Qingdao, China-based Hisense (600060.CH), the 3rd largest TV manufacturer worldwide (actually tied with TCL (000100.CH) for 3rd place) has 2.6 active TV subscribers in the US,  which is expected to grow to 6m by 2018, which will cover ~20m US viewers.  While Hisense is the top selling brand in China, and has 23.4m subscribers in China, most Chinese brands have little sponsorship in the US and their subscriber base (made up of those smart TV buyers who sign up for subscription services offered by the brand) in the US is small.  Hisense had the forethought to align with Netflix (NFLX), who has more than 49m subscribers in the US and over 93m worldwide, although its direct services remain unavailable in China, where it sells individual content only.

The cooperation between Hisense and Netflix should continue to open both the US to Hisense and China to Netflix, especially given Netflix increasing proportion of successful original programming (House of Cards, Orange is the New Black) and wide range of content streaming deals, and the Chinese focus on ‘smart TVs’, which allow a direct streaming connection to content.  When looking at the Best Buy on-line ‘smart TV” offerings, one notes that Hisense is the only Chinese TV brand offered within the first 169 smart TVs (out of 183) and appears on the first page, along with LG (066570.KS)), Sharp (6753.JP), Samsung and Insignia (Best Buy private label)

Taiwanese start-up Mikro Mesa (pvt) and HKC (248.HK) have agreed to collaborate on the development of micro-LED technology through a jointly funded development lab to be built in Chongqing, China.  The lab, which is expected to be completed by the end of this year is expected to be producing micro-LED displays by 2018.  Micro-LED technology is based on extremely small LEDs that can produce an emmissive display similar to OLED displays, but at lower cost (theoretically).

Mikro Mesa and others have been working toward reducing the size of such LEDs to match the resolution of both LCD and OLED displays, but have found issues such as light leakage (between LED pixels) and high power consumption and heat generation have increased the need for further development of the technology.  By reducing the size of each LED, the power consumption and leakage can be reduced, and 50μm x 50μm LEDs can be potentially used for large displays that do not need the high resolution expected in TVs.  Moving the technology to the consumer display space however, would entail reducing LED sizes, which is the direction of the joint development project.

Mikro Mesa has developed a 3μ x3μ LED that is said (by the company) to have no leakage, and will continue to be upgraded until potentially available to be used in consumer devices, and a variety of other companies are pursuing the same goals, with Apple having purchased LuxView in 2014, and development projects at both panel producers and LED chip suppliers.  That said, the issues with micro-LED technology go a bit further, as the devices are so small that once manufactured, each LED has to be placed on a display substrate and connected, which is no easy task when working with chips in the 5μm size range at pixel densities of 40/inch for a 55” Full HD display or 80/inch for a 55” 4K TV display (+/-0.5μm placement tolerances are necessary).  Manufacturing bottlenecks can make the large scale production of such displays problematical, and specialized methods of chip manufacturing and placement techniques are needed to make the technology competitive. Sony (SNE) has released LCD TV sets using micro-LEDs for backlights, rather than as the emitting source, but they remain LCD TVs with the same filters, polarizers, and other LCD components, and do not directly address individual pixels as does OLED technology.

Samsung Electronics issued a disclosure document today titled “Suspicion of Embezzlement or Malpractice by an Officer or Employee” today which discloses the financial details of the ‘suspicious’ activity, which has led to the arrest of Samsung Vice Chairman Lee Jae Yong, the heir apparent to the Samsung empire.

The ‘targets’ of the suspicion are Lee Jae Yong Vice Chairman, Choi Ji Sung Vice Chairman, President Jang Chung-gi, President Park Sang-jin, and Managing Director Hwang Sung-soo,  with the amount of the ‘suspicious embezzlement’ being 15.425b KRW ($13.35m US), .009% of Samsung’s 179.06t KRW ($154.98t US) equity capital (2015), with the reiteration that the disclosure states  that the charges are ‘suspicion’ and are not definitive and may be subject to later court rulings.

According to the Taiwanese press, Apple (AAPL) will be using a fingerprint ID solution for its upcoming anniversary iPhone that it has developed internally and will be produced at TSMC (TSM) using a 6nm process.  The phone, which is the OLED display version of the anniversary models is also expected to be using biometric technology that it purchased from Virginia-based Privaris (pvt) between the end of 2012 and the end of 2014, which focus on touch and scanning technology that sits below the top screen layer, eliminating the need for a ‘home’ button and opening up additional real estate on the display.

The move from layered touch and identification solutions has been a focus for Apple and rival Samsung Electronics (005930.KS), with Samsung promoting Y-OCTA technology for the upcoming Galaxy S8.  This same technology was used in the Note 7, but due to the other issues with the Note 7, was never really promoted.  The technology is based on in-cell touch, which incorporates the touch sensor electronics in the display cell itself, replacing the more typical touch film, which is placed on top of the display, and then covered with a protective glass sheet, such as Corning’s (GLW) Gorilla Glass or Asahi’s (5201.JP) Dragontail.  This allows the display producer to be in charge of a greater portion of the final display module, and, of course, capture a greater portion of the over display module value. 

