Ten Predictions for 2019 – How Did We Do?
In the first edition of the DSCC Weekly Review this year, I wrote a story giving ten predictions for the year. Now that we’re at the last edition of the year, and the year is almost over, it’s time to revisit how we’ve done.
#1) iPhone Sales Will Decline
Even when I wrote it in January, I admitted it was a layup, almost too easy. Unfortunately, while I’m sure the result did bear out this prediction, in terms of units I can’t confirm that from Apple’s data, since Apple no longer discloses its unit sales of the iPhone. Apples iPhone revenues of $90.4 billion through the first three quarters of the year, though, are down 14% from the corresponding 2018 total, and no one expects this to reverse in Q4.
DSCC doesn’t track handset shipments, but our latest estimates for panel demand suggest a 14% drop as well, from 247 million to 213 million, and one estimate of handset sales by Cleveland Research has an 11% decline, from 208 million to 186 million.
The picture hasn’t been all bad for Apple, though, as the iPhone 11 with an LCD display has done better than expected, and the consensus expectation is that 2020 will be a recovery year, with three new OLED- screen models in the fall of 2020 and the introduction of 5G leading to higher sales in both revenue and units next year.
#2) Foldable Phones Will Appear but Remain a Novelty
I said at the beginning of the year that while foldable phones represent the Next Big Thing in display technology, in 2019 they will remain a high-end niche. That certainly describes the reality today. We saw the failed introduction of the Samsung Galaxy Fold in April, but with some small changes the product was re-introduced in the fall, and the early feedback is that sales are running better than expected (better than the expectations of the early fall, anyway, after those expectations had been battered down by the spring failure).
We’ve seen reviews and descriptions of additional foldable models from Huawei and Motorola, but these products are not yet available to the public. The rollout of foldable is coming slower than we expected, but it’s coming.
#3) LCD Oversupply Will Continue to Get Worse
The capacity additions of the last two years brought an oversupply for LCDs that hit panel prices hard during the year. TV panel prices for December 2019 are down 27% Y/Y, and the toll over the last two years is 46%. Prices are now at or even below cash costs for many players, leaving all of the panel makers scrambling to find profit refuges to ride out the storm.
With very few exceptions (Tianma and Hannstar among these), all of the companies making LCDs lost money in Q3 2019, and the display industry as a whole managed a positive operating margin only because
Samsung made massive profits on flexible OLED panels. The three biggest non-Chinese panel makers – LGD, AUO, and Innolux – each recorded operating margins in Q3 of -8%. These miserable results are likely to continue in Q4, with a good chance they will be even worse. Which has led directly to the next prediction.
#4) Fab Shutdowns Will Be Announced
While I was certainly right about this, and specifically called out Samsung taking down Gen 8.5 capacity to shift to OLED, I did not predict the corresponding reduction by LGD. I predicted that smaller gen a-Si fabs would be shut down, rather than Gen 8.5.
The big shutdowns were in Korea, by LGD in Paju and Samsung Display in Tanjeong. Together the capacity reduction by these two firms will take more than 15 million square meters per year of TFT capacity offline, or about 5% of total industry capacity. Another prominent shutdown occurred in the mobile space, as Japan Display shut down its ill-fated Hakusan Gen 6 line.
#5) Automotive Displays Will Remain a Bright Spot
The auto display segment indeed fulfilled its role this year of providing a profit island for panel makers amidst an ocean of loss-making segments. One company that has sustained its profits, Tianma, has specialized in automotive display panels (along with mobile phone panels) and sustains an area price four times higher than its nearest competitor. Two other companies that have struggled with profitability, AUO and Japan Display, have noted that sales of automotive panels have been much more profitable than commodity panels in other applications.
As a capstone for the automotive market in 2019, Cadillac this week announced that the 2021 Escalade will include a 38” curved OLED dashboard display (see article this issue).
#6) The US-China Trade War Will Simmer
This was a relatively pessimistic prediction in January, when many observers expected a trade deal to come in the spring. The reality in 2019 was much worse; the US imposed punitive tariffs on $250 billion in China imports in April, talks on a grand deal broke down in May, and in August President Trump announced that nearly all remaining China imports would be hit by punitive tariffs, in two stages with the first stage on September 1st and the second stage on December 15th.
The List 4A of products hit with tariffs on September 1st included TVs, so TVs imported from China since that date have been subject to a 15% punitive tariff, on top of the pre-existing 3.9% duty. A “Phase 1” deal was announced at the eleventh hour late last week to avert similar duties on the List 4B goods, which include smartphones, tablets, laptops, and monitors. The Phase 1 deal reduces the List 4A tariffs from
15% to 7.5%, in exchange for Chinese commitments to buy quantities of US agricultural goods.
While the Phase 1 deal was announced, it has not yet been signed, so for the time being the 15% tariff on TVs remains in place. There are some doubts that the Phase 1 deal will take effect: details of the deal have not been published, and there are substantial differences in the accounts given by the US and China sides as to what the deal entails.
