We now have all the financial results of panel makers for Q3 2018, and we have compiled a comparison view as part of DSCC’s Quarterly Display Supply Chain Financial Health Report. The comparison highlights big discrepancies in results between some of the major players in the industry. While Q3 was in general a positive quarter for display makers, it was especially good for Samsung, and not so good for some of the smaller players.
DSCC has updated its LTPS LCD and OLED fab utilization results through November with a 1-month forecast for December. This data is compiled based on surveys of glass and materials suppliers and appears in our Quarterly OLED Shipment and Fab Utilization Report. The results are quite interesting.
The third quarter of 2018 saw a strong recovery of OLED panel shipments, with total revenue up 80% Q/Q and 45% Y/Y to $8.0 billion, according to the latest update of DSCC’s Quarterly OLED Shipment and Fab Utilization Report. The revenue increase was paced by an even more impressive 92% increase Q/Q in OLED smartphone panel revenue, which grew 43% Y/Y to $6.9 billion, as shown in the chart below.
After years of development dating back to 2012 when Samsung trademarked YOUM for its unbreakable, flexible display, Samsung finally announced its first foldable display which it trademarked on October 29 as the Infinity Flex Display at its Developer Conference on November 7th in San Francisco, CA. It did not formally announce the name, timing or price of its foldable smartphone however, which many people believe will be called the Galaxy F for foldable.
DSCC has agreed to a partnership deal with UK-based display research firm Meko, whereby DSCC will transition its weekly Display Supply Chain Monitor (DSCM) into a new publication, to be called the DSCC Weekly Review. The Weekly Review will form a successor publication to Meko’s Large Display Monitor (LDM) and Mobile Display Monitor (MDM) weekly newsletters, and we expect that the Weekly Review will come to be seen as the premier source of news and analysis in the display industry.
LG Display has had remarkable success in its OLED TV panel business for years, in all areas except one – profits. Based on new analysis in DSCC’s Quarterly Advanced TV Display Cost Report, the combination of higher prices and lower components costs have allowed LGD to turn the corner on this business and become profitable in Q3 2018, and LGD likely has a strong runway of profits in the coming quarters and years.
On November 6th, DSCC will bring 3 of the most influential speakers on the future of quantum dot technology and its market outlook at the upcoming Future of Display Technologies and Markets Conference. Quantum dots have the opportunity to become a significant part of the LCD, OLED and microLED markets as those technologies strive for improved color performance. In addition, as quantum dot material performance improves, it has the potential to become its own emissive display technology.
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.
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.
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.
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.
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.
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.
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).
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 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 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.
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.
We've been waiting for this for a few months, and now we know we've got another seven weeks to wait but not longer. I received today a "Save the Date" e-mail announcing the date of the Groundbreaking Ceremony of the Wisconn Valley Science & Technology Park. The Ceremony will be held on June 28th, 2018 at the Foxconn site in Racine County, Wisconsin.
Just as interesting as the contents of the email was its source: not Foxconn, but Sharp. The email came from Sherry Chapman, Sr. Director of Brand Management for Sharp Consumer Display. Of course we know that Foxconn owns a controlling interest in Sharp, and the Gen 10 technology to be built in the Wisconsin complex derives from Sharp's Gen 10 fab in Sakai City, Japan. So it makes sense that Sharp is involved in the event, but it's clear that this is a Foxconn event, not a Sharp one.
The Save the Date note asks that I plan "to celebrate this historic moment with us as we create 13,000 high-paying jobs with our $10 billion investment in Wisconsin', and that I can expect a formal invitation within a couple weeks. From a personal standpoint as someone who saw the demise of display manufacturing in the USA in the CRT era, it will be a great pleasure to see its revival near the shores of Lake Michigan. I'm planning to be there - see you there!
