In yesterday’s note we indicated the issues surrounding the ‘red tint’ some users have seen on the new Samsung (005930.KS) Galaxy S8 smartphone.  Samsung Electronics has decided to upgrade the software for the new phone at the end of this month, heading off any chance of the type of negative publicity that the company faced with the recall of the Note 7 smartphone.  The software chance will allow users to reduce the display’s red component further than is currently possible for those phones that showed the tint, with the assumption being that the problem is based on software and not hardware.  As also noted, pre-delivery orders, particularly in South Korea, are running far ahead of previous Galaxy smartphone models, with expectations for S8/+ sales to reach 50m units this year.

Data on panel pricing indicates that monitors saw a 0.8% decline in pricing in April, while NB pricing declined 0.5%.  TV panel pricing was flat after a 0.3% rise last month, and tablet panel pricing declined 1.2% on average.  We will have more details tomorrow.

After finally getting consumers to forget the Note 7 recall and focus on the release of the new Galaxy S8, Samsung Electronics (005930.KS) seems to be facing another smartphone crisis, or is it?  Reports from South Korea, where the new smartphone has been released and delivered, have indicated that some of the new phones show a red tint, while others do not (see Fig. 1).  After the Note 7 debacle, consumers are rightly sensitive to any potential problem that might affect their new Samsung phones, yet the issue seems to be one that is not a true defect, but a phone setting that was either incorrectly set at the factory, or a small display deficiency that also can be compensated for by simply resetting the phones display parameters. 
While the media (especially iPhone fanatics who thrive on Samsung controversy) will focus on the issue because it grabs page views, this is not a problem even close to the magnitude of the Note 7’s burning battery, with the phone’s display, after evaluation by Displaymate’s President Raymond Soneira, the go-to authority for display evaluations, said to be, “The Galaxy S8 is the most innovative and high performance Smartphone display that we have ever lab tested. So the Galaxy S8 becomes the Best Performing Smartphone Display, earning DisplayMate’s highest ever A+ grade”.
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So what is causing the controversy, and what is making some of the new phone’s display’s turn red?  Is it really as simple as an incorrect setting on the phone, or have Russian hackers infiltrated South Korea and undermined the phone’s release?  The issue, at least at this point, seems to be, without getting too esoteric, a function of a feature that was added to the S8 phone called an adjustable “white Point”.  In most phones, the “white point” is set at the factory.  This setting sets the color temperature of a white screen, just like you can buy ‘cool’ or ‘warm’ LED light bulbs.  Some folks like a cooler white point (that has a slightly bluish tint), while others like a warmer white point that has a more reddish tint, but the Galaxy S8 allows the user to make that decision, rather than be forced to use what the factory might decide.  While this might seem a small point, regional cultures can be quite sensitive to this, with eastern cultures tending toward the cooler shades and western cultures toward the warmer ones.
So the phone will not explode, and resetting the display defaults to the factory settings alleviates the problem if it occurs, but some articles are a bit more conspiratorial, and are focusing on two other points that actually make no difference to the issue.  The first is the idea that Samsung has adopted a ‘super red’ emitter material for the new phone, which implies that it is so ‘strong’ that is overwhelms the green and blue sub-pixels, causing the red tint.  This is incorrect but partly true.  We believe Samsung Display (pvt) has adopted a new and improved red emitter material produced by Universal Display (OLED), but color balance is set by the size and pattern of the sub-pixels and the driving intensity, not by the material itself.  So why would Samsung change what has been a good thing?  They change the OLED materials whenever they can improve the quality of the display, and in the case of the new and improved OLED materials in the S8, they gained a 5% to 19% brighter screen, and an improvement in color gamut, a standard that shows how much of the visual spectrum the phones display can reproduce.  They try to improve these phone aspects with each new model, and unless there is a design flaw in the compensation circuitry, it is a distinct positive, not a negative.
The other ‘blame’ for the red tint has been the Diamond pixel pattern used by Samsung in the S8 (see Fig. 2).  Some articles have blamed the sub-pixel pattern, which looks like it has extra green sub-pixels, disturbing the balance between the primary colors.  This is incorrect, as the size and pattern of the sub-pixels is determined by the efficiency of each material color and further by the current applied to each.  More current drives colors to be brighter, but also shortens their lifetime, so a new, more efficient material allows the driver to use less current and extend the lifetime, while at the same time extending battery life.  Yes, OLED display manufacturers are constantly trying to find ways to make sub-pixels smaller in order to save material cost, but a more efficient emitter material stack gives more significant improvements, such as the ones that give this phone its ‘highest ever A+ grade’.    Hopefully, Samsung will make sure the factory settings are correct as the phone is manufactured, but this seems much ado about nothing at this point.
The full text of the Displaymate Galaxy S8 shoot-out can be found here.

