Ok, its finally here, and the leaks, renderings, and the “all you need to know”s will finally end, hopefully.  Not surprisingly, the South Korea press is citing ‘rave reviews around the globe’, ‘game changer’, and assorted other glowing reviews after 25,000 fans squeezed their way into the venue yesterday.  The new phone, which will be available in Korea, Canada, and the US starting on April 21st, is expected to outsell the previous model, the S7, although Samsung Electronics (005930.KS) did not elaborate on details.  The S7/S7 Edge sold ~50m units in 2016, after its March 2016 release, but the ill-fated Note 7 recall put a dent in Samsung’s reputation last year.  Hope that the S8 will wipe that issue from the minds of consumers, leading to sales of 60m units for the new device.
The actual specs are below, with the most important being the display size, which has increased significantly, and the SBR, which has increased by 16% through the movement of buttons and a continued push toward reducing edge bezel size.  While battery details remain the same, we understand that the structure of the battery and its placement in the phone have been changed to avoid the potential issues that caused the Note 7 to overheat.

​At a recent show JOLED (pvt), a Tokyo based company formed in January 2015, as a combination of the OLED efforts of Sony (SNE – 5%), Panasonic (6752.JP – 5%), Japan Display (6740.JP – 15%) and the Japanese quasi-government organization Innovation Network Corporation of Japan (pvt – 75%), showed a number of demos calling out their expertise in the OLED space.  While most potential OLED producers have staked out either small panel (smartphones, smart watches, etc.) or large panel (TV, signage), JOLED has chosen to focus on the medium size OLED market, similar to notebook or monitor size displays, where there is only modest competition.  

Fig. 1 shows JOLED’s 21.6” 4K OLED monitor demo, with a similar product shown for general consumer applications.  Of course, no demo would be complete without the prerequisite flexible OLED shown in Fig. 2, which unfortunately carries no specifications.
JOLED currently is running a small Gen 4.5 pilot line in Ishikawa that is based on ink-jet printing technology from Panasonic and OLED structure from Sony, with the expectation that the company will have completed the 1st phase of construction of a Gen 5.5 OLED fab in April 2018, and the 2nd phase in March 2019.  While some expect JOLED to begin production of a ~20” OLED product this year, we estimate that the current line could produce 12,000 units/quarter at 100% yield, which would be quite optimistic, so we keep our expectations low until the Gen 5.5 fab opens in 2018.
While Japan Display is currently an Apple (AAPL) iPhone display supplier, should Apple migrate that line to OLED displays, Japan Display needs to rapidly build up its OLED capacity to offset the loss of a portion of Apple’s LCD display business and any potential delay in such a timeline could have a significant effect on JDI’s sales.  We note that Japan Display has tentatively agreed to acquire 51% of JOLED, making it a consolidated subsidiary, with a definitive agreement scheduled for March 31, however the agreement date has now been pushed back until late June, 2017, and the completion of the share acquisition, which was to be completed in the 1st half of fiscal 2017, has also been pushed back to late December 2017.  JDI stated that the company has been constructing a new business model and framework toward OLED commercialization, which needs more time to be discussed and completed.  This has the potential for changing the expectations for fab timelines, although JOLED is still funded currently primarily by INCJ, and as such we will not make any changes until we get more complete details as to the progress of the fab planning and construction and whether the timelines will be affected by the postponement.

