Q3 OLED Supply/Demand Update – Oversupply in Phones to Persist to 2023

Published September 24, 2019

We have updated DSCC’s Quarterly OLED Supply/Demand and Capital Spending Report for Q3, with 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 for smartphones (technically, for Small & Medium applications) continues to have a substantial oversupply which is expected to persist for years. We have revised our outlook for OLED TVs on both the supply and demand sides, and while we continue to expect high utilization at OLED TV fabs, we no longer describe this as supply constrained.The oversupply results from Samsung’s enduring near-monopoly on flexible OLED phone panels. 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 affect flexible OLED panel pricing. Samsung chooses to keep flexible OLED panel prices high, and suffer through low utilization rates but keep high profit margins, rather than drop prices to fill their factory.

As DSCC has expanded our OLED capacity outlook out to 2025, the latest report covers the capacity for 93 different phases of OLED capacity investments, over 15 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 36% by 2020 and 43% in 2021, but thereafter capacity additions in Korea will keep pace with China expansions, and the China portion stays within the range of 41-43% through 2025.

In OLED TV, China’s share of capacity (overwhelmingly from LGD Guangzhou) will peak at 47% of worldwide capacity in 2020, before investments by LGD in Gen 10.5 and by Samsung in QD OLED bolster Korea’s leadership in capacity in 2021, and China’s capacity share falls to 33% in 2025.

OLED Input Area for All Applications, 2017-2025

Source: DSCC OLED Supply / Demand and Capital Spending Report

While LGD will continue to lead in OLED TV capacity throughout our forecast, capacity additions by Samsung (QD OLED Gen 8.5 and later Gen 10.5), BOE (White OLED Gen 8.5) and CSOT will reduce LGDs share of capacity from 99% in 2018 to 54% in 2025, as Samsung grows to 31% of industry capacity.

In Small/Medium OLED, Samsung’s share of capacity will decline from 88% in 2017 to 38% in 2025, as LGD and many Chinese panel makers expand their capacity. We now calculate that BOE has passed LGD to become the #2 supplier by capacity in 2019, 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 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

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

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 XS which use flexible OLED panels in a fixed handset form factor, and the Foldable types like the Samsung Galaxy Fold and its competitors.

On the TV side, we have revised our capacity outlook down compared to our Q2 forecast, based on three factors: a slower ramp of LGD’s Guangzhou fab, a lower final capacity for that same fab, and a delay in LGD’s Gen 10.5 fab. The result is that OLED capacity for TV and Other applications is expected to rise at a 32% CAGR from 2017 to 2025, from 3.3 million square meters in 2017 to 30.6 million square meters in 2025.

Now shifting to the demand side, the next chart gives DSCC’s outlook for OLED smartphone panel demand from 2017-2023 by form factor in units. We forecast OLED smartphone panels to increase from 404 million in 2017 to 880 million in 2023, with foldable smartphone displays increasing from zero to 53 million.

OLED Smartphone Panel Demand by Form Factor, 2017 - 2023

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

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 103 million in 2023. Of course, smart watch demand does little to fill area capacity, but it brings in nice revenues, expected to increase to nearly $2 billion in 2021.

With respect to TV demand, we expect it to increase from 1.7 million units in 2017 to 12.6 million units in 2023. This forecast is revised down from our Q2 outlook, based on a slower growth of capacity but also based on more intense competition from LCD. With LCD panel prices reaching all-time lows, the gap between LCD and OLED panels is wider than ever at more than 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 represents the largest display area in 2018, we expect TV to surpass smartphone in 2021 and grow to 53% of all area demand by 2023, while the area demand for “all other” applications climbs to 10% of the total, driven by IT applications (monitors, notebooks, and tablets), and smartphones fall to 37% of OLED area demand.

OLED Panel Demand by Application, 2017 - 2023

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

​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 the duration of our forecast out to 2023, but the surplus is slightly reduced from our Q2 outlook. In our Q2 outlook, the surplus for rigid/flexible panels was 14% and 23%, respectively, and these numbers have been trimmed to 13% and 17%.

OLED Supply/Demand for Rigid and Flexible Smartphone Panels

Source: DSCC 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, and 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 Report gives 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.

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Written by

Bob O'Brien