Last December we noted that Chinese glass producer Dongxu Group (000413.CH) has teamed with Japanese supplier NEG (5214.JP) to build a Gen 8.5 furnace in Fuzhou, China, where BOE (200725.CH) is building out its B10 Gen 8.5 LCD fab.  The company had pointedly said it was going after glass substrate business from BOE, and while no timeframe was given at that time, we note that the new line has begun operation and a second line is being built.  The company states that product from the line has been sent ‘East’ for certification.  We believe up until this line began operation, the company has been limited to supplying Gen 5.5 glass to display producers, and despite this limitation is the largest locally owned glass producer in China with 20 LCD glass production lines.  The company states it is the 4th largest display glass producer worldwide, although we have no corroborating evidence to confirm this.  Dongxu has invested in a number of other Chinese supply chain projects, including color filters, polarizers, sapphire production, and cover glass in order to coordinate its ability to be a broad-based supplier to the Chinese display space.  Dongxu reported 2016 net income of ~$180m compared to Corning’s $935m from its display glass division (excludes cover glass), but Dongxu expects the new Gen 8.5 production line to generate an additional $131m in net income when completed, on $382m in additional sales.
The Chinese central and provincial governments continue to build out display supply chain capacity to gain control over their display production.  While China is expanding display capacity faster than any other region, they remain concerned that much of the supply chain is controlled by foreign companies, and has both short and long-term programs to reduce that dependence.  Subsidies have been the main tool used to help Chinese display supply chain participants gain traction in both the local and world markets, and we expect that to continue until display market saturation is reached, in similar fashion to how China developed its LED market, and then went through a period of rationalization where hundreds of small suppliers closed and a few large firms remained.  We don’t expect this to happen soon, but it is inevitable when a particular region is bent on gaining share as aggressive as the Chinese have been.  They have a long way to go in the display market but it would be foolish for any investor or company to not consider Chinese Display supply chain participants as competitive equals.

The annual Society for Information Display (SID) conference, which begins next week, is both a technical education platform and a gathering of display companies that want to show their latest and greatest display products to other industry professionals.  This prestigious gathering honors those products that are either unique or set a high bar for the industry, or both.  While the show has not begun, SID gives ‘This Year’s Display Award’ before the show, and this year Samsung Display and LG Display (LPL) have received such awards.
LG Display was given the award for its 65” ‘wallpaper’ OLED TV, which we have discussed at length in earlier notes, but most importantly the demo, which was shown at CES, is in actual production, albeit in low volume, and the 77” version is about to be released to the public.  Taking such an innovative and radical design to market in such a short timeframe is an accomplishment in itself, but the concept itself shows how large panel OLED displays can be adapted to applications that no other display modality could accomplish.
Samsung Display received the award for what it calls a quad-edge flexible display, which takes the ‘conformed’ OLED concept a bit further.  The current Samsung Galaxy S8 uses a conformed OLED display that curves around the sides of the device.  The quad-edged display brings the conformed curve to all four sides and uses curves that are non-uniform along the sides to give the user a more comfortable and natural grip.  The Samsung award also noted the bezel (the black strip that surrounds the display) on these displays is almost gone, which makes the phone look like its just a display and not a phone with an almost 100% screen to body ratio.