Last week we saw 6 different display suppliers release their earnings results. In general, we saw Chinese suppliers outperform Taiwan and Korean suppliers helped by government subsidies, lower labor and fab costs and the exclusion of interest payments in odd quarters. We saw flexible OLED smartphone panel shipments drop rapidly and LTPS LCDs take share from OLEDs. Smartphone panel volumes were weak, especially at the high end, which boosted blended unit ASPs and reduced area ASPs as smartphone panels carry higher prices on an area basis. While OLED volumes fell faster than LTPS volumes, OLED margins continued to outperform LCD margins. Panel makers are optimistic about TV volumes in the rest of 2018 despite experiencing above average channel inventories in Q1’18. We did see LG reporting OLED TVs in shortage and reveal they may convert even more LCD capacity to OLED TV capacity. Let’s start with some comparisons.
Last week, I gave an outline of the possible impact that Trump administration actions on US-China trade could have on the display industry, and on Tuesday, April 3rd, the Trump administration released the list of products subject to a new 25% tariff. Of the 1,333 different product categories included in the trade action, the single largest category by value is TVs. The new tariffs on TVs will have companies on both sides of the Pacific scrambling to redirect the display supply chain.
In the latest round of an emerging trade conflict between the world’s two largest economies, China initiated tariffs on specific US goods, in retaliation to the US imposing tariffs on steel and aluminum products from China. While these moves have not yet affected display products, the potential impact of a trade dispute could be a huge disruption in the display industry value chain and has caused the Consumer Technology Association (CTA) to mobilize its members to lobby the US government to try to avert a trade war.
Although the US metal tariffs were not specifically directed at China, the US has subsequently exempted most other countries from the tariffs. China’s retaliation this week was directed at US exports from states that supported President Trump in the 2016 election, including pork products, fruit, and other commodities.
According to a report in the Wall St. Journal, the Chinese Finance Ministry, in announcing the tariffs, said that they were introduced “to protect our country’s interests and balance the damage created by the US 232 measures”, referring to the US law under which the steel tariffs were imposed. The article reported that the Chinese government’s response was limited and designed not to escalate tensions.
Looming over these actions is the next step threatened by the Trump administration, to impose new tariffs and trade restrictions on China on up to $60 billion of imports, because of what the administration says are “Chinese efforts to obtain US technology through intimidation, state-financed acquisition and subterfuge”, according to the WSJ. These new actions would be taken under section 301 of the Trade Act of 1974, which gives the president authority to take action against foreign trade practices that are unjustified or unreasonable. The president has cited Chinese theft of intellectual property as a main driver behind the threatened action.
Affected Chinese imports would be subject to a 25% tariff, according to the WSJ report, and would target as many as 1200 product categories with a value of $50-$60 billion, about 10% of the more than $500 billion in imports from China in 2017. President Trump has said that he wants the Chinese government to present a plan to decrease the merchandise trade deficit, which was $385 billion in 2016, by $100 billion.
Global trade figures are organized by categories in the Harmonized Tariff Schedule, which breaks all products into 100 chapters of main categories and thousands of individual product categories in 10-digit codes. Chapter 85 of the HTS, electrical machinery, covers almost all products relevant to the display industry, and this category of goods represents the largest group of imports to the US from China, $129 billion in 2016, according to the US Trade Representative web site, and increasing to $146 billion in 2017.
The US International Trade Commission (ITC) provides an online database of information on imports, classified by Harmonized Tariff Code, allowing the user to identify key figures on US imports of many products. I’ve taken the opportunity to dig into the ITC database to come up with some figures on US imports from China and other countries of products relevant to the display industry.
As stated above, US imports from China of goods in “electrical machinery” were $146 billion in 2017, nearly 30% of all imports from China, and China represented 42% of all imports of these goods in HTS Chapter 85, by far the leading country, with Mexico in 2nd place with $62 billion, followed by Malaysia, Japan, Korea, Taiwan, Vietnam, and Thailand. The combined imports of these five Asian countries comes to $88 billion, a bit more than half of the Chinese total.