According to Samsung Electronics and carriers in South Korea, the orders for the recently announced Galaxy S8/+ smartphone has exceeded 1 million units.  This is the 1st time a smartphone has achieved such a level, with an average of 91,200/day.  The two previous models, the Note 7 and the Galaxy S7, averaged ~30,000/day and ~28,571/day respectively.  While a nice problem to have, Samsung was forced to postpone the delivery date of the free gifts offered to those who pre-order, as they ran out of same during the 1st 4 days.  While it is a bit early to pinpoint exactly what has attracted South Korean consumers to the new phone, the screen to body ratio seems to be a significant factor as seen in the table below.  There has been some mention that the Bixby AI interface has attracted users, and the Samsung Dex, a dock that lets you plug your smartphone into a desktop monitor, wireless mouse, and keyboard seems to be something that business users might be interested in, but it is still a bit early to tell what is driving the pre-order sales…perhaps the free Gear VR headset and the free amplified speaker dock (US) might be a bit of an incentive.  The S8/+ will be released in South Korea, the US, and Canada tomorrow, with 50 countries, including Europe on April 28th, and in an additional 120 countries in May.

On 12/30/2014 we noted that Chinese panel producer BOE (200725.CH) had committed to the construction of a Gen 6 OLED fab in Chengdu, China.  The plant, which had a proposed fully built-out capacity of 45,000 sheets/month was slated for construction beginning in 2Q 2015, with equipment move-in in 2Q 2016, and possible product sampling by the end of 2016.  We revised our expectations for that schedule early this year with production scheduled for the 2nd half of 2017 (September) for the 48,000 sheet/month fab (two phases).  BOE announced that it has capped the fab, which means the roof has been completed and internal construction and equipment move-in can begin.
While we expect the fully built-out capacity of the Chengdu G6 fab will be ~45,000 sheets/month, we expect that will be oriented toward both the production of LTPS backplanes and OLED panels, with the LTPS capacity being closer to 45,000 sheets/month and the OLED capacity being roughly half, as LTPS backplanes can be used for LCD displays as well as OLED.  We expect phase 2 OLED capacity to be completed by 2Q/3Q 2018, and fully ramped by late 2018, however BOE, while they are the largest and most aggressive Chinese display producer, has only modest experience in small panel OLED mass production and has only a few OLED offerings, which we believe are being sampled currently.
We do expect BOE to become a player in the OLED space, and likely an aggressive one, but its South Korean rivals have very significant combined OLED manufacturing experience, and building fabs is only part of the success equation.  BOE has had problems understanding why their OLED deposition yields are low, and has sent emissaries to other OLED panel producers to try to understand the issues, a mindset not usually seen in the highly competitive display space.  Of course, unless there is a significant financial motivation ( and even then most unlikely), other panel producers will not reveal the detail necessary for BOE to gain significant insight, so we expect BOE to be a bit slower to ramp small panel OLED production than its South Korean rivals.  That said, we would also expect them to be extremely aggressive once they have gained the OLED manufacturing experience needed to compete against Samsung Display and LG Display.
 