That said, the process has been somewhat hampered by a lack of display drivers that essentially ‘run’ the touch portion of the device.  These chips (known as TDDI[i]) help by removing the need for flexible PCB films normally used to drive touch.  The problem has been that TDDI chips have been in short supply, with only two manufacturers in production, Synaptics (SYNA) and FocalTech (3545.TT), causing pricing to be high and availability to be limited.  Back in December of last year, we noted that in-cell touch with TDDI represented ~6% of the smartphone market, but was expected to grow to 12% as new Taiwanese suppliers begin production this year, a likely reason for Apple, who has been using in-cell touch  since late 2012 (iPhone 5), to want to have a dedicated source.  The idea that Apple might be incorporating in-cell touch and/or fingerprint sensors in an OLED device makes the manufacturing a bit more difficult, given the less mature OLED manufacturing technology, but since Samsung Display (pvt) will be Apple’s primary OLED display producer, and SDC has already developed the technology for its parent, Samsung Electronics, we expect few issues with the new touch and fingerprint ID solution.



[i] Touch with Display Driver Integration

As the 2017 Mobile World Congress winds down, and a wide range of new smartphones are danced before attendee’s eyes, there seems to be little earth-shattering progress in smartphone technology.  Yes, they are a bit thinner, and they do have slightly better cameras, and the displays have even smaller borders, but will that get you to abandon your iPhone or Galaxy smartphone that you have come to love and cherish?  Probably not, however researchers at the Human Media Lab at Queens University in Ontario might be able to convince you to upgrade.  Back in May of last year, we noted that the same researchers had figured out how to produce (in the lab) a smartphone that is not only flexible, but has a holographic display.

The device, which has a 1920 x 1080 full HD OLED display is truly flexible and that flexibility can be used as a control for applications, in itself a significant accomplishment, but the addition of an array of 16,000 fisheye micro-lenses, allows the viewer to see images from any angle by turning the phone.  The ‘bend’ function of the device can be used to control the Z axis (depth), while using normal touch for the X & Y axes. This allows users to edit 3 dimensional models by touch, rather than by entering coordinates or by dragging objects in only two dimensions.

While we rarely comment on display ‘lab’ advances, as they tend to be far removed from commercial production, this project seems to have at least put OLED, flexibility, and holography all together in one device, a singular accomplishment.  While we have not heard of a commercialization timeline yet, and the holography portion of the display is still low resolution, the potential is quite interesting, and given the holographic array is produced on a 3D printer, we would expect resolution to continue to improve, as the Holoflex project continues it development.  Soon you will be able to see if the back of your haircut was as good as the front without a mirror…https://youtu.be/UDOkwJTPgCc for the 1 minute video

According to a variety of local news sources, construction workers at a Samsung factory in Vietnam, battled with local police, set fire to motorbikes, resulting in at least 13 people being injured.  While there are conflicting reports as to the cause of the violence, the disruption was said to have started after a worker was beaten by security guards after entering the construction site through a wrong door.  According to Samsung, the construction at the site was unaffected and will do its ‘utmost to prevent any such incidences in the future’.  After lunch, 5,000 to 6,000 workers were made to line up to have their IDs read by security guards when fingerprint readers malfunctioned and after the incident between the worker and security guards, workers set fire to the turnstiles that normally read their IDs.

Samsung was Vietnam’s biggest exporter last year, generating 23% of Vietnam’s total export revenue, and Samsung Display has recently been granted an additional license for $2.5b in local investments, which brings the company total to $6.5b in Vietnam investments overall, with the country providing lower labor costs than both Samsung’s South Korean workers, and those in China, where it has other facilities.  The average monthly wage in Vietnam is $145 (Hanoi), which is much lower than the Philippines ($379), which competes directly for technology company dollars.  Of course, officially Samsung says the tales of an ‘uprising’ are not true, although it says it will not let any new incidents occur in the future.

Back in April 2016 we noted that China Star (pvt) was planning to invest $7.7b to build a new fab in Shenzhen with the largest glass substrate format, Gen 11, which is just under 10 m2 or ~107 ft2, and could actually be larger, given that t no real “Gen 11” format size has been established.  The massive project broke ground in May and is expected to be completed (phase 1) in April of 2019.  That said, how far along is the project and will it meet its opening date?

The project site, seen in Fig.1, has completed geological survey work and plant pilings are nearing completion after the demolition of a substantial number of buildings that were on the site, but the telling point is that the land preparation work was completed in less than the 3 months allocated for the job, as the Shenzhen government has ‘encouraged’ bureaucrats to process licenses, variances and other paperwork more quickly than usual.  According to project managers, the fab progress is already ahead of schedule, with the building cap, which had been expected for January 2018, potentially pulled forward as both China Star management and the Shenzhen government are already boasting about ‘Shenzhen Speed’, referencing the rapid pace at which the project is progressing.