At the next level down, among the imports of electrical machinery the largest group of imports from China are in HTS 8517, Telephone Sets and other telecommunications equipment, representing $72 billion or about half of the total, and within that group the largest individual item is HTS 8517120050, or “Radio telephones designed for the public cellular radiotelecommunication service, excluding for motor vehicles”, in other words, cell phones or smartphones. The US imported $44 billion of smartphones in 2017 from China, or about 80% of the $55 billion in smartphone imports from all countries, with Korea and Vietnam representing most of the remaining 20%.
Could the Trump tariffs be targeted at smartphones? Perhaps so, but it would be inconsistent with the approach of looking at 1200 product categories since you can get almost $50 billion from a single product category.
The next largest HTS-4 group after telephones is 8528, TV receivers including video monitors and projectors. The breakdown of 8528 imports by country is shown in Figure 1. China represented 47% of all imports in this category, with the largest other group represented by Mexico with 40%.
Figure 1: US Imports of TV Receivers and Video Monitors
Source: US ITC
Taking a more detailed look at this product category 8528, at the individual product level (HTS 10) two products make up more than 50% of imports. HTS 852872 is named formally as “TV reception apps, color, with a flat panel screen, incorporating video recording or reproducing apparatus”, in other words flat panel TVs, and represented $11.1 billion in US imports in 2017. HTS 852852: “Monitors, of a kind solely or principally used in an automatic data processing systems of heading 8471, nesoi” (NESOI means Not Elsewhere Specified or Indicated”), or as we would say desktop monitors, represented $5.2 billion.
US TV imports in 2017 are shown in Figure 2. The US imported $4.0 billion of TVs from China in 2017, about 30% of the total value, but at a unit level China was the largest importer, with 19.4 million units or 47% of the total imports of 41.5 million. In the case of both volume and units, the combination of Mexico and China represent more than 90% of all imports
Figure 2: US Imports of TVs in 2017
As compared to 2016, Mexico imports declined in both units and value, while China imports grew, from $3.3 billion to $4.0 billion, and from 17.4 million units to 19.4 million.
Mexico imports represented mostly the larger screen sizes which are higher priced. The average price of a TV imported from Mexico was $459, while the average price from China was only $206. The main reason for this can be seen by digging down to the last level of the HTS, the 10-digit code indicating the individual product category. TVs are sorted into four different size categories: under 75cm (30”), 75-88cm (up to 35”), 88-113cm (up to 45”) and above 113cm (45”). In the largest screen size category, over 45”, Mexico represented 60% of the units but 72% of the value, with $5.5 billion at an average price of $558, while China represented 35% of the units but only 25% of the value at an average price of $332.
In monitors, China dominates US imports, as shown in Figure 3, with 94% of the unit volume and 85% of the value of imports.
Figure 3: US Imports of Monitors in 2017
Unlike TVs, monitors are not made in large quantities in Mexico for export to the US, because there are no advantages from tariffs for building monitors in NAFTA. TVs can be imported from Mexico duty-free by NAFTA rules, but are subject to 3.9% tariffs if imported from China or other countries. Monitors, on the other hand, are imported duty free from all countries.
Could the Trump administration sanctions apply to TVs and Monitors? Perhaps so, which would directly benefit any company that makes TVs in the US, as Foxconn plans to do this year.
With an eye on fending off the effect of a trade war with China, the Consumer Technology Association (CTA) is gathering information from its members (DSCC is a CTA member) about China imports. We received a survey from the CTA asking for information on imports, including the following questions:
The CTA survey responses are due on Friday, April 6th, in time to lobby the White House to avoid the impact. The Trump administration indicated on March 23rd that it would publish a formal list of proposed tariffs in 15 days, so we can expect it by the end of the week. Then a 30-day period would follow where US industry could comment on which products should be selected.
While the first moves of a possible trade war with China don’t directly affect the display industry, the Trump administration seems determined to continue to push these efforts, as the recent changes in Trump’s cabinet and staff have strengthened proponents of tough trade action. If an all-out trade war happens, it would profoundly change the display industry.