The new management of Sharp (6753.JP) has figured out that they have vast resources at their disposal, and perhaps the disparate entities owned by Hon Hai (2317.TT)/Foxconn (2354.TT) can now work together to build a better display (and crush rival Samsung Display).   We believe that Innolux (3481.TT) a subsidiary of Foxconn and former rival, who now controls Sharp, has decided to send 10 OLED engineers to Sharp to help them develop their OLED display capabilities at Sharp’s Gen 4.5 OLED pilot line.  Innolux itself was born from the 2003 merger of Chi Mei Optoelectronics and TPO Display Corp, with Chi Mei having one of the most forward looking OLED development units even in those early days.  Chi Mei showed us a number of OLED displays way back in 2009, that were of high enough quality to be released as commercial products, however OLED funding was cut way back as Innolux faced significant financial difficulties, and the products were never realized.
The new combination of Innolux and Sharp, in terms of gross display capacity, would be ranked just slightly behind capacity leader LG Display (22.3%) at 22.1%, and significantly above rival Samsung Display’s 12.6%, however when looking at OLED capacity, the combined Innolux and Sharp barely register at 1.4% against Samsung Display’s 54.7% and LG Display’s 36.0%.  As Apple is expected to enter the OLED display space as a potential user of OLED for its iPhone line, all panel producers are scrambling to expand their efforts and prove to the industry (read, Apple) that they too can become a supplier of small panel OLED displays, despite their lack of previous funding in most cases, and certainly at Innolux and Sharp.  Fig. 4[1] shows our OLED industry share expectations based on current capex, construction timelines, and producer experience, although actual available capacity would be smaller, particularly for those with little OLED mass production experience.  Hopefully, the OLED engineers being sent from Innolux to Sharp will help to accelerate the combined company’s OLED R&D program, but there is a lot of ground to cover before being able to catch up to the leaders who will not be standing still.


[1] Innolux and Sharp are represented by the two yellow chart segments

You have to give it to the Korean press…over the last few days, articles starting with delayed LCD plant closings, pushed out OLED capacity increases, and potential bans on Korean displays by Chinese brands, to new supply contracts for flexible OLED displays and a renewed focus on South Korea’s dominance of the OLED market.  As it turns out, the flood of conflicting views is a result of a number of conferences being held in China where companies either make product announcements or make ‘off-the-cuff’ statements that a somewhat aggressive press makes into thematic stories.   So, how much of this stuff is real?  Our belief (and it is based on having listened to hundreds of company pitches and product demonstrations) is that nothing is real in the CE space until you can buy it at Best Buy (BBY) or on Amazon (AMZN).  We have seen demos of flexible OLED displays going back 5+ years, timelines for OLED mass production in 2010, 3D technology (which was supposed to be in every TV by 2015) slated to rule the world, and guarantees that netbooks would be the only mobile computer in the future, and we understand the excitement generated by product development and marketing teams is genuine (from their perspective), but is usually as unrealistic as traveling through a black hole.  That said, today, the ever headline hungry CE trade press has indicated that LG Display (LPL) has decided to supply flexible OLED displays to Chinese smartphone brands in 2Q (only 73 days left!).
As it turns out, LG Display has already been supplying what are called flexible displays to its parent, LG Electronics (066570.KS), and to the same Chinese smartphone brand that is now the focus of the excitement, Xiaomi (pvt), for its Mi Note 2, released in November 2016.  As we have noted many times in the past, what is called flexible here is actually ‘conformed’, essentially a rounded edge to a smartphone display that was originally championed by Samsung Electronics (005930.KS) for its more recent Galaxy smartphones and cannot be modified by the user.  LG has actually released what we call a ‘somewhat flexible’ phone (LG G flex & G Flex2) which can flex a bit without breaking, but the truly flexible smartphone that has been the goal of display manufacturers for years, remains outside of commercial mass production today (note we said ‘today’).  So ‘flexible’ in marketing terms can be equated to ‘organic’ in the food industry where the word can mean almost anything.

