Displays

Continued Drop in LCD Prices and Increase in CapEx for OLEDs

Display makers are growing concerned as LCD panel prices are falling and the huge burden of adding OLED capacity to offset the LCD down cycle is expected through the second quarter of next year with the Chinese rivals chasing them closely. LCD panel prices for TVs, monitors, and laptops in the second half of this month fell
2.7 percent, 0.5 percent, and 0.6 percent, respectively. In particular, the display industry is already worried about sluggish Q3 earnings as the LCD industry has entered the down cycle. It is predicted that South Korea’s LCD panel production for 2017 would decline to 28.8 percent from 34.1 percent last year.

In contrast, China’s supply is expected to grow to 35.7 percent from 30.1 percent a year ago, and will dominate the market. Taiwan’s display makers are also increasing their production capacity. As a result, Taiwan’s LCD production capacity is expected to rise slightly to 29.8 percent from 28.9 percent, surpassing Korea to gain second place. China is overtaking Korea by selling low-quality LCDs, and it is seeking to change its customer base by importing LCDs from Taiwan, making domestic companies more competitive in the OLED sector.

Financials

UDC Revenue up 104 Percent Y/Y to USD 61.7 Million

Universal Display reported another strong quarter in Q217 with revenues of USD 61.7 million and operating income of USD 15.8 million compared with Q316 of USD 3 million. Key metrics include:

  • OLED material sales. USD 47 million, up 0.5 percent Q/Q and up 100 percent Y/Y.
  • Red emitter revenue. USD 13.6 million, down 0.7 percent Q/Q and up 143 percent Y/Y.
  • Green emitter revenue. USD 32.8 million, up 2.2 percent Q/Q and up 133 percent Y/Y.
  • Royalty and license. USD 12 million, up 131 percent Y/Y; UDC recognizes Samsung license fees in Q2 and Q4 (USD 45 million/quarter in 2017).
  • Technology development. USD 2.7 million, up 30 percent Q/Q and up 71 percent Y/Y.
  • OLED material gross margin. 75 percent.

UDC’s raised guidance to USD 310 million–USD 320 million. The guidance for the year implies a USD 95 million raise in Q4, which would also indicate that either material sales or royalty/license would be lower in Q4 (or both), assuming that the technology development category would be flat to up.

Orbotech Enjoys Another Strong Quarter

Orbotech reported strong Q3 results of
USD 245.7 million and non-GAAP EPS of USD 0.91, which was ahead of consensus of USD 234.2 million and USD 0.83. Guidance for Q4 was
USD 245 million–USD 255 million versus USD 235.3 million consensus. All three of the company’s segments performed well and are expected to continue to do so through the end of this year and
into 2018. Orbotech’s display business, which provides yield management
tools for panel producers, has tapped both the expansion of ultra-large LCD display and OLED display manufacturing with a set of tools that are essential to these processes.

In the PCB space, they have developed a proprietary and unique tool that allows them to grow that segment far in excess of market growth, and in the semi space are the de facto standard in their niche and touch a number of emerging processes that are rapidly gaining traction. The development of these tools, and the company’s ability to adapt them to a rapidly changing environment, is allowing them to maintain strong performance and based on their outlook for the next 24 months, this is expected to continue.

Sharp Corp Reported Net Profit for the Fourth Consecutive Quarter

Sharp posted a net profit of ¥20.2 billion in Q3 2017, reversing a year-earlier loss of ¥17.9 billion. Sharp lifted its profit forecast for the year through March to ¥69 billion originally estimated at ¥59 billion. The company had strong sales of TVs in China and demand for displays for smartphones and tablets was also solid. If achieved, that would be its first annual profit in four years. It posted a ¥24.9 billion loss a year prior. Sharp’s LCD history began in 1973 with the world’s first LCD pocket calculator. In recent years, the company has developed new backplanes, such as the indium gallium zinc oxide (IGZO) for liquid crystal displays, ultra-high resolution (8K) LCDs, free-form displays, transparent displays, and is now focusing on OLED development.

The company is also utilizing EDA tools from Silvaco in the design of cutting-edge display technologies. The company is hoping to regain the technological edge in ultra-high resolution television sets, smart housing devices, and advanced displays for medical equipment and security systems.