DSCC released the forecast slides for the Q1’18 issue of its Quarterly OLED Shipment and Fab Utilization Report last week. Given the lower than expected iPhone X shipments, reduced fab utilization at Samsung and related fab delays, we have lowered our outlook for 2018 by 22% and now expect 30% growth to $30.3B as shown in Figure 1. From 2017 to 2022, we now expect 23% CAGR instead of 27% CAGR with the 2022 market reaching $64.3B instead of $79.6B. It is still a rapidly growing market as most consumers prefer OLEDs and OLED capacity is still growing rapidly. It is just growing slower than previously expected.
Figure 1: Latest OLED Revenue and Growth Forecast
Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
Smartphones are expected to remain the dominant market, accounting for around 91% of units per year with the smartphone revenue share falling from an 87% share in 2018 to a 79% share in 2022. On an area basis, smartphones are expected to fall from a 64% share in 2017 to a 50% share in 2022 as shown in Figure 2, with TVs rising from 33% to 42% and tablets the #3 application with a 3.5% share.
Our latest OLED smartphone panel forecast shows 543M units in 2018 vs our prior forecast of 622M units, a 13% reduction, but still up 34% Y/Y. In particular, flexible OLED smartphones were adjusted downward by 22% for 2018 to 238M units, but still up 70% Y/Y. Rigid OLED smartphones were reduced by 4% vs. last quarter for 2018, but are still projected to rise 12% Y/Y. Blended OLED smartphone ASPs were also adjusted downward, due to lower prices stemming from lower fab utilization and lower flexible OLED penetration. We now see OLED smartphone ASPs at $49 for 2018 vs. our prior forecast of $56 with flexible OLED smartphone ASPs at $83 instead of $90, a 7% reduction, and rigid OLED ASPs at $22 instead of $23, an 8% reduction.
Figure 2: OLED Area Share by Application
Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
OLED smartphones are now forecasted to grow at a 23% CAGR vs. a 24% CAGR in last quarter’s report, reaching 1.12B units instead of 1.27B units. OLEDs are expected to overtake LCDs in smartphones in 2021 as shown in Figure 3 and reach a 57% unit share of the total smartphone market. We expect small volumes of foldable OLED smartphone panels in 2018 and expect them to grow to 108M units in 2022, approximately 10% of the OLED smartphone market and 5% of the total smartphone market. LCD smartphone panels are expected to fall at a 7% CAGR from 1.2B in 2017 to 843M in 2022 as capacity falls in this segment on lack of profitability and inability to match foldable OLEDs.
On a revenue basis for all applications by 2022 as shown in Figure 5, we expect foldable OLEDs, with their significantly higher prices, to account for 24% of the OLED market with flexible at 50% and rigid at 26%. There is no question that a high percentage of the new capacity is going towards flexible and foldable which will push down prices and drive their growth. Flexible/foldable revenues are expected to grow at a 28% CAGR vs. rigid at an 11% CAGR and total OLED revenues at a 23% CAGR.
With more expensive flexible and foldable OLEDs gaining share along with larger sizes, we expect blended OLED ASPs to be relatively flat throughout the forecast at around $52. The average OLED size is expected to rise by 21% from 5.4” in 2017 to 6.6” in 2022 and OLED area output is expected is expected to rise at a 35% CAGR to 13.1M square meters.
Other highlights of this report include the addition of more model level tracking for smartphones. This report now shows quarterly shipments for over 20 different OLED smartphone models with more added as they come to market.
For more information on this report, please contact Dustin@displaysupplychain.com or (832) 451-4909.
Figure 3: OLED vs. LCD Smartphone Panel Unit Share
Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
Figure 4: Smartphone Panel Shipments by Type
Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
Figure 5: OLED Revenue Share by Form Factor
Source: DSCC’s Quarterly OLED Shipment and Fab Utilization Report
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.
For more information or for feedback on current or future content, feel free to contact me at email@example.com or (512) 577-3672.
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