That said, today’s crop of articles is championing LG Display, who has ‘opened fire towards the markets for flexible displays’, and ‘will be in no time…a powerhouse just like Samsung Display (pvt).”  Has anything changed?  Not really, as we note that LG Display has told us that they believe the two places where they can compete in the OLED space are OLED TV, where they are the only commercial producer of OLED TV displays, and the small panel flexible OLED market, that is just emerging, while ceding the rigid small panel OLED market to Samsung Display to a large degree.  LG Display’s dilemma however, is its relationship with Apple (AAPL) as a primary small panel LCD display supplier, which, should Apple move toward OLED, might be threatened.  In order to avoid such an occurrence, LG Display has focused on developing its own flexible OLED technology, and to that end is building out capacity, albeit primarily for its parent, LG Electronics.
LG Display produces LTPS flexible substrate products at its E2 Gen 4 Gumi fab, which theoretically could produce ~12m 5’5” units/quarter (100% yield), and its E5 LTPS G6 Paju line, which is in ramp up mode.  When completed (phase 1 this year – phase 2 in 2018) we believe this fab will be able to produce ~18m 5.5” units/quarter (100% yield), giving LG Display a theoretical capacity of 30m units/quarter by mid-2018.  Potentially, LG Display has plans for another flexible OLED fab, E6, which could theoretically produce ~48m units/quarter, but decisions for such additional capacity have not been finalized.  It should be noted that these are theoretical numbers, and have little to do with actual production.  Fabs are usually brought on-line in two or three phases that are spaced at least 9 to 12 months apart.  This allows the panel producer to look for manufacturing problems in the phase 1 line, and avoid duplicating them in phase 2.  Fabs also do not turn on at full production levels and depending on the technology can take a year to move from day 0 to full factory efficiency, and of course, there is product yield, which can start as low as 25% and also take months to improve to levels above 50%. 
Making matters even more difficult is the fact that OLED technology is still in its early stage of manufacturing, with only a few companies in production, and most with only small volumes, and adding insult to injury, we add that flexible OLED commercial production is at an even earlier stage in commercial manufacturing, tempering theoretical production numbers by even greater amounts.  We model 5.5” smartphone flexible unit volume in Fig. 3 using a 60% average product yield, and aggressive phase completion and ramp parameters (actual results may vary…), all of which would be difficult goals to achieve this year and potentially also difficult in 2018, depending on the complexity of the ‘flexible’ display itself, with more flexibility significantly lowering product yield. 
The purpose here is not to discourage investors, but to create timelines that are closer to commercial display production realities than quoting maximum fab specs, as most press articles do.  We commend LG Display for continuing to pursue small panel OLED production in light of Samsung Display’s dominance, and believe they have almost as good a chance at developing a truly flexible smartphone as Samsung.  Of course, then the question becomes do consumers actually want a flexible smartphone…

Micro-LEDs are the talk of the LED trade as they represent an offset to display technologies that are self-emitting, such as OLED and Quantum Dots.  Without the need for a backlight in such displays, the LED industry ponders where the portion of the industry that is ‘LED backlight’ oriented will end up.  Micro-LEDs, LEDs based on chip sizes of less than .5mm x .5mm, are being touted as a potential home run for the LED industry, once the technology has been proven to be commercially oriented, which it has yet to be.  But in the interim, Epistar (2448.TT) is expecting to release ‘mini-LED’ chips that are ~.1mm x .1mm (100μm) later this year.  These slightly larger versions of what might be needed for a high density smartphone display (an HD display has a pixel density of between 213 and 240 pixels/inch) would be used in large displays, such as high end commercial signage and product displays, but are not quite at the size needed for HD level displays, which would be between 53μm and 61μm.
Epistar is certainly moving in the right direction and has likely reached the size goals it needs for micro-LEDs in the lab, but translating that into a product that can be applied to mass production will likely take more time.  Think about how such small LEDs (see Fig. 1) can be moved and packed into a small space without damage and within a reasonable amount of manufacturing line time, and even more simplistically, the question of micro-LED yields themselves.  While Sony (SNE) continues to champion the technology with its TVs based on “Crystal LED Integrated Structure” and even Samsung Electronics (005930.KS), whose TV technology focus is on Quantum Dots, is testing the micro-LED concept on a 445” diagonal Cinema Screen that will be available for theaters in Korea and the US in 2H 2017.  As the LED manufacturing space continues to evolve, we would expect yields to improve, now they just have to figure out how to pick and place millions of pollen-sized LEDs on a smartphone-sized device.  Very small fingers or bubble gum?

There have been rumors that the central Chinese government has been considering a ban on display panels produced by South Korean manufacturers (Samsung Display & LG Display) in the Chinese press.  While the text alludes to China’s goal to be free of display products produced outside of the mainland, the secondary intent of such a potential ban has political implications, as the deployment of the US THAAD missile defense system in South Korea continues to be a hot button between China and South Korea.
South Korean panel producers have the largest share of the display market based on m2 capacity, at 37.8% (1Q 2017), with Taiwan 2nd at 31.4%, China 3rd at 22.7%, and Japan 4th at 8.1%, and while China and Taiwan do not always agree on whether the country is a sovereign nation, the suggestion is that Chinese brands source from Taiwan, rather than South Korea.  Taiwan’s panel producers are AU Optronics (AUO), Chunghwa Picture Tube (aka CPT) (2475.TT), Hannstar (6116.TT), and Innolux (3481.TT), with Innolux having the greatest capacity (49.0%), followed by AU Optronics (42.4%), CPT (5.5%), and Hannstar (3.0%), but back to South Korea, LG Display has a very significant exposure to Chinese brands, as the primary panel supplier to 3 of the 5 top Chinese CE brands, and Samsung Display, the primary supplier to the other two Chinese brands.  There are, of course, a number of other South Korean companies that have significant exposure to China, including a number of display supply chain participants like LG Chem (051910.KS) and Cheil (pvt) but we believe LG Display has the most exposure to China in the direct display space, at almost 70%.
 