While the headline would lead an investor to believe that Samsung Display (pvt), the world’s largest OLED display producer, has adopted Corning’s (GLW) Lotus glass for displays made with flexible OLED materials, there is some nuance here, although any production deal with Samsung Display, the largest producer of OLED displays by a wide margin, is a very good thing.  LCD panels are typically made by depositing thin film transistors on a sheet of glass, covering that sheet with another, sealing the edges, and injecting liquid crystal between the layers.  The top sheet of glass can be a color filter, with the red, green, and blue dots that are lit by the transistors and liquid crystal below, and depending on the application, might be covered with another sheet of hardened glass to protect the entire display.
OLED displays come in two varieties however, rigid and flexible.  Rigid OLED displays are produced by depositing thin film transistors on a glass or metal substrate, with OLED materials deposited on the same sheet, with both sheets sealed together with glass frit, a paste of glass powder and binders which seals the sheets together.  In many applications a cover glass is added to protect the display. 
Flexible displays are produced in a similar fashion but the substrate is plastic, and while the idea of using a flexible plastic to allow the display to bend makes sense, the same non-rigid characteristics of plastic make it a much more difficult surface on which to deposit materials whose thicknesses are measured in microns.  In order to overcome this difficulty, the plastic substrate is fixed to a sheet of glass before the thin film and OLED material deposition processes, and once the thin film and OLED materials are deposited the sheet is encapsulated with a number of layers of organic and inorganic materials, and removed from the glass via laser or UV light. 
While there is no question that glass is the most stable substrate for LCD and rigid OLED displays, in the production of flexible OLEDs it should be understood that during the production of such displays the necessity for a thermally stable ‘carrier’ for the plastic substrate is an absolute condition, as the thin film and OLED material deposition processes is done at temperatures that affect the linearity of the plastic substrate if it were not attached to a stable glass such as Corning’s Lotus glass, which is a 3rd generation high-performance material, the critical patterning of pixels would not be consistent as the material changed temperature.
So what does this mean to glass producers like Corning?  The answer is a complex one, but on a simplistic basis it is easier to see via chart illustration.  OLED production is growing, and in certain segments, particularly small panel displays, it is growing rapidly, but investors must understand that the LCD display industry has been the mainstay of the display business for many years, and as such has built a huge infrastructure.  That infrastructure and capacity continues to grow as producers follow the trend toward larger average screen sizes.  OLED production is also growing, and far faster than LCD, but as a percentage of the industry’s overall capacity, it remains small as illustrated in Fig. 1.  This leaves glass producers with a consistent market for most of their display glass products for the next few years.
Looking further, Fig. 2 illustrates OLED capacity broken down by rigid substrates and flexible substrates, and while the growth of flexible is obvious, particularly in 2018 and beyond, it is an even smaller subset of Fig. 1.  We don’t doubt there will be some impact on glass producer volumes as flexible OLEDs become a greater percentage of OLED volume and two sheets (rigid) plus cover glass become one sheet of potentially reusable glass, but these changes are happening primarily in the small panel space, where surface area is small, while LCD TV and even OLED TV remains in the rigid world.  Yes, LG (066570.KS) has a flexible OLED TV, but we believe it will be such a small portion of the overall display space area, that it will not move the needle for at least a few years.
All in, Samsung’s adoption of Lotus glass indicates that even in a process that does not use glass as the substrate, there is a continuing need for high quality (high-margin) glass to make the process work, and while Samsung Display has a special relationship with Corning, they are also the largest producer of OLED displays (rigid and flexible) by a wide margin.  Their decision to use such a stable glass platform, as opposed to cheaper glass products, indicates their understanding of the quality necessary to make consumer oriented displays.  After the Note 7 lesson as to using high quality and reliable components, we believe Samsung will take few chances on repeating that mistake up and down the supply chain, and the use of Lotus glass is an indication of that mindset.