Production

Gen 10.5 Fabs to Change the Landscape of Large Area Displays

With competition in the TV panel market gradually mounting in the 55-inch and greater segment, some makers have been aggressively investing in new 10.5G production lines, including China’s BOE, HKC, and CSOT; Japan’s Sakai Display Products (SDP); US’s Foxconn, and Korea’s LG Display. For their 10.5G production, panel makers are mostly eyeing 65-inch and above 4K–8K applications that will facilitate their competition in the high-end TV panel market.

BOE’s 10.5G line began construction in December 2015 with an investment of CNY40 billion. The facility is planned to be used for manufacturing 65-inch and above ultra HD panels and will be able to roll out 120,000 glass substrates a month after entering mass production. The plant will start operation in the second quarter of 2018. BOE was one of the earlier developers of 8K panels.

CSOT announced a plan to establish a 10.5G line in November 2016, investing a total of CNY53.8 billion. The facility is designed to process 120,000 glass substrates a month, but will only deliver half of that amount initially. Mass production is planned for the first half of 2019 and the capacity will be used to manufacture 43-inch, 65-inch, and 75-inch LCD and OLED panels for 8K devices.

China-based HKC, a newcomer to the LCD panel industry who has already invested in an 8.6G LCD production line, originally planned to build a 10.5G LCD production line, but has aborted the plan because of the failure to acquire government approval.

SDP, which is indirectly controlled by the Foxconn Group, signed a cooperation framework agreement with the city government of Guangzhou, China in December 2016. The two sides have agreed to invest CNY61 billion to establish a 10.5G production line in Zengcheng district of the city and will construct factories for manufacturing displays, smart TVs, and digital whiteboard products and also develop high-end display technology and applications. SDP’s 10.5G facility will use IGZO technology for its panel production and will start mass production by the end of 2019.

The facility is scheduled to manufacture 8K LCD panels and will process 90,000 glass substrates a month. It will supply industrial applications for sectors including industrial Internet of Things (IoT), IoV, entertainment, medical care, education, and security. Since Nikon is the only toolmaker capable of supplying manufacturing coater/developer equipment for 10.5G lines, SDP and LGD may see delays in starting 10.5G mass production.

Foxconn is also preparing to build a Gen 10.5 OLED fab in Wisconsin and will use IGZO backplanes.

Chinese display makers have caught up with Korean companies in terms of the number of large LCD panels. China rose to the top of the world by outclassing Taiwan for the first time in shipments of large LCD TVs in July, 2017. China’s share is still expanding mainly in the LCD sector. China is also expected to add OLED capacity.

LGD Gets Preliminary Approval to Begin Conversion of Gen 8.5 in Guangzhou from LCDs to OLEDs

LG Display met with the South Korean Ministry of Trade, Industry, and Energy (MOTIE) to present their case as to why they should be allowed to build an OLED panel production fab in Guangzhou, China. The government has expressed concern that LGD’s plans could cause OLED TV manufacturing expertise to be leaked to Chinese panel producers and potentially damage the South Korean OLED industry. LGD made a third presentation to a subcommittee specifically formed for this project review.

The subcommittee approved the project, which involves the conversion of an LG Display 120,000 sheet a-Si based Gen 8.5 LCD production line that went into operation in Q3 2014, into a 60,000 sheet oxide based Gen 8.5 OLED line, which will be used to produce OLED TVs using VTE equipment similar to their operation in Korea. The project still requires approvals from various other committees and administrators, which are expected to take roughly one month, during which time LGD can begin the conversion.

The benefit to LG in reducing their overall panel capacity is to make OLED TVs more competitive by eliminating the import tax on display panels sold in China. This tariff, which is between 5 percent and 15 percent for open cell panels and 30 percent for fully completed displays, takes all of LGD’s profit when assembling OLED TVs on the mainland. Since the majority of TVs are assembled in China and since China is the world’s largest market, OLED TVs will be the recipient of a major cost reduction.

After the approval, LG Display would begin the conversion, which could be completed (phase 1) by April 2019. LG Display’s goal of shipping between 2.5 million and
2.7 million OLED TVs next year (up from 1.7 million this year) and 6.5 million by 2020 will only be achieved if the conversion is accomplished.

Material

Graphene Could Replace Thin-Film Encapsulation

First-generation OLED displays were protected with a cover glass or a metal sheet, but these materials have limited bending characteristics and are not used in flexible OLEDs. There is work going on using thin glass that is 50–100 µm, which may be suitable. Flexible OLEDs are encapsulated with thin-film encapsulation layers made from both organic and inorganic materials, but companies are searching for thinner and less expensive methods.


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