Compal Electronics (2324.TT) announced plans to invest $101.65m in Leshi Zhixin Electronic Technology (pvt), a subsidiary of LeEco (aka Le.com – 300104.SZ), a Beijing based video company that has been very aggressively expanding in the CE space.  LeEco owns a 20% stake in TCL Multimedia (1070.HK), a holding company that controls the TCL brand in China, and is in the process of acquiring US based Vizio (pvt) for $2b, however in recent months rumors that the company was having trouble paying suppliers due to the rapid expansion of its consumer electronics businesses.
As of 3Q 2016, LeEco had $274.5m in receivables with Compal, as it uses the ODM for its smartphone line, with Compal writing off $11.8m and $22.9m in bad debts in 2H, although attribution to LeEco was not specified.  While LeEco has paid almost 50% of its debt to Compal according to statements made at a recent Compal investor meeting, the acquisition of the 2.15% stake in LeEco seems to be motivated by a need for Compal to see an increase in LeEco’s business to feel comfortable about the somewhat strained financial relationship.  If LeEco’s acquisition of Vizio can get through both Chinese and US security probes, Compal will likely see some TV business from LeEco, whose holdings in TCL give them somewhat deeper access to Chinese LCD panel producer China Star (pvt).
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Apple (AAPL) released its most recent supplier list, which covers 98% of the materials, manufacturing, and assembly of Apple products in 2016.  No longer on the list was panel producer AU Optronics (AUO), who we believe was a supplier of the Macbook Air display in the previous year’s list.  Of course, the Chinese press suggests that Beijing based BOE (200725.CH) will become a key display supplier, joining the ranks of LG Display (LPL), Japan Display (6740.JP), Sharp (6753.JP), and Panasonic (6752.JP) (although we doubt many displays come from Panasonic), although BOE was not on the current list.

Samsung Electronics (005930.KS) has decided to resell refurbished Galaxy Note 7 smartphones (hopefully with new batteries) to customers in emerging markets. Discounts between 30% to 50% of the original price will likely be offered, with speculation that India, Vietnam or Indonesia will be the potential target countries although no specifics have been released by Samsung as to the dates or actual locations involved.  We note that ~3m refurbished Note 7 smartphones will be sold or rented of the ~4m that were recalled (1.9m in the US), and while there are still a few holdouts who refuse to give back their phones (4% in the US), the refurbished phones will not be sold or rented in the US according to Consumer Reports.

While we believe BOE is the most aggressive display panel producer in terms of production capacity, we do not expect BOE to surpass the overall capacity of LG Display by 2019 as stated by IHS in a recent blog.  According to the IHS note, adding both LCD and OLED capacity, BOE will top the list of panel supplier capacity due to the potential for new fab construction, a portion of which is still in the planning stage, however our data suggests that such an occurrence will not happen until after 2020, if at all.
We model 21 panel producers, breaking down capacity by backplane type and display technology, with data going back to 2004, and while BOE certainly has an aggressive capacity growth rate, as can be seen in Fig. 2, 2017 will represent the slowest growth year in the company’s history.  Looking back to the 1st half of 2016, the industry was seeing overall display demand from China, the fastest growing display market, beginning to slow, and panel pricing falling sharply.  Capacity expansion decisions at BOE, and among most other panel producers, were put on hold until companies were able to see at least a slowing of panel price declines. 
As 2016 developed, panel prices began to rise, to a degree based on a recovering North American economy, but also on production issues and fab conversions from LCD to OLED that pushed certain panel sizes into a shortage situation.  As panel prices rose, capacity expansion plans resurfaced, but only those who had bucked the trend during the downturn were able to see real expansion this year.  Samsung Display in particular, has followed a capacity expansion mindset antithetical to other producers, in fact, paying little attention to the current state of the industry, and capacity planning with a much longer-term view.  This was apparent during a number of down cycles, when Samsung Display (pvt) built out LCD capacity while others added little, and even built extensive OLED capacity before the technology has been proven as a highly effective small display modality.
Now that pricing has increased from the 2016 lows, panel producers are returning to the expansion mode, particularly in the OLED space, where the attraction of Apple joining OLED display users has increased the capacity appetites of most display producers.  Fig. 3 shows the capacity growth rates of Samsung Display, LG Display, and BOE, and it should be noted that Samsung Display’s absolute growth rate turned negative in both 2016 and this year, a function of LCD plant closings and their subsequent conversion to OLED production.  Inherently, OLED production takes up more room than LCD production, and therefore OLED production capacity tends to be less than that of the LCD capacity it replaces, producing the negative capacity growth for Samsung.
LG Display however, shows rather consistent capacity growth, particularly since 2012, averaging ~7.8% during that period, and while it pales against the BOE 24% during the same period, LG’s capacity base has been developing since pre-2004 (the beginning of our data collection), while BOE began in a meaningful way in 2009.  All in, we believe LG Display will continue to hold a combined capacity greater than any other panel producer through 2020 at least, and while BOE will certainly challenge that top spot, we believe they will not overtake LG in the 2019 or 2020 timeframe.