The US-China trade war contributed substantially to the display industry’s woes in 2019, exacerbating the oversupply. First, the fear of tariffs led TV makers to accelerate shipments into the US in the fourth quarter of 2018 and the first half of 2019. This created an inventory bulge that led to weaker demand in the second half of 2019. When the tariffs on TVs were announced in August 2019, TV production in China for the US market was cut sharply, leading TV panel prices to decline in Q3 and Q4 to their current all-time-low levels.
Monthly US TV Imports from China, 2016-2019
#7) New Display Investments Will Continue to Come in China
For several years now, China has been the main place for display capacity investments, as government subsidies from the country’s “Made in China 2025” initiative have favored investment there. While there was one noteworthy reduction in the China build, and a few delays, the overall picture of China capacity is increased from last year’s view, as shown on the chart here.
Sharp’s (or Foxconn’s) Gen 10.5 plant in Guangzhou has been the notable reduction compared to last year. That fab was expected to start production in Q3 2019, but is now delayed to 2020. and while it was originally planned to ramp to 90,000 substrates per month, it now will only go to 45,000, according to our estimates. Similarly, whereas last year’s view included with lower probability an HKC Gen 10.5 fab in Zhenzhou starting in Q4 2021, that fab no longer holds a place in our outlook.
The declines in capacity have not been limited to G10.5 as we saw HKC downsize its G8.6 capacity from 150K to 120K at both H2 and H4 in 2019 and 2020 respectively. Despite these declines, China capacity nearly doubled between 2016 and 2019 and is expected to more than triple from 2016 to 2023.
China Display Capacity, Q4 2018 View vs. Q4 2019 View
#8) Another Major Brand Introduces OLED TV
After OLED TV had a very successful year in 2018, there were only a few holdouts that remained exclusively in the LCD camp, including Samsung, TCL, and Vizio.
Samsung announced this fall that they planned to invest $11 billion to develop and manufacture Quantum Dot OLED TV panels, but we expect those products will only be available from 2021, and at first they may only be sold within the Samsung brand.
At the beginning of the year, I predicted that Vizio would move into the OLED camp, and while they have not introduced an OLED TV product in 2019, we understand that they will do so in 2020. This leaves TCL as the only major brand without OLED in its TV portfolio.
#9) Inkjet Printed OLED Will Get Closer to Commercialization
While in one sense this prediction has been fulfilled, in terms of industry impact the reality in 2019 is that this prediction is more wrong than right.
The Gen 5.5 fab for JOLED in Nomi was scheduled to start production in Q1 2020, and JOLED announced earlier this month that mass production had commenced ahead of schedule. This fab will make OLED panels for specialty monitor markets using an inkjet printing architecture and using Sumitomo Chemical’s polymer-based OLED materials. Japanese monitor maker EIZO announced the first OLED monitor using this technology in November.
While the JOLED start-up undoubtedly brings inkjet printed OLED into the commercial arena, it falls short of realizing the promise of IJP for OLED. This small fab for 20k Gen 5.5, even when it is fully ramped in 2021, will represent less than 3% of OLED capacity for large-size OLED panels, and there are as of now no plans to expand this capacity. It remains to be seen whether this polymer approach will represent a revolution or a dead end.
LG Display, BOE and China Star have been actively pursuing IJP for OLED TV using multiple material approaches including small molecule OLED, based on materials supplied by Merck and LG Chemical (LG Chem acquired the IP assets of Dupont in early 2019). While we have seen demonstrations during 2019 of this technology by all three companies, including an 8K 55” OLED TV panel shown by BOE last month, wecontinue to see commercialization of IJP OLED as several years away. A year has passed, and we hardly seem closer.
#10) No Phosphorescent Blue OLED Emitter, no TADF Commercialization
In January, I wrote: “An efficient blue emitter is the Holy Grail of the OLED materials business, but like that legendary cup it is likely to re- main hard to find in 2019.” Whether you take the original King Arthur legend or its Monty Python parody, the Holy Grail is never found, and at least for 2019 that holds true for an efficient blue emitter as well.
Cynora reported at the SID DisplayWeek 2019 conference in May that they were pursuing two different approaches to develop a Thermally Activated Delayed Fluorescence (TADF) blue emitter material. Cynora described a “self-emitting” approach, using a single material, and a “co-emitting” approach using two materials. They reported achieving the commercial thresholds for efficiency and color point, but were still a factor 10x below the threshold for lifetime, figures that were largely the same as reported in 2018. Kyulux reported progress on a “hyperfluorescent” blue material (essentially the same approach as Cynora’s co-emitting material), but their blue with a peak wavelength of 470nm does not meet the deep blue needs of today’s devices.
As for Universal Display, each quarter the company used identical language in its earnings call about phosphorescent blue: “we continue to make excellent progress at our ongoing development work for our commercial phosphorescent blue emissive system.” That language has not changed in more than two years, and the company’s management fiercely resists any requests to put a timetable on the development.
Overall, I could argue that I got 10 out of 10 right, at least in part. Although a few of these (like the iPhone) were easy predictions, some others (like the trade war or efficient blue OLED) were pretty aggressive. Given the track record of 2019, I’m encouraged to become more aggressive with predictions for 2020, which you will find in the first edition of the new year.