While we know the fab will be based on IGZO backplane technology, China Star has yet to decide if some of the 45,000 sheet/month capacity will be allocated to producing large panel OLED displays, which are currently only produced by LG Display (LPL).  As we believe the fab will be built out in three phases of 15,000 sheets/month each, we would expect the phase 1 build out to be LCD based, with the potential for some OLED capacity in phase 2 or 3.  China Star is running a small Gen 4.5 OLED pilot line, which could lay the groundwork for a large panel OLED line in 2020 or 2021.  China Star is owned by TCL Corporation (000100.CH) and Samsung (005930.KS), who has a 10% share and received ~14% of its panel supply from China Star last year.

At the agreement signing ceremony for the soon-to-be-built Sharp Gen 10.5 LCD fab in Guangzhou, Foxconn chairman Terry Gou, indicated that they might consider ‘partnering’ with Toshiba (6502.JP), whose CEO mentioned last month that he would be willing to sell most or all of the assets of the company’s chip business to avoid the delisting of the stock.  Toshiba, which was founded originally in 1875 as a producer of telegraph equipment, is the 7th largest semiconductor producer worldwide, but faced a significant 2015 financial scandal after it was discovered that management had inflated profits by $1.2b over the previous 7 years and more recently faced significant cost overruns and liabilities against fixed nuclear construction contracts at its Westinghouse division.  More than likely, should Foxconn pursue such an acquisition, it would be without the ‘Social Infrastructure Group’ (aka power plants, defense, and automotive and railway), with a focus on the chip, home appliance, and medical divisions.

LG Electronics (066570.KS) announced that it will build a washing machine plant in Tennessee, with a ground-breaking this year.  The $250m investment will be made under an MOU with the State government of Tennessee, and is expected to be in operation in 1H 2019 and will have a capacity for 1m washers/year when in full operation.  LG, which has a 28.9% share of the US washing machine market, is part of the group of South Korean companies that have move South Korea to become among the top 5 foreign countries investing assets in Tennessee, with the plant expected to create 600 jobs.  Perhaps we can learn the secrets of Samsung’s exploding washing machines (2.8m recalled) from LG when the plant opens?

Foxconn (2354.TT), now the parent of Sharp (6753.JP) has signed an agreement with the Guangzhou Municipal Government to build a new Gen 10.5 LCD fab that will specialize in producing 8K TV panels.  The project, which is expected to cost 61b yuan ($8.87b US) will be funded by a $1.7b investment by Sharp/Foxconn/Hon Hai (2317.TT) and municipal financing.  The project is expected to bring 70 new supply chain firms to the area, with LG Display (LPL) already operating a Gen 8 fab in a nearby location.

We believe the new fab will be broken into two phases, with each having a maximum capacity of 45,000 sheets/month.  We project the ramp to begin in September 2019 (phase 1) and September 2020 for phase 2 with the primary backplane technology based on IGZO[i].  Given that the project has been given a fast track by the local government, there is a possibility that the construction, equipment move-in, and production ramp could be pulled in, although it is far too early to make changes to our timeline, but we note that workers on such projects are given both monetary and psychological incentives to bring such large scale projects in ahead of schedule, and projects at BOE (200725.CH) and China Star (pvt) that have been completed ahead of schedule are good indications that the Sharp/Foxconn project will have the same result.

For us, two questions remain.  First, will the fab really focus on producing 8K TV panels, given the very limited market that currently exists?  We mentioned some of the drawbacks of 8K in yesterday’s note, and while NHK, which is close to the Japanese equivalent of US Corporation for Public Broadcasting, is broadcasting some content in 8K currently, the goal is to broadcast the 2020 Tokyo Olympics in full 8K as the service is rolled out fully.  NHK is certainly the leader in the 8K ‘race’, with some of the 2016 Rio Olympics being shot and broadcast in 8K, but given the high resolution content, which cannot be handled by most TVs, the viewing had to be done at ‘viewing centers’ in key cities with special 8K sets.  By the time this fab opens, the assumption is that 8K will be well on its way to replacing 4K, and so the focus, but a focus on 8K panel production would tend to be a marketing differentiator, rather than a major plan until the world catches up to 8K.

Second, Foxconn’s chairman, Terry Gou, has pledged to build a TV factory in the US to satisfy the tariffs expected to be levied on goods imported to the US by the Trump administration.  Is this the factory that was going to be built in the US?  Likely not, as the odds against a true display panel fab being built in the US are relatively small given the salary requirements of US workers and the lack of display manufacturing expertise and infrastructure.  That said, we do see the possibility of a TV assembly plant here, with a high component of automation and a lower manufacturing skill set needed.  Will it satisfy the needs of both the Trump administration (jobs to present to the media) and Mr. Gou (avoiding a costly tariff)?  Most likely, but it seems the new panel fab will be built in China as originally expected.



[i] Indium Gallium Zinc Oxide