Sounding like a fortune teller scam, a new 7-11 (3380.JP) store in South Korea is using vein identification to allow customers to pay for items without credit cards by scanning vein patterns.  The new 7-11, on the 31st floor of a mixed use high rise owned by Lotte Group (023530.KS), the parent of Korea Seven, only require that customers have a Lotte membership card when entering the store.  At the new checkout counter, customers place items on a belt where bar codes are read regardless of the item’s position.  As noted, the customer is checked out without a store employee, with the system reading vein patterns on customer fingers.  The store is using the system to allow employees to spend time stocking shelves or helping customers find items.  Drones are also expected to be used in the store to prevent theft!
Vein pattern recognition was developed by Hitachi (6501.JP) and has been used by a number of banks for identification of corporate customers, eliminating the need for PINs, passwords, authentication codes or cards, and reducing ‘over the shoulder’ PIN disclosure.  The technology is based on a CCD camera, which reads near infrared light that passes through your fingertip.  That light, which is absorbed by the hemoglobin in blood, allows the camera to map your vein structure, which is different for every person.  The accuracy of this type of identification process is considered similar to iris recognition, with a false identification rate near zero, even with identical twins, skin surface has no effect on the reader, and the size of the data template is smaller than that needed for iris recognition, although the over cost of such a system is comparable to iris systems.  As with iris recognition, there is almost no change in finger vein patterns as a person ages, so templates only have to be produced once for each user.

LG (066570.KS) wowed the TV world when it revealed its 65” ‘wallpaper’ TV in May 2015 at an event in South Korea, but gave no indication as to when (or if) the TV would be available to consumers, but the word slipped out last January, when a retailer posted pricing before LG’s press announcement.  The TVs, which are <4mm and <6mm thick (65” & 77” respectively) and based on OLED display technology, which is a self-emitting process, and therefore has no backlight, allowing the sets to be extremely thin.  Further, the displays are produced on a flexible substrate, which allows them to be bent to a degree and placed on a surface that might not be flat.  Current models can be held to the wall with magnets and both sizes are 4K (3840 x 2160) HDR and are based on webOS 3.5.  The 65” version weighs 16.8 lbs and the 77” model weighs 27.1 lbs.
Both of these unusual sets are now available for $7999 and $29,466 but wait there’s more… If you decide to buy the 77” set before the end of June (or you could buy a Hyundai (005380.KS) Santa Fe SUV or a Chevy (GM) Malibu for the same price) you can currently get a $3,572 cash rebate and an LG Tromm Styler, a 6ft high steamer system for removing clothing wrinkles, a $1499 value!  It would seem that LG wants those watching their wallpaper TVs to be well dressed and wrinkle-free, although initially you would need the wrinkle remover as the 13 hours flight to Korea (and that kid kicking the back of your chair) could wrinkle your clothes.  You can buy the 65” OLED wallpaper TV at your local Best Buy (BBY), although availability might be limited.  The 77” model is not yet available in the US and will be released on a country by country basis going forward.
Whether you are enough of a TV enthusiast to buy the LG ‘Wallpaper’ series OLED TVs, if nothing else, they illustrate the ability of OLED displays to form non-traditional displays, and while these sets are currently novelty items reserved for NBA players and royalty, there will be a time when such technology will be a mass production item, as are conformed OLED smartphone displays that were also novelties years ago.  If nothing else, the consumer electronics space is one that is so driven to innovate that it eventually finds a way to translate a lab process into one ripe for mass production, and LCD TV production, which has over 80 steps, was originally thought to be too complicated to be mass produced cost-effectively.  Now the a-Si[1] process is by far the most prevalent in the display business, while OLED technology continues to grow rapidly. “When you got it, flaunt it!”[2]


[1] Amorphous silicon – the material used for the backplane in most LCD TVs

[2] Zero Mostel, “The Producers” (1968)