Universal Display (OLED) has filed a patent application for a hybrid OLED display that uses typical OLED materials for red, green, and yellow sub-pixels, and uses a micro-LED for generating blue.  The pixel arrangement, as shown below, is one of a number specified in the application, but the concept of importance is the addition of the micro-LED, which, in the diagram below, represents a source of blue light, providing the requisite RGB display. 
The use of a micro-LED in this case would seem to be as a substitution for a fluorescent blue OLED emissive material, which itself is a substitute for a blue phosphorescent emitter.  Currently, deep blue phosphorescent emitters have lifetimes too short to be effective in most consumer devices, and as such fluorescent emitters have been used in their place.  Unfortunately fluorescent emitters have far less of an emissive output than phosphorescent materials, leading to trade-offs, higher power consumption, and less optimal displays, or, in this case, the use of a secondary inorganic device to make up the output shortfall.
Micro-LEDs are being touted as a possible solution to the expensive and IP protected heavy-metal based phosphorescent emitters that are commonly used in OLED displays, however there remain a number of issues currently limiting their use.  As the LEDs are microscopic (the tri-color micro-LED used in Sony’s (SNE) CLEDIS™ technology is .003mm2 or 4.65-6”), they are hard to place accurately, which is essential for consumer displays, and yields are relatively low compared to typical OLED metal mask deposition, which could cause dead pixels in such a display.  Micro-LEDs also have issues with color purity, and while only a single color is being utilized in the IP herein, lessening the possible problems, color filters or other means of controlling the overall color balance of the display could be needed.
That said, the idea of a hybrid OLED display does make sense as an interim solution to the fact that deep blue OLED materials have yet to be fabricated for commercial displays.  New techniques for micro-LED placement, such as directly printing the micro-LED in situ, are being developed, and should the development of blue phosphorescent material continue to elude display material suppliers, such a hybrid device may be an alternative solution.

Either German website Winfuture has discovered a great source, or they made up a great deal of information concerning the Samsung Galaxy S8, which will be unveiled on Wednesday.  We say this because they posted a very complete line-up for the new phone and a comparison to the existing Galaxy S7, which is currently available.  Much of the information on the site has been discussed ad nauseam by others, but this collection seems to cover almost all aspects of the phone.
Obviously Samsung (005930.KS) has a great deal to make up for after the Note 7 recall, but as most consumer electronics companies do, they will just assume consumers will forget the past with the release of the new phone.  This year however, due to the later than usual release date (supposedly they were doing additional testing), LG (066570.KS) has made a bit of a play with its G6, released on Feb. 26, but the real competition will be the release of the 10th anniversary edition of the iPhone 8, which is expected later this year.  Smartphone manufacturers, especially those with well-known ‘flagship’ phones, continue to face encroachment by Chinese smartphone vendors who remain convinced that offering almost all of the features of high-end smartphones at much lower prices will help them gain share.
Looking at Fig. 5, one can see that 7 of the 10 companies with enough share to make the top 10 list are Chinese companies, with two companies (OPPO (pvt) and Vivo (pvt)), which are technically owned by the same company, BBK Electronics (pvt), steadily increasing share (dark yellow & light yellow), while Samsung, Apple, and LG, the non-Chinese vendors, lose share on a yearly average basis (-6.5%, -11.2%, & -15.5%).  While flagship smartphones get much of the publicity and advertising dollars, low and mid-range smartphones are the ones where high visibility brands and Chinese competitors meet head-to-head, and the trend is definitely not in favor of the incumbents.  Samsung and Apple must make significant headway this year to keep from continuing the downward share trend, and while on an overall volume share basis, Samsung and Apple remain the leaders by a significant margin, when totaling Chines vendor share (4Q 2016), it reaches 35.3%, while non-Chinese vendors total 38.7%.  It won’t take much to move the Chinese to the dominant share…

