The agenda for our Future of Display Technologies & Markets Conference on November 6th in Santa Clara is now final as seen below. The first talk will be by Ross Young and will detail DSCC's latest forecasts for OLED shipments, revenues, prices, supply/demand, fab utilization, LCD and OLED equipment spending, etc. as well as our view on technology roadmaps and inflection points.
The next session will feature a display technology roadmap shootout between Quantum Dots, LCDs, OLEDs, MicroLEDs and Light Field Displays.
8:30AM – 9:15AM Display Supply Chain Market and Technology Outlook
This session features DSCC’s latest market forecasts for the display supply chain touching on fab utilization, supply/demand, capacity, panel pricing, unit forecasts, revenue forecasts, penetration and outlook by technology, winners and losers, etc. The latest 2018 – 2022 forecasts will be provided to attendees. In addition, it will include DSCC’s view on the roadmap for today’s leading display technologies and many of the likely technologies of the future and which technologies are likely to flourish and why.
9:15AM – 3:15PM Display Technology Roadmaps
This session will feature presentations from leading display industry executives on how they believe display technologies will advance. Each presenter will provide unique insight into why their technology is the best bet and most likely to outperform. Attendees will learn how LCDs, OLEDs, Quantum Dots, MicroLEDs and Light Field Displays are likely to evolve, reduce costs and improve performance.
3:05 PM – 4:20 PM Smartphone Catalysts/Outlook and Foldable Displays
This session will feature the latest outlook from the smartphone market as well as touch on a number of different catalysts such as AR, 5G and foldable displays. Special attention will be paid to AR and technologies enabling foldable displays. The latest supply chain view on Apple’s iPhone launch will also be covered as will the forecast for the smartphone market by display technology, form factor, size, etc.
4:20 PM – 5:20 PM TV Market and Technology Outlook
This session will feature technologies enabling better performing and lower cost TVs. Cost forecasts will be presented for the different approaches, performance improvements will be discussed and key challenges will be identified. Detailed TV market forecasts will also be provided.
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If you are a DSCC report customer, pricing is $50 less. Pricing will increase again on November 1st, so please register soon if you plan to attend.
Sales for OLED stack materials are expected to grow at a 20% annual CAGR from $829 million in 2017 to $2.04 billion in 2022, according to DSCC’s Quarterly OLED Material Report for Q3 2018, written in cooperation with the OLED Association. The report details all aspects of OLED materials, including multiple applications, supplier matrices, and cost comparisons.
This quarter’s update includes the first outline of the opportunity for Quantum Dot OLED (QD OLED) products. The report includes a capacity estimate, OLED stack profile, supplier relationships and the resulting material forecasts for QD OLED, as part of the larger view on OLED materials in all applications.
As outlined a few weeks ago in our description of the DSCC Quarterly OLED Supply/Demand and Capital Spending Report, our capacity outlook for OLED for mobile applications has been revised downward, but our outlook for OLED TV capacity has been revised up so that the total OLED capacity is still expected to increase nearly 4x in area terms from 2017 to 2022. As a result of these changes, we now expect that revenues for OLED Materials for TV will surpass those for Mobile applications by 2020, and TV will account for 53% of OLED materials by 2022, as shown below.
OLED Material Revenues by Application
Source: DSCC/OLED-A Quarterly OLED Material Report
One of the drivers of additional OLED Material revenue growth in the TV application is QD OLED from Samsung. We expect Samsung to start pilot production of QD OLED in 2019 with 5k per month of Gen 8.5, adding a second 5k in 2020, and 30k each in both 2021 and 2022. We recognize that the Samsung QD OLED plans have more than the usual amount of error bar, as the QD OLEDs could be as low as zero and as high as 4-5x our current estimate, depending on whether Samsung can cost-effectively manufacture this product at volume. If Samsung fails to overcome the technology and manufacturing hurdles, they could cancel the project altogether, but if the product is a technology and commercial success, Samsung has the cash to invest in rapid capacity expansion, not only in Gen 8.5 but also potentially in Gen 10.5.
