The metaverse is still around, despite the tech refocus on AI, and VR headsets are the gateway to this world of make-believe, but until the metaverse is something substantial enough to attract even a modest portion of consumers, the VR space will have to rely on gaming to generate headset sales, with headset brands hoping that a more robust macro environment will help to boost sales this year, after a dismal 2022.  According to published numbers, which vary considerable from source to source, VR headset shipments declined ~20% last year, for the first time, after years of large gains, albeit on smaller bases in the early years.
There are many factors that come into play when it comes to VR headset sales, however there is one facto, aside from price, that might be considered the ‘elephant in the room’, and that is weight.  VR headsets are complex devices, containing considerable optical and electronic components, along with batteries (in some cases), cameras, displays, and fans, all of which add up to what can be a ridiculously odd looking and weighty headset that can become quite fatiguing.  As each headset brand is looking to provide its own combination of features and visual quality, much effort is placed on squeezing in as much necessary equipment as possible into the average headset, and while all brands try to keep headset weight in mind, headset developers are usually big fans of VR in general and are likely willing to accept a heavy and bulky headset than the average consumer.
Our VR database shows that the average weight of a VR headset is trending down, albeit slowly, with the average for headsets either released this year or expected to be released, is ~382 grams, or the equivalent of a loaf of bread with a few slices missing, so imagine playing a game with an almost full loaf of bread on one’s head, and it becomes easier to understand why VR headset weight is a significant factor for VR users.  [Note that the Hi/Lo range scale is on the left side of the chart, with this year’s heaviest headset weighing in at 625 oz, or the weight of a healthy squirrel.]
While all brands are interested in reducing the weight of their VR headsets, it is a tradeoff against technology and features, with many looking toward those characteristics over headset weight, but there are those that are working toward making VR headsets more than (less than?) the bulky devices they are today.  One company in particular has taken the weight challenge to heart and will be releasing its first VR headset this year that will clock in at a mere 127 grams, 1/3 of the average 2023 VR headset weight, and only 20% of the weight of this year’s heaviest headset.  While the company Bigscreen (pvt) has been around since 2014 and has released only a beta headset in 2016, the new ‘Beyond’ headset, which ships in 3Q, is designed to be the lightest and smallest VR headset available, and while it will certainly play games it comes with an interface box that allows the user to rent 3D movies (200+ available through the company), browse TV channels, watch live events, or do more conventional game playing (Twitch shared) and work oriented collaboration using Bigscreen software, which can be used on other VR headsets and is free.
The Bigscreen VR headset is not cheap, with a starting price of $1,000 (pre-order) and $100 for the audio strap, but when compared to other headsets, regardless of price, the ‘Beyond’ headset looks, by far, the most comfortable to wear for an extended period.  The only issue that might become a problem is that the company decided not to make the headset IPD adjustable.  IPD, or Inter-pupillary distance, is the distance between a user’s pupils, which is obviously different for each person.  Many Vr headsets build in mechanics that can change the IPD to match the user, a particularly necessary detail, as an incorrect setting can cause blurry images and rapid eyestrain.  Bigscreen did not want the heavy and bulky IPD adjustment hardware in the headset, so they will custom set the IPD for each user on order.  This solves the problem but will slow production and raise costs considerably and will limit the headset’s use to one individual.
All in, while the Bigscreen headset has not been field tested yet, the company’s more practical development direction gives hope that VR brands understand that they have a number of major hurdles to cross before VR headsets are everyday items.  Developers want all the bells and whistles, but that is not always what the average consumer wants, and they certainly don’t want a headset that feels like a squirrel is sitting on their head.  Image quality is certainly a major consideration with VR headsets, but some of the add-ons make only minor improvements and add to the bulk of the headset.  Absolute size and weight comparisons are hard to make without having the devices in physical reach, but we compared the images of the Bigscreen Beyond against the Sony (SNE) Playstation VR2, which sells for $550 and weighs 550 grams, and the Meta (FB) Quest Pro, which sells for $1,000 and weighs 722 grams.

​eMagin (EMAN) and Samsung Display have announced a merger agreement under which SDC will purchase all of eMagin’s outstanding stock at $2.08, roughly a 10% premium to the closing price on May 16.  This values eMagin at ~$218m.  eMagin has been developing Micro-OLED displays since 1996, with considerable funding from the US military who has used their displays in military hardware, particularly night-vision goggles, and in 2004 released the first consumer-oriented OLED Micro-display that was used in an early Sony (SNE) VR headset.  eMagin, which is based in Hopewell Junction, NY at a former IBM (IBM) site,
eMagin currently produces a variety of full color Micro-OLED displays that range from VGA to 2Kx2K micro-OLED displays ranging in size from 0.47” to 1”.  Samsung’s interest likely stems from eMagin’s dPd OLED patterning technology that is part of its patent portfolio.  The technology allows for RGB side-by-side stripe patterning, rather than a white OLED Micro-display that uses a color filter to create sub-pixels.  Samsung is expected to adopt this type of Micro-OLED display technology in the future, although it will likely initially use the WOLED system until the dPd technology can be scaled to nigh volume production.  Upper management are former Eastman Kodak (KODK) executives who were involved in Kodak’s early work with OLED displays.
While major investors are Vanguard (pvt), Blackrock (BLK) and company management and directors, the largest single shareholder is the Stillwater Trust LLC, whose sole member is Mortimer D.A. Sackler, former (left in 2018) 20-year director of the notorious Purdue Pharma LLC, the developers, and marketers of oxycontin, considered a major cause of the national opioid crisis.  You don’t always get to choose who your shareholders are…
 