Samsung Electronics (005930.KS) is releasing it new flagship Galaxy S8 smartphone line into the Chinese market on May 25 after a showcase event today, as it moves to make up share lost to Chinese brands.  While sources differ significantly as to Samsung’s share of the Chinese smartphone market, it is far below the current leaders.  Back in 1Q 2014 Samsung was the share leader in the Chinese smartphone market with a 19.9% share, but even by 1Q 2015, that share had fallen to 9.7%, behind Apple (AAPL) (14.7%), and Chinese brands Xiaomi (pvt) (13.7%) and Huawei (pvt) (11.4%), and last year Samsung fell out of the top five category altogether, although not alone as Apple has also fell prey to mainland brands that have provided ‘almost’ fully featured smartphones at lower cost.
While Samsung has seen early success with the S8 selling over 10 million units since its April 21 release, the challenges of the Chinese market are ongoing, with relative newcomers Oppo (pvt) and Vivo (pvt) taking share from Xiaomi, the original Chinese smartphone ‘interloper’ to take top spots, and Huawei in 3rd place.  While Chinese smartphone buyers are the most aggressive when it comes to buying new technology (such as the curved edges of the Galaxy series), they are also very price conscious, and have come to accept local brands as equal to, in value, with premium brands produced outside of China.  Samsung’s momentum is strong for the S8 but Chinese brands compare well to non-Chinese premium brands, even outperforming in some categories, while selling for less than half of premium brand levels.  Samsung has built out its smartphone line to compete in the mid-range Chinese market, but has found the terrain to be far more difficult than hoped.

Tokyo based JOLED Inc. (pvt), which is soon to become a subsidiary of Japan Display (6740.JP), has indicated that it has made significant progress in developing its ink-jet printing process for OLED displays, and is expecting to begin deliveries of such panels in early 2018.  The company also indicated that it had received orders from Sony (SNE) for mid-sized panels, although details about volumes have not been revealed.
JOLED, which was formed by the combination of OLED assets from Japan Display, Sony, and Panasonic (6752.JP) by the INCJ, a quasi-government organization that finances and develops technology companies in Japan (also created Japan Display) has a small Gen 4.5 OLED pilot line in Ishikawa that is based on ink-jet printing.  Ink-jet printing has been in development for almost 20 years, with leaders like Kateeva (pvt) and Dai Nippon Printing (7912.JP) moving the technology past the R&D stage and toward mass production capabilities in recent quarters.  The technology has been used in the encapsulation process for OLED displays, but RGB display deposition has yet to be commercialized for large scale display production.  JOLED had indicated in previous comments that they had expected to deliver ink-jet printed mid-size OLED display samples by the spring of 2017, and the most recent showings would seem to indicate that they are not far off from their original timelines.  That said, there can be a significant time lag between producing samples for customers and being able to produce qualified product in volume, so we do not change any JOLED model parameters, although we are encouraged by their progress.

Samsung Electronics (005930.KS) has partnered with real-time location service provider Glympse (pvt) to give users a way to locate friends, family, your pizza delivery, or your cable repairman.  The Glympse app, which can be downloaded from the Samsung TV app store, will allow location sharing for consumers and your IoT devices (is it necessary for my refrigerator to know where my mother-in-law is?).  The app sends a text message to the smartphones of those you want in your group, and you will be able to see their location on your TV.  Samsung has already pre-loaded the app on its new Family Hub™ refrigerator, which will propagate the app across the Samsung hub system, giving real-time access to those in your location group, with Samsung citing ‘better planning and optimizing of consumers time’. 
Glympse has maintained a relationship with Samsung for some time and is part of the Tizen Developers Group, with Tizen being Samsung’s in-house operating system, and has integrated the app across the Galaxy S7 and Gear smartwatch line, while adding companies like GM (GM), Mercedes (DAI.GR), Volvo (0175.HK), T-Mobile (TMUS), Navdy (pvt), Logitech (LOGI), and a host of others to their ecosystem.  While we are big fans of mobile applications that can save time, we are a bit sensitive to those that reveal personal information, particularly those application that want to know where you are any time you access the internet.  It probably will make little difference to helicopter parents, who already know where their children are at all times (chip behind the ear), but where does the real-time location data go after you look at it?  Is it available to other apps?  Is it able to be sold?  Will my boss know I have been sitting in the park for the last two hours?  We are probably just a bit paranoid, as Gen Z will think nothing of making sure all of their friends know where they are (and what they are eating), but as our parents said to us when asked for details about a sticky situation that might have occurred  during more youthful days, “TMI”[1].


