. The ITA eliminated tariffs on a wide range of IT goods, not only computers but also computer monitors. Starting with 29 countries, it has since been expanded geographically to cover 82 countries, and the scope of products covered now includes such items as tablets and smartphones. Because of the ITA and more generally the free trade environment in the 1990s and 2000s, most trade in flat panel display products, especially end-products, crossed borders without tariffs. This tariff-free system encouraged the development of a global supply chain in the FPD industry, first in notebook computers, then in computer monitors. FPD clusters formed, first in Japan, then in Korea and Taiwan, because FPD makers could build huge economies of scale and enhance learning effects to rapidly improve both cost and performance of LCDs. Once these global supply chains became entrenched for the IT industry, the LCD juggernaut overwhelmed the CRT and PDP industries to dominate the TV space. During the time leading up to the global financial crisis of 2008, it was unchallenged economic orthodoxy that trade growth was an important driver of overall economic growth, but since that time the political underpinnings of free trade have been fraying all over the world. The election of Trump is just the latest in a series of signs that the trend towards freer trade may reverse. Trump’s campaign rhetoric on trade resonated with many voters because it is undeniably true that manufacturing employment in the USA has declined dramatically since the turn of the century, as shown in Figure 2: Figure 2: US Manufacturing Jobs 1980 – present  Although the display industry was only one small part of this trend, it was an important part, especially with respect to the 2016 election, because much of display industry manufacturing was in the “battleground” states. At the time that NAFTA was signed in 1994, there were 20 or more manufacturing plants in the US making CRT and CRT projection glass, tubes, and TVs, with many more feeder plants producing metal parts, components, etc. In Figure 3, I have placed many of these plants on a Map of the 2016 election. There was a significant concentration of the CRT TV industry in Ohio and Pennsylvania, two states whose combined 38 electoral votes are almost the entire margin of the Trump victory. Figure 3: US-Based CRT & TV Industry Manufacturing Sites, circa 1995, on Map of 2016 Election  The areas where these plants were located, with a few exceptions, voted heavily in favor of the winner. In the table below you can see the city or town with the display industry plant, and the % vote for Trump in the surrounding county. Although there were a few plants located in major urban areas like Chicago and Memphis that went for Clinton, many of the plants were in more suburban or rural areas and went heavily for Trump.  While undoubtedly these specific plants would have shut down anyway (CRTs are no longer with us), the corresponding replacement product, LCD TV, has effectively zero manufacturing employment in these areas. While the display industry was only a part of this seismic shift (automobile manufacturing was a larger part), its role cannot be dismissed.
Now that we are on the way to a Trump presidency, what are the implications for display products? Trump’s proposals to withdraw from NAFTA and to impose a 45% tariff on goods from China would have an immediate and profound impact on the TV market in the US, because the US TV market is composed nearly entirely of imports from Mexico and China. In 2015, there were 43 million TVs imported into the US, 19.6 million or 45% were imported from China and 21.9 million of 50% were imported from Mexico. TVs imported into the US from Mexico are, under NAFTA rules, duty-free. TVs imported from China are subject to a duty of 3.9% if they incorporate a recording device (5% without a recording device), and since a USB input is considered a recording device, nearly all TVs of any size sold in the US now have a USB input. So for a typical low-end TV imported from China, with a wholesale price of $200 the duty adds $8 to the cost, not a meaningful part of a retail price of $250. If Trump’s 45% duty were imposed, this would change $8 to $90, and likely shift the retail price from $250 to $350. Similarly, for a higher-end set assembled in Mexico with a retail price of $1000 and a 30% retail margin, today the tariff is zero, but Trump would replace NAFTA with a 35% tariff on Mexico imports, meaning a $245 tariff, and likely $300-400 added to the retail price. Like many in the display industry or in many other businesses, my reaction to Trump’s anti-trade proposals is “that will never happen”, but that’s what most knowledgeable people said about a Trump presidency. The idea that these proposals will be implemented can no longer be dismissed. So how would the display industry change if Trump’s anti-trade agenda was implemented? First, brands and OEMs would look to find alternate locations for TV assembly. Vietnam is already a significant manufacturing center for smart phones; manufacturers seeking to avoid China-specific tariffs would likely move there first. Second, the current configuration of TV assembly plants in Mexico would not be viable, and those imports would be replaced either by direct TV imports from Asia or by imports of LCD panels and assembly in the US. With respect to LCD panels, a China-specific tariff would make it untenable to source panels from the many LCD fabs rising in China, so TV panels bound for the US market would need to be sourced from Taiwan, Korea, or Japan. Such a Trump anti-trade policy would not appear without major reactions from the countries affected. While Mexico has little direct influence over the display industry, the reaction of China to Trump moves could be catastrophic to some players in the industry with significant sales in China, such as 3M, Corning, and Applied Materials. In the free trade, low-tariff world of the last 25 years, the display industry and the wider electronics industry has formed a cost-effective global supply chain which has provided billions of innovative products that are increasingly powerful at ever-lower costs. If those benefits are not valuable enough for free trade to remain politically viable, as we have seen in the US election, then that global supply chain will be disrupted, and all of the participants in the industry will be affected. by Bob O'Brien The date for the Foxconn Groundbreaking Ceremony is again set for June 28th, and several changes in the schedule have occurred in order to accommodate the schedule of President Trump, according to this article from the Milwaukee Journal Sentinel.
