Record Display Equipment Results Continue in Q2’17

Display equipment revenues for the 20 publicly traded equipment companies we are tracking were up 2% Q/Q and 67% Y/Y to a record $3.2B. Display equipment revenues have been up double-digits Y/Y for at least 10 consecutive quarters, quite a run which should continue for at least a couple more quarters on the dramatic increase in capex primarily for flexible OLEDs. 

Figure 1: Quarterly Display Equipment Revenues 

Source: DSCC’s Quarterly Display Supply Chain Financial Health Report

By supplier, as shown in Figure 2:

• Six of the 20 suppliers enjoyed over 100% Y/Y growth with companies benefiting from flexible OLEDs enjoying the fastest growth.
• 8 of the 20 suppliers saw Y/Y declines and those companies are typically stronger in LCDs than OLEDs or have limited share in Korea.
• Canon once again led the market due to its strong position in the litho and FMM VTE markets. However, it lost its top position in the litho market in Q2’17 with its share falling from 54% to 40% on a 30% Q/Q decline in shipments. However, it should lead the 2H’17 litho market based on forecasts from Nikon and Canon and should generate over another $1.4B in revenues in 2H’17 between litho and FMM VTE based on our calculations.
• AMAT remained #2 on the strength of its leadership in PECVD and inorganic thin film encapsulation but the diversified supplier also has share in e-beam SEM, PVD and array test markets.
• SFA jumped from #4 to #3 and continues to enjoy rapid growth thanks to its close ties to Samsung and diversified product portfolio.
• Nikon slipped to #4 but enjoyed strong growth on a 24% increase in litho unit shipments which enabled its Q2’17 litho share to rise from 46% to 60%. Despite the strong Q/Q growth, its revenues were down Y/Y as its litho share was more dominant a year ago at 73%.
• AP Systems jumped from #9 to #5 in its first full quarter after it was separated from APS Holdings in March. Revenues surged on significant ELA, lamination and LLO shipments. However, its margins are challenged by the significant pass through of Coherent components and subsystems. 

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Figure 2: Q2’17 Display Equipment Revenues and Growth

Source: DSCC’s Quarterly Display Supply Chain Financial Health Report

Based on the display capex discussed in the previous blog, we believe the entire display equipment market was over $5B in Q217, a record high, and possibly the peak quarter of 2017.
 
Margins improved for equipment suppliers across the board as shown in Figure 3 with operating margins improving from 13% to 15% and net margins improving from 10% to 12%, both record highs. By supplier:

• Canon maintained the highest gross margins followed by Orbotech, AMAT, Coherent and Jusung.
• Korean suppliers had the 5 lowest gross margins.
• Operating income rose 76% Y/Y and 14% Q/Q. AMAT, TEL, Wonik IPS, Coherent and Jusung had the highest operating margins. Y.A.C. was the only supplier with negative operating margins. Looking at just the display divisions, Nikon had the highest operating margins.
  
• Net income rose 21% Q/Q and 75% Y/Y improving from 10% to 12%. AMAT had the highest net margins at 23% followed by Wonik IPS, TEL, Jusung and Coherent. Only YAC lost money in Q2’17.

Figure 3: Q2'15 - Q2’17 Display Equipment Margins

While fewer and fewer Japanese and US equipment companies are showing bookings, most Korean companies publicly reveal their PO amounts and bookings. Q2’17 was a slow quarter for bookings for leading Japanese and Korean companies, down 20% Q/Q but up 57% Y/Y. As a result, backlog fell vs. Q1’17. Note, we are showing all POs and equipment awards in our PO database available to Capex Service customers.
 
Looking at balance sheets and cash flow statements:

• Inventories rose 10% Q/Q. V-Technology had the highest inventory growth, implying a strong Q3’17.
• Debt/equity ratios worsened slightly from 26% to 29% with AMAT and SFA taking on more debt.
• Net debt/equity improved from -11% to -13% on increased cash from operations and free cash flow.
• Cash flow from operations was down 7% Q/Q while rising 11% Y/Y to $2.7B.
• Free cash flow fell 15% Q/Q, while rising 9% Y/Y to $1.9B. AMAT generated the most free cash flow, overtaking Canon. Nikon generated the least due to weakness in its other businesses. 

For more details, please see our Quarterly Display Supply Chain Performance Report.