The Beijing Intellectual Property Court has overturned a ruling by the Beijing Intellectual Property Office concerning the alleged infringement claim of a Chinese smartphone manufacturer that the iPhone 6/+ infringed on their patents.  The BIPC overturned the ruling on Apple’s (AAPL) appeal of the claims made by Shenzhen Baili Marketing Services (pvt) last June for which the BIPO granted an injunction that would have halted iPhone 6/+ sales in China.  Apple immediately appealed, staying the injunction.
The BIPC overturned the original decision, stating that its phone could easily be distinguished from the iPhone 6, but Baili is expected to appeal the recent BIPC decision.  Shenzhen Baili Marketing Services seems to be almost non-existent at this point however, with its website deleted, no working phone, and no current offerings, but in what seems to be a Hail Mary effort to gain some financial ground, took on the largest consumer electronics company in the world, in an environment well-known for favoring local vendors and governmental policy over IP law. 
While China has ruled against foreign vendors in many IP cases, and Chinese companies are regularly accused of copying non-Chinese IP, there has been some small movement toward a more realistic approach to IP as China gains ground as a worldwide exporter of consumer products.  In the display space, there is considerably more pressure on Chinese companies to both pay attention to and license IP from other companies, as the desire to expand outside of China makes it necessary for acknowledging foreign IP.  While there will always be the disagreements as to specifics on a product by product basis, Chinese IP law has at least made some progress toward playing by international rules, rather than its own self-interest.  Baby steps, but steps nonetheless.

IHS has predicted that the value of the flexible OLED market will be larger than that of the rigid OLED market by the 3rd quarter of this year on a revenue basis.  Their expectations are for the flexible market to reach $3.2b, edging slightly ahead of the rigid market at $3b, with the flexible market growing over 150% in 2017.  Citing flexible phones from LG Electronics (066570.KS) and Samsung Electronics (005930.KS) on the demand side, and increasing flexible capacity across the industry, IHS expects costs for flexible OLED displays to drop below those of rigid displays as yields improve over time, but sees the higher current cost of flexible displays limiting presenting a challenge to some smartphone brands.
 
We have a slightly different view, based on our evaluation of OLED capacity through 2020.  We do see continued expansion of flexible OLED capacity, and we are speaking about capacity, not revenue in this case, but we make a distinction between what would be raw OLED capacity, either rigid or flexible, and ‘utilized’ or ‘available’ OLED capacity.  When fabs are designed, they are set to produce a maximum number of sheets of substrate/month.  This is the theoretical maximum a fab can produce, with not regard to actual production ability.  When including fab initial ramp up, equipment down time, bottlenecks, and a variety of other actual commonplace manufacturing issues, display fabs do not instantly churn out the maximum number of substrates as stated in their plans.  The ‘available’ capacity, and product yield make the actual determination as to the number of units produced at any given time by the fab, and are most important in determining the actual ‘capacity’ of a fab and the industry on a monthly, quarterly, or yearly basis.
 
As can be seen in Fig. 3, raw OLED capacity, or the number that is commonly used in most research and press items, is considerably greater than the ‘available’ capacity that can actually produce product.  Therefore we would have to assume that any pricing information that is over-laid on our capacity data (‘available’) would likely be lower than the IHS data.  IHS could be completely accurate as to their assumed pricing data, but their baseline capacity assumptions would be higher than ours.  When looking at both raw and available OLED capacity by substrate, as seen in Figs 4 & 5, we still do not see flexible capacity overtaking rigid until after 2020, and while higher pricing on flexible products could offset some of that difference, we see the crossover being further out.
 
We note also that current OLED devices deemed ‘flexible’ are not what would traditionally be called ‘flexible’.  Thus far almost all ‘flexible’ smartphones are ‘conformed’, that is the shape of the display is formed at the factory, and does not have the ability to change.  LG has produced a smartphone that flexes to a limited degree, with the caveat, “The flexibility of this product is limited.  This phone may be bent up to 180⁰ for a limited period of time.  Do not bend inward or twist”, but truly flexible devices are not yet available to consumers, although demos have been around for a number of years.
 
All in, we are getting closer to the commercialization of a truly flexible mobile device, and despite our longer time frame to the crossover point when the flexible OLED market exceeds the rigid one, we do see the industry headed in that direction.  The next question is however, does the consumer want such a device, and is he/she willing to pay a premium for the ability to bend, fold, or twist their phone?  While smartphone brands are going to use flexibility to differentiate their mobile devices, as Samsung has with the more recent Galaxy iterations, they still must create a compelling reason for consumers to want a flexible device enough to pay more than a rigid one, otherwise flexible device sales will be limited to the very top of the consumer purchasing triangle.