The QD OLED Stack profile shown below illuminates some of the advantages but also the challenges of this product architecture. The two biggest challenges of QD OLED are: 1) getting a good blue OLED, and 2) making the Quantum Dot Color Converter (QDCC).
QD OLED Stack Profile
Source: DSCC/OLED-A Quarterly OLED Material Report
In making a “good” blue OLED, it is possible that Samsung will require a next-generation blue OLED emitter material such as phosphorescent or TADF, but our sources say that Samsung will start with a fluorescent blue emitter and use two emitting layers as shown. Even with an advanced blue emitter, two emitting layers may be needed. Nevertheless, from the perspective of the OLED stack the QD OLED structure has several advantages over LGD’s White OLED approach:
Light Management in a QDCC
Because the quantum dots in the QDCC are emitting in all directions, the structure requires a Yellow Reflective Film (YRF) in the back, which lets blue light pass through but reflects green and red light forward. Because quantum dots can be illuminated by ambient light, the QDCC needs a quarter wave plate (QWP) in front to cut off ambient light. Furthermore, as described in last week’s article from the OLED Summit, because the current quantum dots from Nanosys cannot absorb all the blue light, Samsung will use a color filter in front of the red and green sub-pixels to filter out the remaining blue light.
While the QDCC presents a huge challenge for Samsung, the advantage of a simpler OLED stack gives them plenty of room to work with from a cost perspective. We estimate the costs of the blue OLED stack in a QD OLED as only $26.03 per square meter in 2019, compared with $94.91 per square meter for the corresponding White OLED.
Quantum Dot OLED (QD OLED) Unyielded Stack Materials Costs
Source: DSCC/OLED-A Quarterly OLED Material Report
Because of the simpler OLED structure, QD OLED is a relatively less attractive development for the OLED Materials suppliers. Although it is a growth opportunity for OLED materials, the revenues from QD OLED will be a small fraction of overall OLED material revenues, as shown in the figure below. With our current capacity estimates, QD OLED will represent only 5% of material revenues for TV applications, and less than 3% of revenues for all applications.
Forecast of Material Revenues from QD OLED
Source: DSCC/OLED-A Quarterly OLED Material Report
The DSCC/OLED-A Quarterly OLED Material Report includes not only QD OLED, but also WOLED for TV, Inkjet Printed Polymer and Small Molecule profiles. The report covers active matrix OLED (AMOLED) for displays, plus passive-matrix OLED for smaller displays and OLED for Lighting applications. Supplier matrices for the main OLED panel makers allow for revenue projections for 20 material suppliers. For more information about the report, please contact Gerry McGinley at 770-503-6318, e-mail email@example.com, or contact your regional DSCC office in China, Japan or Korea.
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
By Bob O’Brien
Imports to the US of TVs from China increased in Q2 of this year despite the Trump administration’s threat of tariffs imposed on TV products. The industry has shown few signs of shifting its supply patterns, based on data from the US International Trade Commission (ITC) database. The tariff threats, though, seem to have claimed their first victim in US TV assembler Element Electronics, as the US-China trade war shows no signs of abating.
The ITC releases data monthly but with a time lag, roughly 5-6 weeks after the end of the month, so June (and therefore full Q2) data was recently made available. The data suggests that TV brands and retailers have done little to change their pattern of increasing reliance on China for TV sourcing.
Imports in the US ITC database are characterized by Harmonized Tariff Schedule (HTS) codes. The HTS code that covers nearly all TVs is 85.28.72: RECEPTION APPARATUS FOR TELEVISION, COLOR, NESOI (Not Elsewhere Specified Or Indicated). The ITC data allows a breakdown by HTS code, with the largest HTS-8 category being HTS 85287264, TVs with a recording device and a flat panel screen. The breakdown of units in this category for 2017 imports is shown in the chart below.
US TV Imports by Country and Screen Size, 2017
As shown in the figure below, in terms of the value of imports, Mexico is the biggest importer. The value of total TV imports in Q2 was down 3% from $2.633 billion in 2017 to $2.562 billion. At a country level, the value of imports from China was down less than 1% from $811 million to $807 million, the value of imports from Mexico increased 3% from $1.63 billion to $1.67 billion, and imports from all countries dropped 57% from $192 million to $83 million.
