Q1 OLED Supply/Demand Update – Oversupply in Phones to Persist to 2025

Published March 24, 2020

We have updated DSCC’s Quarterly OLED Supply/Demand and Capital Spending Report for Q1, providing DSCC’s latest capacity outlook for the industry and our forecast for OLED panel demand. As we have reported for more than a year now, OLED supply for smartphones (technically, for Small & Medium applications) continues to significantly exceed demand which is expected to persist for years. However, the supply growth keeps coming primarily due to Chinese government subsidies. We have revised our outlook for OLED TVs on both the supply and demand sides, and we continue to expect high utilization at OLED TV fabs.

The oversupply results from Samsung’s enduring near-monopoly on flexible OLED phone panels, combined with the continuing investment by BOE and other Chinese panel makers in flexible OLED capacity. Because these panels are so challenging to make, all of Samsung’s competitors are struggling with low yields, so despite aggressive expansion plans they cannot make enough panels to significantly impact flexible OLED panel pricing. Samsung chooses to keep flexible OLED panel prices high and is willing to suffer through low utilization rates but keep high profit margins, rather than drop prices to fill their factory. At the same time, they are reducing their capacity by converting current processes to more advanced processes which require additional masks such as integrated touch sensors (Y-OCTA) and LTPO.

DSCC’s OLED capacity outlook extends to 2025 and covers the capacity for 101 different phases of OLED capacity investments, for 13 different panel makers, and details the supply capacity of the industry by manufacturer, by country, by substrate type (flexible/rigid), deposition type, backplane type, color type and form factor.

In both smartphones and TVs, OLED capacity today is dominated by Korean panel makers (Samsung and LGD, respectively), but capacity additions in China, including not only Chinese panel makers but LGD’s addition in Guangzhou, will increase China’s share of capacity from 5% in 2017 to 31% by 2020 and 42% in 2021, but thereafter capacity additions in Korea will roughly keep pace with China expansions, and the China portion stays within the range of 44-47% through 2025.

In OLED TV, China’s share of capacity (overwhelmingly from LGD Guangzhou) will peak at 46% of worldwide capacity in 2021, before investments by Samsung in QD OLED bolster Korea’s leadership in capacity in 2022-2024, and China’s capacity share falls to 38% in 2023 before recovering with investments by BOE and CSOT to reach 45% in 2025.

OLED Input Area for All Applications, 2017-2025

While LGD will continue to lead in OLED TV capacity throughout our forecast, capacity additions by Samsung, BOE, and CSOT will reduce LGDs share of capacity from 100% in 2020 to 55% in 2025, as Samsung grows to 23% of industry capacity.

In Small/Medium OLED, Samsung’s share of capacity will continue its steady decline as their capacity sees modest reductions in 2020-2023 associated with the introduction of Y-OCTA and LTPO, while Chinese panel makers aggressively add capacity. Samsung capacity share was 88% in 2017, but has already dropped to 57% in 2020 and will further decline to 42% in 2025 on an input basis. BOE will pass LGD to become the #2 supplier by capacity in 2020, and LGD will be passed by Visionox in 2022 to fall to the #4 position, and LGD will not surpass 10% of industry capacity throughout our forecast.

OLED Input Area for Small/Medium Applications by Manufacturer, 2017-2025

Source: DSCC’s Quarterly OLED Supply/Demand and Capital Spending Report

Of course, while input area is important, especially for materials suppliers, the supply/demand outlook is shaped by the product mix and yield, and the report works through the details of fab ramps, yield curves, and product mix to estimate the total industry output as shown in the figure below. Our report reflects the reality in the industry that yields on OLED smartphone products are lower than expected for all panel makers except Samsung Display.

OLED Smartphone Panel Output (Supply Capacity in Units) by Form Factor

As this chart shows, nearly all the growth in smartphone output will come from the more advanced form factors, the Flat/Curved types such as the iPhone 11 Pro and Pro Max which use flexible OLED panels in a fixed handset form factor, and the Foldable types like the Samsung Galaxy Fold, Galaxy Z Flip and their competitors.

On the TV side, we have again revised our capacity outlook down compared to our Q4 forecast, based on the continuing delay of the ramp of LGD’s Guangzhou fab, and adjustments for the capacity outlook for SDC, BOE, and CSOT. The result is that OLED capacity for TV and Other applications is expected to rise at a 32% CAGR from 2019 to 2025, from 4.9 million square meters in 2019 to 26.1 million square meters in 2025.

Now shifting to the demand side, the next chart gives DSCC’s outlook for OLED smartphone panel demand from 2017-2025 by form factor in units. We forecast OLED smartphone panels to increase from 462 million in 2019 to 920 million in 2025, with foldable smartphone displays increasing from zero to 60 million.

OLED Smartphone Panel Demand by Form Factor, 2017 - 2025

The DSCC demand forecast includes eleven different applications, and the details are available in DSCC’s Quarterly OLED Shipment Report​. The OLED Supply/Demand report includes a summary of our forecast by application. In unit terms, after smartphones the largest application is the smart watch, expected to increase from 28 million in 2017 to 148 million in 2025. Of course, smart watch demand does little to fill area capacity, but it brings in nice revenues, expected to exceed $2 billion in 2020.

With respect to TV panel demand, we expect it to increase from 1.7 million units in 2017 to 16.8M units in 2025. This forecast based on continuing intense competition from LCD. With LCD panel prices near their all-time lows, the gap between LCD and OLED panels remains wide at nearly 5x for 55” and 65” panels. With such a wide price gap, we believe that LGD will be unable to sustain both high prices and high volumes, and will need to carefully manage its expansion to avoid oversupply and the need to drop prices precipitously.

In working out the total supply/demand balance, we need to work in area terms, and our forecast for OLED display panel area by application is shown in the next chart. While smartphone represented the largest display area in 2019, we expect TV to nearly reach smartphone in 2021 and surpass it in 2022, eventually growing to 57% of all area demand by 2025. The area demand for “all other” applications climbs to 8% of the total, driven by IT applications (monitors, notebooks, and tablets) and smartphones are expected to fall to 35% of OLED area demand.

OLED Panel Demand by Application, 2017 - 2025

Now putting that together into supply/demand picture, the next two charts show our outlook for smartphones for both Rigid OLED and Flexible OLED. We expect OLED smartphone overcapacity to continue for out to 2023, with the overcapacity much higher in flexible panels than in rigid panels.

OLED Supply/Demand for Rigid and Flexible Smartphone Panels

Source: DSCC’s Quarterly OLED Supply/Demand and Capital Spending Report

On the TV side, we expect a “balanced” supply/demand picture throughout the forecast period, with UT% averaging 91% from 2020-2023, based on the dynamic described above. LGD has levers to both accelerate or delay investment in OLED capacity and will work to balance capacity growth with price erosion. LGD’s OLED TV business will be challenged by very low priced LCDs, very large size (75” and larger) LCDs, and dual-cell LCDs within this time horizon. LGD will face a challenge of raising enough funds to invest in OLED while the LCD market struggles to generate cash.

The DSCC Quarterly OLED Supply/Demand and Capital Spending Reportgives a comprehensive perspective on the OLED industry. For more information about the report, please contact Gerry McGinley at 770-503-6318, e-mail gerry@displaysupplychain.com, or contact your regional DSCC office in China, Japan or Korea.

Image Description
Written by

Bob O'Brien