No Pressure
Samsung Display (pvt) has committed to OLED in a big way, ending its many years of large panel LCD production. The company’s OLED focus has made it the leader in RGB panel production for smartphones, but as OLED became dominant in the small panel market SDC realized that it could not maintain it singular dominance in that space as competition from China increased. To that end, SDC is building RGB Gen 8.6 capacity specifically designed for the production of larger OLED panels for IT products, such as tablets, monitors, and notebooks. There are a number of manufacturing challenges that make this expansion more than just adding capacity as the deposition equipment has to be specially designed and processes have to be modified to make such a change, but as is typical of SDC, they are willing to take the risk to become the leader.
China’s leading panel producer BOE (200725.CH) understands that while it continues to produce large panel LCD displays, it must compete directly with SDC in this emerging space and has begun construction of its own Gen 8.6 OLED for IT fab and Visionox (002387.CH), a smaller Chinese OLD producer has begun the planning for OLED for IT capacity. This leaves one major panel producer, LG Display (LPL), with no announced plans for such expansion, despite its close relationship with Apple (AAPL), who is expected to drive OLED IT demand as it transitions its product line to OLED over the next few years.
LG Display already produces OLED for IT panels on a Gen 6 line and was the first producer to develop the tandem display structure that Apple uses for the iPad, but it does this production on a Gen 6 line, which makes it less efficient than a Gen 8.6 line would be. This has caused considerable speculation about why LG Display has not committed to building a dedicated Gen 8.6 OLED for IT line to compete with rivals SDC and BOE. Much of the speculation was based on LG Display’s financial situation, which has been strained over the last few quarters, but with the sale of the company’s LCD fab in China, the pressure has lessened, and the assumption has been that LGD would commit to the new fab early this year.
It seems that this will not be the case if a story out of South Korea is correct, as it indicates that LG Display is actually preparing to do just the opposite. Instead of adding Gen 8.6 OLED capacity, or adding additional Gen 6 OLED for IT capacity, the information suggests that LGD is actually planning to reduce its existing OLED for IT capacity and convert it to additional Gen 6 OLED capacity to produce iPhones. The motivation for the change would seem to be Apple, who has seen relatively weak demand for the OLED iPad, which has led to lower utilization rates for LGD at its OLED for IT fab. In response the story says that LGD wants to convert some of its Gen 6 OLED for IT capacity to iPhone capacity, as it expects to increase3 its iPhone production for Apple this year by almost 17%.
Such a change would not be cheap as the new iPhone OLED line is expected to cost ~$1.36b US, after LGD spent almost $2.6b US to build the Gen 6 OLED for IT line. It would also indicate that LG Display does not believe that the demand for OLED IT products will grow as quickly as some predict (OLED penetration into the IT market is expected to reach 2.8% this year and 5.2% next year), essentially betting on iPhone growth and its own ability to capture additional iPhone production share from SDC. Given LGD’s relationship with Apple, and the fact that Apple has likely financed a portion of LGD’s Gen 6 OLED for IT fab construction cost with pre-payments, Apple would have to sign off on the plan, a tacit agreement as to the potential for a weaker demand picture for OLED for IT going forward.
All in, this is a major decision for LG Display if the story is true, and one that LG Display has been unable or unwilling to make while others have committed. If LGD decides to reduce OLED for IT and that market takes off it will fall far behind its rivals. If it reduces OLED for IT capacity and OLED IT demand is less than predicted it will have bypassed months or years of low utilization at a very expensive fab. No pressure…
China’s leading panel producer BOE (200725.CH) understands that while it continues to produce large panel LCD displays, it must compete directly with SDC in this emerging space and has begun construction of its own Gen 8.6 OLED for IT fab and Visionox (002387.CH), a smaller Chinese OLD producer has begun the planning for OLED for IT capacity. This leaves one major panel producer, LG Display (LPL), with no announced plans for such expansion, despite its close relationship with Apple (AAPL), who is expected to drive OLED IT demand as it transitions its product line to OLED over the next few years.
LG Display already produces OLED for IT panels on a Gen 6 line and was the first producer to develop the tandem display structure that Apple uses for the iPad, but it does this production on a Gen 6 line, which makes it less efficient than a Gen 8.6 line would be. This has caused considerable speculation about why LG Display has not committed to building a dedicated Gen 8.6 OLED for IT line to compete with rivals SDC and BOE. Much of the speculation was based on LG Display’s financial situation, which has been strained over the last few quarters, but with the sale of the company’s LCD fab in China, the pressure has lessened, and the assumption has been that LGD would commit to the new fab early this year.
It seems that this will not be the case if a story out of South Korea is correct, as it indicates that LG Display is actually preparing to do just the opposite. Instead of adding Gen 8.6 OLED capacity, or adding additional Gen 6 OLED for IT capacity, the information suggests that LGD is actually planning to reduce its existing OLED for IT capacity and convert it to additional Gen 6 OLED capacity to produce iPhones. The motivation for the change would seem to be Apple, who has seen relatively weak demand for the OLED iPad, which has led to lower utilization rates for LGD at its OLED for IT fab. In response the story says that LGD wants to convert some of its Gen 6 OLED for IT capacity to iPhone capacity, as it expects to increase3 its iPhone production for Apple this year by almost 17%.
Such a change would not be cheap as the new iPhone OLED line is expected to cost ~$1.36b US, after LGD spent almost $2.6b US to build the Gen 6 OLED for IT line. It would also indicate that LG Display does not believe that the demand for OLED IT products will grow as quickly as some predict (OLED penetration into the IT market is expected to reach 2.8% this year and 5.2% next year), essentially betting on iPhone growth and its own ability to capture additional iPhone production share from SDC. Given LGD’s relationship with Apple, and the fact that Apple has likely financed a portion of LGD’s Gen 6 OLED for IT fab construction cost with pre-payments, Apple would have to sign off on the plan, a tacit agreement as to the potential for a weaker demand picture for OLED for IT going forward.
All in, this is a major decision for LG Display if the story is true, and one that LG Display has been unable or unwilling to make while others have committed. If LGD decides to reduce OLED for IT and that market takes off it will fall far behind its rivals. If it reduces OLED for IT capacity and OLED IT demand is less than predicted it will have bypassed months or years of low utilization at a very expensive fab. No pressure…
RSS Feed