In today's issue of our weekly report, the Display Supply Chain Monitor, we updated Samsung's OLED fab utilization at its A2 and A3 fabs for August actuals and the September forecast. There were some surprises vs. prior forecasts. Please contact firstname.lastname@example.org if you would like to see the Samsung results in our weekly report or gain access to all manufacturers' LTPS LCD and OLED fab utilization in our Quarterly OLED Shipment and Fab Utilization Report.
Unless you’ve been under a rock for the last week, you’ve heard about Apple’s new iPhone line-up, announced in an enthusiastic product launch this week. The Apple events these days seem to rival the “Everything is Awesome” scene in the Lego movie for over-the-top fandom, with an abundance of “amazing” and “incredible” features listed. The main iPhone products were just as expected, but the prices will push the limit of what consumers are willing to pay, especially considering the price premium for the models with OLED displays.
The main display features of the iPhone are shown in the table below, ranging from the three-year old iPhone 7 at $449 to the flagship iPhone XS Max with 512GB at $1449 in the USA. Prices in most other countries are even higher.
Looking at the prices for the range of iPhone products, it’s clear that Apple is asking consumers to pay a big premium for the OLED displays in the XS and XS Max. The biggest gap in pricing between models in the lineup is the $250 gap between the XR and the XS, and the XS Max is the highest priced iPhone ever.
Compare the iPhone XS with the XR. Aside from the display and features directly related to the display, both phones have nearly identical features: the Apple A12 Bionic chip, Face ID, etc. The XS has a dual 12MP main camera, one for wide-angle and one for telephoto, while the XR has only a single wide-angle 12MP camera. That’s a difference that photo buffs will pay for, but the average phone user will hardly notice. As noted above, the XR beats the XS for battery life by 2-3 hours, a feature that the average phone user will surely notice.
Apple iPhone Product Line for Fall 2018
Source: Apple, DSCC compilation
So is the OLED display on the XS worth $250? It does provide better resolution, with 2.7 million pixels vs. 1.5M, and has a slightly better screen to body ratio, which allows the XS to be slimmer and lighter than the XR. The relatively low resolution of the XR (lower than the 7+ and 8+) may be a factor in allowing better battery life, as the display’s aperture ratio is higher, and the computation load for video processing is easier.
We think that most consumers will decide that a smaller OLED display with less battery life is not worth the extra $250, and among those who do go for the higher prices, most of those will go all the way to the XS Max. The XS Max has an additional benefit of a dual SIM, which may be particularly popular in China, and the biggest model also can be a status symbol (much less expensive than a sports car). However, for the 64GB $1099 model, you can also buy a 65” 4K LCD TV ($599) from TCL, a 55” 4K LCD TV ($379) from TCL both at Best Buy and have a lobster dinner for 2 delivered ($109). It is true.
Our outlook for the new iPhone models is a split of 60% / 16% / 24% for the iPhone XR, XS, and XS Max. Such a split for the ~85M iPhone sales in the 2nd half of 2018 should allow Apple to increase its iPhone Average Selling Price (ASP) by $40. As shown in the figure below, Apple’s ASP increased by more than $100 with the launch of the iPhone X, and we expect that trend to continue in Q3. The iPhone price increase accounted for more than half of Apple’s Y/Y revenue gain in Q2 2018, so Apple needs to continue to increase ASP to drive revenue growth. The extra $40 of ASP will bring about $3.2 billion of revenue (and profit) to Apple in the fourth quarter of this year.
Source: Apple financial statements, DSCC Analysis
Apple does not issue any detailed information about its margins for individual products, but it should be clear that the XS and XS Max will carry higher margins than the XR. DSCC estimates that display panel costs for the XR/XS/XS Max will be $61, $90, and $100, respectively, and since the display panel will be the biggest component cost increase, the incremental margins on the XS (over the XR) and the XS Max (over the XS) will exceed 80%.
With the iPhone X launch a year ago, we (and most in the industry) predicted a rapid changeover by Apple from LCD to OLED models, but the configuration of the 2018 product line and other intelligence we’ve gathered from the industry suggest a slower timeline. We now expect Apple to continue to include one LCD model in its premium lineup in the 2019 product launch, and only to change to a full-OLED lineup in the 2020 launch. We expect Apple to add a third OLED supplier, BOE, in 2021 although there will be lots of talk about that before then.
The product launch event included many other topics, including a demonstration of several Augmented Reality (AR) apps. While some AR fans think that this is a prelude to an upcoming Apple AR device like glasses or a headset, I think it’s more likely that AR for Apple continues to be an extension of the iPhone. The installed base of the iPhone makes it an attractive platform for app developers, and iPhone users outspend Android users, despite being outnumbered by 4 or 5 to 1, as shown below.
Share of App Download and Spend, iOS vs Android
Source: Business Insider from App Annie
Rather than another new device, AR can help drive additional apps, which can enhance revenue in Apple’s Services sector. Services revenue is increasing at more than 30% Y/Y in the first half of 2018, and now represents the second-largest driver of revenue growth for Apple (after the iPhone ASP).
Beside the iPhone launches, Apple released a new Series 4 version of the Apple Watch with a larger display and enhanced features. The displays are more than 30% larger than the series 3, and now come in 40mm and 44mm sizes. DSCC sources have told us that the OLED displays in the Series 4 Watch are made by LGD using Low Temperature Polysilicon Oxide (LTPO) back planes. LTPO is an excellent choice to introduce on the Watch, because the oxide TFTs reduce the leakage current, allowing for reduced energy consumption on static images through reduced refresh rates.
In describing the Apple Watch Series 4, Apple COO Tim Williams brought in the President of the American Heart Association to highlight the new watch feature, and app that takes the users Electrocardiogram (ECG) when the user holds the contact wheel for 30 seconds. The app is approved by the US Food and Drug Administration (FDA), who issued a “de novo” approval, the first of its kind for an electronic wearable device.
