Alternatives - Part I
As the display industry matures, display production becomes increasingly application specific, with broad segment headers like ‘TV’ or ‘IT’ becoming anachronistic, and sub-categories becoming the only way panel producers can differentiate themselves from each other. There are many ‘large panel’ and ‘small panel’ display producers, but even if you are a leader in a particular panel application, the competition can be quite intense and the inherent cyclicality of the industry, devastating to profitability. As that cyclicality peaks, as it did in July of last year, panel producers try to narrow their focus on those applications or processes that carry the highest premiums. While this is a viable strategy in the near-term, LCD fabs are not always designed or equipped to make those changes, which means capital cost and becoming part of a queue for equipment delivery. In some cases, by the time the equipment is delivered and the production changes are made, that particular application niche becomes crowed with other producers and premiums disappear, which belies the strategy’s positive effect on profitability.
The alternative is to approach the panel business as one that anticipates rather than follows the application trends, and while this is a seemingly obvious path, it presents its own challenges and risks. First, the research involved in advancing display technology usually starts on a small scale, typically a lab project that takes an idea and produces a small scale ‘proof of concept’ device or process that either solves existing display technology limitations, or makes a step toward a new basic display technology or ‘flavor’ of an existing one. This is a tricky stage as the researchers will likely aggressively promote the merits of the idea, citing a variety of reasons why and how it can scale to a mass production level, while process engineers must build a model that can quantify the cost, potential scale problems, and the availability of the equipment necessary to build out such capacity, with product marketing trying to figure out whether there is or will be a market for the application best served by the technology and whether it is sustainable enough to justify the cost.
If a project makes it through the POC stage, it will typically move to the construction of a pilot line, a small line that gives process engineers a taste of how the scale model will transfer to production on a physical basis. Such lines are variable in that they usually undergo modifications as process bottlenecks and problems occur, with panel producers working with equipment vendors as to the feasibility, cost, and timelines needed to bring up a full mass production line. If the display process seems practical, a few samples will be made on the pilot line to be shown to key customers to see if they spark enough interest to validate the expansion to mass production.
To this point, the cost of the project is typically buried in R&D expenses, however if the project seems practical and there is customer interest, C-level decision acceptance of moving the model to mass production status begins a far more substantial capital budget process. Given that the cost of even a small mass production display line can cost hundreds of millions to billions, the risks involved in such a decision can exceed the resources of many panel producers or stress the level of profitability across the entire company. What makes this even more difficult currently is that there are a number of emerging display technologies that are vying for capital, all hoping to become the basis for the display supply chain over the next few years, which increases the risk of picking the wrong technology or application even higher than in past years for smaller panel producers, and spreading R&D too thin for larger panel producers.
LCD technology has been the basis for the display industry for many years and advances in LCD process technology continue to be made however as that technology has matured it becomes more difficult for those advances to be substantial , which forces LCD panel producers to look for premiums by finding niche products where competition is less onerous. Years ago LTPS (Low temperature Poly-Silicon) was the TFT backplane process that was touted as the replacement for a-Si (Amorphous Silicon) that had been used since LCD production began, and many panel producers converted TFT lines to the new technology to capitalize on its benefits, especially in small panel production. This transition took years for many panel producers, so those who anticipated the transition were able to capitalize on the premiums afforded the new technology.
In 2012 Sharp (6753.JP) began production of a new TFT backplane technology based on IGZO (Indium Gallium Zinc Oxide) that promised to improve LCD backplane technology once again, and while this technology was more difficult to master from a process standpoint, larger panel producers began to adopt IGZO for specific panel applications, while small producers were still working toward LTPS adoption. In 2014 Apple (AAPL) commissioned the use of another TFT backplane technology in the Apple Watch Series 4, and while this technology, which is a combination of LTPD and IGZO, is to be Apple’s ‘goto’ mobile display technology, there are only a few panel producers able to produce the technology, with Samsung Display (pvt) the only current commercial provider for smartphones and similar devices.
While Apple will likely have 2 or 3 LTPO suppliers in 2023, smaller panel producers will be years behind, with many still working toward adopting IGZO, with the timeline between each iteration of this one aspect of LCD technology becoming shorter. Without the most current backplane technology smaller producers will find it difficult to gain access to major CE brands and will be forced to focus on more generic panel technologies, which are far more cyclical. As noted this is just one aspect of display technology and one that is rarely in the public eye, so early development cycles were able to be long as demand from consumers was relatively minor, but as ‘front of display’ technologies, such as OLED, began to gain public traction, the time-to-market for each new display technology ‘leap’ became compressed.