Quarterly US TV Imports by Country and Product Group, 2017-2018, in US$
Source: US ITC Database, DSCC Analysis
The first wave of tariffs on China imports proposed by the US Trade Representative (USTR) on April 3 included all of the most common TV categories but excluded TVs without any recording device (shown as “no R” in the table). One way to avoid these tariffs, had they come into play, would be to shift from TVs that have a recording device, which have a standard duty of 3.9%, to TVs without such a device, which have a standard duty of 5%. The data gives no evidence that TV makers made such a move. In fact, the imports of TVs without a recording device from Mexico, which under NAFTA are imported duty-free, declined 89%.
In terms of quantity, TV imports from China increased by 3% in Q2 while imports from Mexico declined by 1%. Imports from all other countries declined by 58% with imports from Vietnam falling more than 90%, as shown in the figure below. After a huge Y/Y increase in the first quarter, China imports of >45” TVs declined Q/Q and Y/Y in Q2, but these TV imports from China are still up 11% for the first half of the year.
Quarterly US TV Imports by Country and Product Group, 2017-2018, in 000s of Units
Source: US ITC Database, DSCC Analysis
The smaller size screens continued to shift dramatically from Mexico to China in Q2, with China capturing nearly 75% of all imports in Q2 of 2018, compared to less than 50% in Q2 2017.
The huge drop in imports from Vietnam is surprising, as the main (or only) TV brand that imports from Vietnam is Samsung. Samsung shifted its production of TVs from China to Vietnam after the Trump presidency started, which appears to be a wise strategic reaction to President Trump’s threats to China. The slowdown in Q2 may be temporary or may indicate a further shift by Samsung.
Although TV panel prices have declined by about 40% from Q2 2017 to Q2 2018, this decline had not yet found its way to the price of TV imports, as shown in the figure below. The average price of >45” TVs imported from China increased by an amazing 42%. Although, this is likely to be a function of a larger screen size mix within the product category, as well as a possible feature mix shift from 1080p to 4K resolution. Similarly, the average price of >45” TV imports from Mexico increased 6%.
Quarterly US TV Imports by Country and Product Group, 2017-2018, Average Selling Price
Source: US ITC Database, DSCC Analysis
At smaller screen sizes, some of the TV panel price decreases are finding their way to the import prices. The average price of smaller TVs imported from China declined by 27% from $177 to $130, while the average price of the same products from Mexico declined by a more modest 5%. This discrepancy opens up a big gap between imports from Mexico and those from China, as the China prices are 38% lower. Even if a 25% tariff is imposed on China TVs, those TVs would continue to be 23% lower in price than Mexico imports.
Although the current lists of products subject to penalty tariffs do not include TVs, monitors, laptop PCs, tablets, or smartphones, the ongoing trade dispute puts all imports from China at risk of sanctions if it continues to escalate. President Trump has shown no signs of backing down, and the Chinese government continues to respond to every US action with a retaliatory action of its own.
Today, August 20, is the first day of hearings on the second round of tariffs, which President Trump ordered in retaliation for China’s response to the first round. The second round of tariffs covers $200 billion in imports and does not include TVs, though it does include flat panel displays.
Because they received so much demand for public comments in the second round of tariffs, the USTR has adjusted its timetable to allow six days of hearings in the public comment period and a longer time for review.
Timetable for Various Rounds of Tariffs
The product groups in the second round of tariffs were concentrated in business-to-business categories, as the USTR tried to generate a list of products that would not directly affect consumer goods. As reported in the Display Supply Chain Monitor last month, US-based TV assembler Element Electronics has announced plans to shut down its TV assembly in Winnsboro, South Carolina because of tariff threats on flat panel displays. Element stated that with a tariff on imported flat panels, its business could not be competitive against imported TVs.