[1] Too Much Information

There are a number of countries that are considered the ‘most wired’, meaning a large percentage of the population has broadband connectivity. (Norway, Sweden, Iceland, and Finland), but mobile broadband penetration (defined as the number of mobile broadband subscriptions per 100 people) is a different story, and South Korea, at 106% (when people have multiple subscriptions, the number can exceed 100%) is among the highest (Singapore – 123% & Japan – 113% are higher) while still having the highest ‘wired’ population in Asia.
This combination would lead one to expect high smartphone usage, and it is just that.  A study by the Korea Information Society Development Institute indicated that South Korean individuals used media of some sort every 15 minutes, and 1 in 4 continued that practice while watching television or reading books.  To make matters worse, 27.7% of those surveyed were using other forms of media while holding a smartphone, although 90% of the almost 10,000 people sampled indicated that they considered the smartphone to be ‘subsidiary media’.
In the US the average adult (18+) spends 2 hours, 51 minutes on their smartphones every day (11.875% of a 24 hour day and 16.76% of a normal day, for those lucky enough to get 7 hours of sleep.  But that’s the conservative view, with other studies[1] stating the average at 4 hours, 5 minutes/day (17% and 24% using the same parameters) although it also includes tablet usage, and that has been increasing each year for the last 5 years, albeit at a slower rate than in previous years.  The scary test would be for adolescents or children below the age of 18…


[1] eMarketer 2016

Other studies [1]pinpoint what we do on our phones, with 5.3% of time spent on e-mails and 13.4% spent on texts, and the number 1 alarm clock is a smartphone.  Of course, pollsters do not consider this kind of use a compulsion but a massive cultural shift and those in the smartphone supply chain feel that the change in daily behavior is a good one, with our youth having grown up on the technology rather than adapting to it.  Does this point to world where eyes can only focus on short distances and fingers grow points to make texting more accurate, or will AI make us a population that wanders the streets speaking to our smartphones..? (”Is he talking to me?”)  Probably not because the next generation will be even more tied into their smartphones, with digital assistants managing their lives and speaking to chat bots to solve problems, giving users more free time…and pigs will fly!


[1] Nielsen

While most investors would expect a company like CREE (CREE) to be the aggressor in IP lawsuits, and that is certainly the case with CREE, the Chinese government, or an entity related to the Chinese government has filed an IP infringement lawsuit against CREE and its Chinese production subsidiary that it established in 2009.  The Shenzhen Chinese Academy of Sciences Intellectual Property Investment Co, Ltd, a state-owned entity formed in 2009 to “establish a smooth and efficient transfer of intellectual property”, is part of the Chinese Academy of Sciences, and manages the vast IP portfolio of the 104 institutions under the CAS heading.  The CAS has invested in or created over 430 technology enterprises, with Lenovo () being the most recognizable to US investors and a fellowship to CAS is considered the highest honor for Chinese scientists.
At the crux of the IP battle are two patent families owned by CAS, which it believes are being infringed by CREE, with the CASIP asking for damages and a permanent injunction, citing the huge amount of R&D spending done by the CAS to develop the patents.  The CAS is asking CREE to stop infringing and work together with CAS to “promote industrial progress” and establish a more “fair and reasonable market” (aka licensing).
Cree has battled with a number of Taiwan based LED manufacturers, a number of which have production facilities on the Chinese mainland, with Harvatek (6168.TT) and Kingbright (pvt) both settled in 2016.  These lawsuits have made smaller Chinese LED producers fearful of CREE and other major LED players like Philips (PHG) and OSRAM (OSR.GR), and have awakened the Chinese LED Patent Association, who said it was working with other Chinese patent offices to plan potential responses.  Whether the CREE lawsuit is such a response remains to be seen, but the CAS is said to be a formidable player in the Chinese IP world, particularly as it represents such a vast number of potential IP holders, and similar entities in Taiwan and Korea have battled successfully to enforce local IP in both the US and foreign courts.