Thus far we have only heard that the idea is being considered, and likely being used to leverage negotiations between the US and China, but the underlying concept of Chinese display independence has been in both the current 5-year plan and the longer-term goals set by the government.  Those ends are aided by the very generous subsidies and other ‘encouragements’ offered to Chinese panel producers to entice them to expand capacity and enter the world display markets, including free infrastructure, regional and local financing, and ‘gifts’ such as the millions of dollars of coal rights granted to BOE (200725.CH) in order to entice them to build a display production facility in Outer Mongolia.  However, excluding South Korean companies from the Chinese display supply chain would be a difficult task, especially in a tight panel pricing market, which leads us to believe that little, other than some newsworthy sabre rattling, will be implemented as China has yet to develop the supply chain resources to be independent.  Maybe we see a bit of panel business being shifted to Taiwan from South Korea, but only under circumstances where price equivalents were offered.

The Korean press has been indicating that LG Display (LPL) has received a request from Apple (AAPL) to supply flexible OLED displays for the iPhone 8 in 2018, on which they will decide at a special board meeting in June.  “We have received a request to take part in a bid for receiving an order for small and medium-sized OLED’s from Apple”, stated a senior LG Display official.  “At the end of June we will make a decision based on OLED production technology, capacity and the accompanying investment volume in an extraordinary board meeting.”  This seems a bit ludicrous, as we would expect that Apple and LG Display have been discussing this topic for many months, given that LG Display is Apple’s largest LCD display supplier and has already established an ‘OLED relationship’ with Apple by supplying the OLED displays for the Apple Watch.
LG Display has a significant stake in the Apple/OLED space as they have the potential for a significant share loss as Apple shifts the iPhone development path toward OLED, and while not the only supplier at risk (Japan Display (6740.JP) is also a large-scale supplier of LCD displays to Apple), they at least, have the experience to be considered as an OLED supplier, but here’s where it gets a bit more complex.  Samsung Display (pvt) is already ramping OLED fab capacity to supply Apple with OLED displays for the iPhone this year, and has very significant capabilities in the manufacturing of small panel OLED displays.  Of course, Apple would like two suppliers, or at the least, a backup supplier, and few panel producers, and even fewer OLED producers have the potential resources to build out capacity for Apple, but the deeper question concerns flexible displays, which have yet to reach the commercial market.
Samsung Display produces a ‘conformed’ display, which is technically not a flexible display as the shape is set during production and cannot be changed by the user, so a truly flexible display, one that can be bent or twisted is an animal that has yet to be commercialized.  There have been a few ‘almost’ flexible phones, which tend to be slightly curved, rather than flexible, but no display company has released a truly flexible smartphone display.  This gives LG Display an edge against its more experienced OLED rival, the edge being that they can directly compete with Samsung Display on what would be a more level playing field, flexible OLED displays. So the question for LG Display is not, “Should we?” but “Can we?”
Even the wording from LG Display indicates that questions remain as to whether LG Display’s flexible OLED technology is ready for mass production, whether they can build out the necessary flexible OLED capacity, and how such expansion would be financed.  Despite these very significant questions, when faced with the loss of a portion of a major customer’s business, display manufacturers tend to answer ‘yes’ to all questions and worry about the details later, not always as successfully as both parties might want.  Display shortages at product release time have plagued all display manufacturers including Samsung Display, but those come later, after the deal has been signed and commitments made.  The appropriate answer to the pseudo-question, “Can you jump”, would not be “Yes, Sir”, but “How high, Sir?” in LG Display’s case.  We note that Apple has pre-paid product revenue to LG Display in the past, which has helped to relieve the financial burden of capex related specifically to the development and production of Apple display products (the ethereal ‘retinal’ display), so even the financial portion of the decision is a bit less risky than might be assumed.  All in however, the real question is whether LG Display believes it can meet Apple’s specs in a high volume environment within the timeframe specified, which puts the burden on manufacturing and R&D management’s ability to predict the future.  While we certainly cannot answer the question specifically, we would expect that the answer will be ‘yes’ regardless of the actual circumstances.