Last week, I had been frustrated after receiving my invitation letter to the event. The original "Save the Date" email that I received on May 10th had indicated the event would be on June 28th. Then I received an updated note on June 1st indicating that the date had been changed to the afternoon of June 29th. Finally on June 15th I received the invitation to the event, on June 28th. Since I had just changed my hotel reservations on the 14th, I was annoyed at the change, but speculated that it might be because of the President, and it looks like that will be the case. Also this week we've seen news that two Foxconn companies have purchased ownership stakes in US TV maker Vizio. Hon Hai Precision Industries will acquire a 3.1% stake in Vizio for $24.99 million, and Innolux will take a 4.14% stake in the company for $44.99 million. Foxconn had previously owned a 6.6% stake in Vizio, so with the new investments the Foxconn companies share has increased to 13.84%. These combined Foxconn purchases imply a market capitalization for Vizio of $956 million, less than half of what Vizio owners were supposed to receive from a disastrous acquisition deal from LeEco in 2016. The Foxconn-Vizio deal signals that the TV sets coming out of their Wisconsin facility may be Vizio brand. Although Foxconn owns a controlling interest in Sharp Corporation, the rights to the Sharp brand for TVs in the USA belong to Hisense until 2020, in a deal made before the Foxconn acquisition. This may help Vizio avoid tariffs imposed on TVs imported from China. While the US Trade Representative removed TVs from its list of initial tariffs, President Trump's direction to add an additional $200 billion in Chinese imports to receive punitive tariffs means that TVs will almost certainly go back on the list. Therefore, Vizio needs to shift production away from China. With President Trump also threatening to pull out of NAFTA, producing TVs in the United States might be the best option for Vizio. Finally, an article in the Milwaukee Business News (which quotes me) confirms a rumor of several weeks ago that the Foxconn plant will not be a Gen 10.5 plant as originally planned, but rather will be a much smaller Gen 6 plant. Gen 10.5 glass substrates are 2940mm x 3370mm (about 10 feet by 11 feet), while Gen 6 are 1500mm x 1850mm (about 5 feet by 6 feet). Foxconn had denied those rumors four weeks ago, but Foxconn's Louis Woo confirmed them to the BizNews. Apparently the investment required for a glass plant was a significant barrier to Gen 10.5, but glass investment will not be required for Gen 6, as Corning has the capability and capacity to make Gen 6 glass in its Harrodsburg, Kentucky plant. I have my invitation to the groundbreaking next week, you can be sure I'll be posting about that after the event. The Q2’18 issue of DSCC’s Quarterly OLED Shipment and Fab UtilizationReport shows that Samsung Display’s utilization has begun to improve significantly as the build has started for new smartphones from Apple, Samsung and other brands. As shown in Figure 1, SDC’s rigid fab utilization is expected to exceed 80% in June, up from 76% in May. The rigid production primarily occurs in their A2 fab, which has monthly substrate input capacity of 175K substrates per month. A2 glass input bottomed in February and has increased every month since as the price gap between rigid OLEDs and LTPS LCDs has continued to narrow. 5.5”-6” rigid OLED prices are expected to fall to as low as $23 in Q3'18 in the case of lower specification panels with a price difference vs. LTPS LCD falling to around $5. Since OLED phones are typically priced quite a bit higher than LTPS LCD phones, rigid OLED phones offer greater profit potential for smartphone brands. Therefore, we expect rigid OLED fab utilization to remain high through the rest of the year. In the near term, panel suppliers including Samsung likely wished they added more rigid instead of flexible OLED capacity. Flexible OLED fab utilization has also rebounded, but fell much further than rigid capacity at 31% in April. However, it improved to 37% in May as input started for 5.85” panels for the next iPhone. In June, utilization rose to 52% as input started for the new 6.46” iPhone X Plus. We expect utilization to continue to improve through the rest of the year for this fab as well. The improvement in utilization in both rigid and flexible fabs should boost returns for materials suppliers and laser suppliers such as UDC and Coherent. An important question for Samsung’s flexible fabs is how much does utilization decline in Q1’19 after the initial build for the next iPhones and do they have to idle any capacity in 1H’19 as they did in Q1 and Q2 2018. A lower price gap with rigid OLEDs and LTPS LCDs and form factors that take advantage of their flexible capability such as curved, foldable or rollable will certainly help to boost demand and prevent future idling of capacity. OLED penetration into less seasonal markets will also help. In terms of SDC’s Q2’18 revenues, we expect their revenues to bottom in Q2’18 as shown in Figure 2, falling 16% Q/Q while rising 2% Y/Y to $4.4B. It should be noted that it takes around 2 months from glass input at the fab to revenue recognition due to module assembly occurring in Vietnam. Thus, the surge in May and June won’t be reflected until Q3’18. In Q3’18, we expect SDC’s OLED revenues to jump 52% Q/Q and 35% Y/Y to $6.7B, the second best quarter in their history. In Q4’18, another 6% Q/Q growth is expected to $7.1B, but that will be down 11% vs. Q4’17 due to the higher prices for the flexible OLED phones shipped in that quarter. For 2018, we show SDC’s OLED revenues up 11% for the year to $23.4B, remarkable results given the challenges they have had to overcome at the start of the year. For results and forecasts for other panel suppliers and applications, please see the latest issue of our Quarterly OLED Shipment and Fab Utilization Report. Figure 1: SDC’s OLED Fab Utilization  Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report Figure 1: SDC’s OLED Revenue Forecast  Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
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