In Part II of “Alternatives” we look at some of the more recent display technologies that are vying for R&D and capacity expansion dollars and how smaller panel producers are being forced to adopt the ‘niche-or-die’ strategy mentioned above. Stay tuned.
The alternative is to approach the panel business as one that anticipates rather than follows the application trends, and while this is a seemingly obvious path, it presents its own challenges and risks. First, the research involved in advancing display technology usually starts on a small scale, typically a lab project that takes an idea and produces a small scale ‘proof of concept’ device or process that either solves existing display technology limitations, or makes a step toward a new basic display technology or ‘flavor’ of an existing one. This is a tricky stage as the researchers will likely aggressively promote the merits of the idea, citing a variety of reasons why and how it can scale to a mass production level, while process engineers must build a model that can quantify the cost, potential scale problems, and the availability of the equipment necessary to build out such capacity, with product marketing trying to figure out whether there is or will be a market for the application best served by the technology and whether it is sustainable enough to justify the cost.
If a project makes it through the POC stage, it will typically move to the construction of a pilot line, a small line that gives process engineers a taste of how the scale model will transfer to production on a physical basis. Such lines are variable in that they usually undergo modifications as process bottlenecks and problems occur, with panel producers working with equipment vendors as to the feasibility, cost, and timelines needed to bring up a full mass production line. If the display process seems practical, a few samples will be made on the pilot line to be shown to key customers to see if they spark enough interest to validate the expansion to mass production.
To this point, the cost of the project is typically buried in R&D expenses, however if the project seems practical and there is customer interest, C-level decision acceptance of moving the model to mass production status begins a far more substantial capital budget process. Given that the cost of even a small mass production display line can cost hundreds of millions to billions, the risks involved in such a decision can exceed the resources of many panel producers or stress the level of profitability across the entire company. What makes this even more difficult currently is that there are a number of emerging display technologies that are vying for capital, all hoping to become the basis for the display supply chain over the next few years, which increases the risk of picking the wrong technology or application even higher than in past years for smaller panel producers, and spreading R&D too thin for larger panel producers.
LCD technology has been the basis for the display industry for many years and advances in LCD process technology continue to be made however as that technology has matured it becomes more difficult for those advances to be substantial , which forces LCD panel producers to look for premiums by finding niche products where competition is less onerous. Years ago LTPS (Low temperature Poly-Silicon) was the TFT backplane process that was touted as the replacement for a-Si (Amorphous Silicon) that had been used since LCD production began, and many panel producers converted TFT lines to the new technology to capitalize on its benefits, especially in small panel production. This transition took years for many panel producers, so those who anticipated the transition were able to capitalize on the premiums afforded the new technology.
In 2012 Sharp (6753.JP) began production of a new TFT backplane technology based on IGZO (Indium Gallium Zinc Oxide) that promised to improve LCD backplane technology once again, and while this technology was more difficult to master from a process standpoint, larger panel producers began to adopt IGZO for specific panel applications, while small producers were still working toward LTPS adoption. In 2014 Apple (AAPL) commissioned the use of another TFT backplane technology in the Apple Watch Series 4, and while this technology, which is a combination of LTPD and IGZO, is to be Apple’s ‘goto’ mobile display technology, there are only a few panel producers able to produce the technology, with Samsung Display (pvt) the only current commercial provider for smartphones and similar devices.
While Apple will likely have 2 or 3 LTPO suppliers in 2023, smaller panel producers will be years behind, with many still working toward adopting IGZO, with the timeline between each iteration of this one aspect of LCD technology becoming shorter. Without the most current backplane technology smaller producers will find it difficult to gain access to major CE brands and will be forced to focus on more generic panel technologies, which are far more cyclical. As noted this is just one aspect of display technology and one that is rarely in the public eye, so early development cycles were able to be long as demand from consumers was relatively minor, but as ‘front of display’ technologies, such as OLED, began to gain public traction, the time-to-market for each new display technology ‘leap’ became compressed.
In Part II of “Alternatives” we look at some of the more recent display technologies that are vying for R&D and capacity expansion dollars and how smaller panel producers are being forced to adopt the ‘niche-or-die’ strategy mentioned above. Stay tuned.
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