By Bob O’Brien
In cooperation with the Korean chapter of SID, DSCC organized a one-day Display Industry Forum at the 18th International Meeting on Information Display (IMID) conference last week in Busan, Korea. The conference brought many of the key players in the Korean part of the display industry and provided insights for industry professionals.
This was my first visit to Busan, and I found the city to be a pleasant surprise. A 2.5-hour high-speed train ride from Seoul, Busan is Korea’s second largest city with about 3.5 million people. It boasts a bustling container port, but also a lively waterfront and (so I was told) Korea’s most famous beach. So, while it required travel for nearly all the attendees, it was worth the trip.
The first of five sessions in the Display Industry Forum covered the display market outlook from a business and financial perspective. After our Director of Korea Operations Calvin Lee covered our view of the health of panel makers and the equipment market outlook, presentations from JungHoon Chang of Samsung Securities and Chris Chang of Nomura Securities gave the sell-side analyst perspective on companies in the industry.
The analyst view of display industry stocks is, to be polite, challenging. This chart from Nomura compares Display as one of several categories within the Technology segment, showing that the stock performance of the display segment lags far behind other tech sectors.
Stock Performance of Display Segment vs. other Technology Segments
Source: Nomura Securities, IMID Industry Forum
Such a comparison may be a little too pessimistic for the display industry since the most profitable company in displays, Samsung Electronics, is categorized under its larger Semiconductor division, rather than in displays. Nevertheless, the display sector’s stock performance has been disappointing, especially in 2018. Both the Samsung Securities Chang and the Nomura Securities Chang commented that the looming industry oversupply coming from the surge of capacity subsidized by the Chinese government was weighing heavily on display stocks.
As might be expected in a Korean conference, much of the focus of the analysts was on LG Display. Nomura’s Chang noted that foreign holdings of LG Display have reached an all-time low of under 25%, down from about 35% in January 2015, and that the short position on the stock exceeded 12%. Both analysts showed charts of LGD’s price-to-book ratio, noting that LGD’s P/B stands near the historical trough of 0.6, but Chang commented that whereas in previous cycles the trough was followed by a recovery, investors are much more cautious in this cycle because of the massive investments by Chinese panel makers.
According to the analysts, the best possible remedy for LGD is even more aggressive build-out of its OLED TV capacity. In response to a question about LGD’s approach, Nomura’s Chang noted that even though the capital requirements for OLED expansion are challenging, investors see LGD’s leading technology in OLED TV as the company’s best chance at success.
The second session of the Forum covered the TV market, and after I gave DSCC’s outlook (which has been well covered in the DSCM), LG Display’s BangSil Choi outlined the company’s approach to moving OLED beyond the category of TV and re-branding the technology as a Lifestyle product. LGD’s success in the business of OLED TV will rest on their ability to charge a premium price for OLED panels, even as LCD panel prices reach new lows in the coming years of oversupply.
In my opinion, the most informative talk of the conference was the first presentation after lunch, given by Chiwoo Kim, President and CTO of APS Holdings (the parent company of equipment supplier AP Systems). In a single slide (shown below), Kim laid out the challenges involved in Excimer Laser Annealing (ELA) of an amorphous silicon (a-Si) layer to create an LTPS backplane. AP Systems is the principle supplier of ELA systems to the industry, and the sole supplier to Samsung, so their perspective is well-informed.
Kim highlighted the challenge of ELA in achieving large grain size through “Near-Complete Melting.” The chart at the top right of the below slide image demonstrates the exceptionally narrow peak in grain size dependence on laser energy. One of the principle problems with OLED displays, Mura, can result from small vibrations during the annealing process. This helps to explain why making OLED displays at good yield has continued to be a challenge for panel makers.
Challenge of Achieving Optimum Condition for Excimer Laser Annealing
Source: APS Holdings, IMID Industry Forum
Kim stated that in his opinion QHD resolution is likely the resolution limit for the current method of wet etching of FMM, and that higher resolutions would require a new process for FMM called electro-forming, which has promise but is not yet feasible.
In wrapping up his long presentation, Kim described APS Holdings efforts at Thin Film Encapsulation (TFE) technologies for foldable displays. Kim expressed that he was unsure if the current thick TFE coatings would be acceptable for foldable displays and described two technologies in development to solve the problem: Atomic Layer Deposition (ALD) and a hybrid ALD-like Chemical Vapor Deposition (CVD). Kim also noted that the module process for foldable displays may require vacuum processes for lamination.
In the fourth session of the Industry Forum on smartphones, DSCC’s Yoshi Tamura covered our outlook (also covered extensively in the DSCM), followed by Ellike Chen of SigmaIntell, who highlighted some positive developments in the smartphone handset market.
Smartphone Handset Prices Increasing
Source: SigmaIntell, IMID Industry Forum
According to Chen, in the China market even though young people’s incomes are low, the smartphone is such a critical device for communication, information, and entertainment that they are willing to spend more on these devices. The average price of a smartphone has increased from CNY 3000 (US$439) to CNY 3200, and phone makers expect to try to push consumers up to CNY 5000 (US$732). Chen also highlighted the increasing power of the handset brands in negotiating with display panel makers, based on the consolidation of the market at the brand level and oversupply of phone displays.
On the technology side, the battle between glass and plastic was on display with glass represented in presentations by Corning and Schott, sandwiching a presentation by Solip Technologies on their Flex9H hard-coat for plastic foldable cover. The final presentation came from Dong-Seon Leeof the Gwangju Institute of Science and Technology (GIST), covering the promise and challenges of MicroLEDs.
Advantages of MicroLED Displays