With flexible OLEDs struggling in the market despite being named the best smartphone displays ever made, we are starting to see some fab delays which will be quantified in terms of equipment spending in our upcoming Quarterly Display Capex and Equipment Service update.
While it has been widely reported that Samsung has delayed its A5 fab due to its poor utilization at existing A2 and A3 fabs, we have also seen that it has significantly delayed the ramp of its A4 (L7-1) fab where 2 lines were supposed to be installed in Q3’17 and Q4’17 respectively. Due to Samsung’s fab utilization challenges, we don’t show the capacity for these lines ramping until Q2’19 and Q3’19 respectively and wonder when equipment suppliers will get paid for these tools. Will revenue recognition happen shortly after install or will it be significantly delayed until production is closer as Samsung is known to do. We also hear that depreciation will not likely be recognized for these lines in 2018 if the tools stay in their crates, which is certainly likely for the first half of the year. In regards to A5, we don’t believe there has been any activity in regards to fab construction and we are now pushing out the first phase until 2020..
Samsung isn’t the only company delaying its OLED fab capacity. While LG Display’s P6 fab is ramping now and will eventually reach 30K of monthly substrate input capacity, we believe the first phase of their next OLED fab, P7, has been cancelled. POs were believed to have been issued in Q3’17, but have been cancelled are not likely to be reissued until Q1’19 with production expected in 2020. LG Display is just starting its ramp on E6 and won’t start shipping to Apple until 2H’18. As a result, it is said that Apple can’t invest in LG Display’s OLED business until they see the success of their ramp, the success of the next iPhone with the LGD panel and LGD’s capability as a smartphone OLED supplier.
We have also learned that the ramp of the first phase at Tianma’s 6G OLED fab will be delayed by around 6 months. In addition, while the first half (7.5K) of the first phase is rigid and the second half (also 7.5K) was supposed to be flexible, the second half of the first phase may also end up being rigid due to the lower costs, less risk and higher yields. Furthermore, the second phase of Tianma’s 6G OLED fab will be delayed from 2018 to 2019 and they are expected to delay the introduction of later phases as well.
The second and third phases of China Star’s 6G fab have also been delayed by around 6 months.
There is also concern about EDO. While their wearable OLED business is solid, their smartphone business has been declining. As a result, there are doubts about the second phase of their 6G fab. At the very least, the second and later phases will be delayed by more than 6 months.
There are also rumblings that the Chinese government may take a second look at the OLED fab subsidies given Samsung’s oversupply situation and slow them down or downsize them. Certain equipment suppliers are also expressing concern and are unwilling to accept Phase 2 POs until they see that companies succeeded with Phase 1 ramps. On the other hand, BOE’s OLED investments are expected to remain on schedule. In addition, all LCD fab projects are on schedule as well.
We should have an update to our OLED fab schedules and equipment spending forecasts in the next couple of weeks.
In addition, we just released the latest OLED forecast pivot tables to our Quarterly OLED Shipment and Fab Utilization Report customers with a significant increase in model numbers for smartphones. At the same time, the reduction in utilization and delay in capacity growth has reduced our near term outlook. However, we still see strong growth in 2018 at 29% to $28.4B, mostly in 2H’18 and continued growth in 2019 and beyond to achieve $59B in 2022 as OLED prices come down.
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