Element will participate in the public hearings on the tariffs, one of 358 different companies and organizations scheduled to participate in the six days of hearings, according to a schedule release by the USTR. Element’s David Baer has a spot in panel 12 (out of a total of 46 one-hour panels), scheduled for Tuesday afternoon, August 21. Dell Electronics and the Consumer Technology Association (CTA) are scheduled to speak in the same panel, and LG Electronics is scheduled to speak in a separate panel later in the week. Each company or organization will have roughly five minutes to speak.
Ahead of their comments in the public hearing, the CTA released the results of a study that indicated the tariffs on Chinese printed circuit assemblies and connected devices would cost the US economy $521 million and $2.4 billion annually for 10% and 25% tariffs, respectively. The study, conducted by Washington DC-based Trade Partners Worldwide, LLC, concluded that US consumers will pay higher prices for such devices as fitness activity trackers, smart watches, modems, wireless headphones and earbuds, reducing consumption of these devices by up to 12%.
According to the study, “Due to the imposition of tariffs on US imports from China of these connected devices, sourcing will shift to a number of other countries, but only marginally to US producers.” The beneficiaries of the tariffs will be producers in countries such as Korea, the Philippines, Taiwan and Malaysia.
If TVs get hit with a 10% tariff as part of the Trump administration’s next round of $200 billion of product affected, what would be the likely impact? Because of the steep declines in LCD TV panel prices in the last twelve months, a 10% tariff would merely slow down the price declines for TVs in the 2018 holiday season. The figure below shows the pattern of TV panel prices since 2015; overall prices are down nearly 40% Y/Y in July 2018.
TV Panel Prices 2015-current
The chart below shows the imports of TVs by category and country in 2017. More than ½ of the China TV imports are in the two middle size categories, 30-35” and 35”-44”. In the smaller of those categories (effectively representing 32” TV), the average price of a TV imported from China was $127. In the larger category (covering 40” and 43” TV) the average price was $208.
Source: US ITC Database, DSCC Analysis
Now let’s consider 32” TV as an example, comparing a sale in 2018 with a 10% tariff with a sale in July 2017, 32” panel prices were $72. So with a TV price of $127, there was only $55 left for all the TV electronics, packaging and shipping (and profit, if there was any). In July 2018, 32” TV panel prices have fallen to $46. If we add back the $55 costs for TV electronics, packaging and shipping we get $101. Even with a 10% tariff, the cost only comes to $111, still 13% lower than last years’ price of $127.
The case of 40” shows an even more favorable scenario. The 40” panel price started declining in July 2017, but in June 2017 the price was $139. With an average TV price of $208, this leaves only $69 for TV electronics, packaging, and shipping. Current 40” panel prices are down to $73, so with $69 for the rest of the TV, and another $14 for the tariff, the full cost would be only $156, fully 25% lower than 2017.
All of this does not mean that a 10% tariff imposed on TVs would be painless or would not have an impact on the US TV market. Without the tariff, prices could be even lower on TVs this fall. The larger impact, though, would likely be on the competitive dynamics. Brands like Samsung that import from countries other than China will benefit from the lower panel prices and not have to pay the tariff penalty, and the tariff is likely to encourage major brands to shift production to Mexico.
TV imports from Vietnam totaled 1.7 million in 2017, with most or all of those coming from Samsung brand. Samsung imported 32” TVs in 2017 at an average price of $154. With the $26 reduction in 32” panel price, the cost of these imports could be reduced to $128. While the Samsung cost is still higher than that for China imports, the gap is only $17 or 13%, down from $27 or 18%. The impact is yet larger for 40”, which Samsung imported in 2017 at an average price of $231. With the $66 reduction in panel prices in the last year, these could be imported at a cost of $165, only $9 or 6% higher than the China imports.
This analysis oversimplifies the economics, as it misses many factors in the supply chain calculations. TV imports from China are already subject to a 3.9% tariff; the 10% tariff penalty threatened by President Trump would bring this to a total of 13.9%. In each product category, there are a range of brands and product features that would have prices higher and lower than the average.
Still, it should be clear that a 10% tariff imposed on China imports would benefit brands that import from Mexico or Vietnam. Wherever the imports come from, though, US TV prices in 2018 should be lower than last year.
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.
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.