Samsung to Qualify BOE on Galaxy?
The flexible OLED market is ripe for a price war in our opinion due to its high prices and low utilization and we may get one sooner than later as multi-sourcing becomes more widespread.
Arguably the first step towards a price war is sourcing panels from multiple panel suppliers across a growing number of products. In 2H’19, we saw the iPhone 11 Pro Max split business between LGD and SDC and we should have seen it on the XS Max in 2H’18 but LGD struggled to meet Apple’s quality standards. We also saw Huawei multi-source the Mate 30 Pro between BOE, LGD and SDC in 2019 and into 2020. In all cases of multi-sourcing, SDC has been the dominant supplier which makes sense given its more mature yields and advanced device technology.
In 2020, we are seeing a growing number of products multi-source flexible OLED panels including:
- Huawei P40
- Huawei P40 Pro
- Motorola Razr
- Oppo Reno 3 Pro
- Xiaomi CC9 Pro/Note 10
- Apple iPhone 11 Pro Max
We have also seen and published rumors of Apple adding BOE to its supplier list in 2021 for multiple models. We think it is inevitable that Apple adds BOE to its qualified supplier list given:
- Apple’s OLED ambitions;
- BOE’s rapidly growing capacity especially vis-à-vis LGD which is not adding capacity;
- BOE’s lower prices vs. SDC and LGD;
- BOE’s improvements to its manufacturing and device technology and yields.
One brand left out of this discussion so far has been Samsung. Samsung’s Galaxy has been exclusively buying panels from Samsung Display. However, we think this will change soon because:
- Samsung wants lower panel prices and costs too, especially since its largest competitors – Huawei and Apple - and other brands are sourcing or plan to source more from BOE and other suppliers.
- All procurement managers want to have multiple sources of supply to prevent supply chain disruptions like we have seen from COVID-19, fires, earthquakes or other natural disasters.
- Samsung Display can sell its panels for higher prices outside of Samsung than it can inside of Samsung.
- Many brands want to buy more from Samsung Display given their more reliable yields and advanced technology such as Oppo, Vivo, Xiaomi and many others.
- BOE reached an agreement on ultrasonic sensors with Qualcomm which Samsung Galaxy uses.
- BOE has already been supplying OLEDs to Samsung Electronics’ smart watch business on the Galaxy Watch Active.
We are now hearing that Samsung is looking to qualify and reach an agreement with BOE for its Galaxy smartphones by as early as June for the following products:
- The 2021 S Series likely called S21. BOE is reportedly in discussions on the middle level product which would correspond to the S21 + which we hear will be 6.67”. This product would be launched in Q1’21.
- The largest of the A Series models, the A91, which could launch in Q4’20 with a 6.67” FHD+ OLED.
This should be a catalyst for BOE’s stock which is down 20% this year. BOE has made significant progress with its device technology and yields, has a growing amount of flexible OLED capacity and is known to be pricing more aggressively to win more OLED business. BOE would not be the exclusive supplier on any Samsung models near term, multi-sourcing would be used. We also hear that another supplier will likely be qualified in the near future as well such as China Star which has ties to Samsung Display in LCD TV panels.
While multi-sourcing is the first step, the second step is for the #2 supplier to close the gap in performance, yields, quality, reliability, support and other aspects of becoming the #1 supplier. Once the performance/quality gap is narrowed, lower prices can result in a shift of significant volume to the new supplier and a price war can happen.
We believe the OLED market is ripe for a price war given the poor utilization figures, just 56% in 2020 (shown quarterly in the chart) and the relatively high prices at $77 in 2020 for flexible on a blended basis vs. $27 for rigid. What is holding the price war back is the wide gap in performance, yields, quality, etc. between the suppliers. With more brands now multi-sourcing, the supplier performance gap is closing, and these secondary suppliers could win significant business as their performance improves and their lower prices sway customers to shift allocation. If SDC responds with lower prices of its own, the second supplier will likely do so as well to maintain that gap and the price war is on. As a result of the increased competition in flexible OLEDs, we see Samsung Display’s revenue share falling from 80% in Q4’19 to 69% in Q4’20.