As we have noted, Apple is picky about companies in their supply chain and those that want to join.  Whenever possible they try to maintain 3 to 4 suppliers for each component, in order to make sure supply will not be interrupted in the event of a catastrophe with one supplier.  Such a situation occurre4d in late 2021 when Sharp’s (6753.JP) camera module factory in Ho Chi Minh City was closed due to COVID quarantines.  At the time, Sharp’s component inventory for the iPhone 13, which was being assembled for its 9/24 release, were moved to LG Innotek’s (011070.KS) in Hai Phong, which remained open.  Since then LG Innotek has maintained a ~70% share of Apple’s iPhone camera module supply, with Sharp the #2 supplier, with Foxconn (2354.TT) and Cowell Optics (1415.HK) the smaller suppliers.  In 2021 Apple removed China’s O-Film (002456.CH) from its supplier list after it was accused of using forced Uygur labor and put on the US entities list in July of that year (since removed).
Apple spends roughly two years working with suppliers to prepare for a new iPhone release and Sharp did not participate in the iPhone 2016 program, so it is assumed that they will not be involved in the iPhone 16 release in 2024, with LG Innotek likely to pick up much of the slack as they have expertise in ToF, which is being added to the iPad and folded zoom modules, which will be added to the iPhone 15 Pro Max this year.  A folded zoom lens uses prisms to bend light before it enters the lenses, allowing them to be placed horizontally, rather than stacked from front to back.  This allows the camera module to be thinner, but it also requires an image stabilizing actuator, which will also be supplied by LG Innotek and Jahwa Electronics (033240.KS), also a supplier to Samsung.

The word this week is that Apple (AAPL) is going into the display business.  Headlines that Apple will be producing its own displays in order to reduce its dependance on current display suppliers, particularly Samsung Display (pvt), who is the company’s primary high-end display supplier for the iPhone.  The stories are based on Apple’s Micro-LED R&D, which is supposed to lead them to producing Micro-LED displays for the Apple Watch series in 2025 and leading to the adoption of the technology for the iPhone line in subsequent years.  The sources, based in Japan, are touting Apple’s R&D efforts in Japan and at their ‘secret’ facility in Taiwan, that has been working on Micro-LED development for a number of years., and where “…they have designed not only the driver ICs for the Micro-LED screens, but also some of the production equipment itself to better control the transfer process…”
We agree that Apple has been researching Micro-LEDs for a number of years, working with AU Optronics (2409.TT), Ennostar (3714.TT), and a number of other suppliers to develop a cost-effective way to use the technology, as it did with OLED technology, and it does with almost all other potential display technologies.  Spending ~8.3% of sales on R&D such programs at Apple are and have been extremely comprehensive, with considerable time spent evaluating the current state of display technologies, and doing original research to see if some of the stumbling blocks to mass production can be removed.  This certainly carries over into silicon, where Apple designs its own processors and a number of other more specialized chips as shown in Figure 1.
Apple, whether you are a fan or not, is known for setting high quality standards for its components, particularly displays, and those high standards have led to Samsung Display’s dominance as an Apple display supplier, given their many years of experience   in RGB OLED technology.  Apple has been especially slow to bring in new display technologies, waiting until early products have shown flaws and technical miscalculations, to avoid tarnishing the Apple image.  During the ‘learning’ period, Apple has consistently worked with such new technologies and partnered with display producers, both to develop specifications and to improve the manufacturing process.  In that regard, Apple engineers have developed tools and equipment for pilot lines and specifically approve key tools used by suppliers before approving production.
But we note that Apple is a design and marketing company, and contracts production and assembly to others.  In some cases they contribute to that production by funding the construction of dedicated facilities as an advance against future production, but rarely, if ever, is Apple a mass producer of its own components, and the silicon mentioned above is designed by Apple but produced by others, such as Taiwan Semiconductor (TSM), Samsung Electronics (005930.KS), Intel (INTC), IBM (IBM), and Global Foundries (GFS).  While we would expect that Apple will eventually move its Micro-LED R&D from the lab to use in a product, we expect Apple will source the Micro-LED display to an outside supplier, likely someone who has contributed to R&D.  As Micro-LED displays are produced using technology that is different from LCD or OLED technology and more similar to the production of LEDs, which are grown on sapphire or GaN (Gallium Nitride) and then transferred to a glass substrate, Apple’s choice of suppliers will depend entirely on both the experience of the Micro-LED producer and their ability to produce such displays in large quantities.
Given that the technology for Micro-LEDs is still being developed and mass production techniques are changing almost daily, it would be hard to know who Apple might choose to produce their first commercial Micro-LED displays, and more important, who would be able to sustain that production.  With the playing field that wide open, it is up to current display producers as to how much they would invest in the technology to reap the benefits of being a major supplier to Apple, along with LED producers who might develop the technology as an adjunct to their current LED production businesses.  If Apple were to decide it needed absolute control over Micro-LED display production, it would have to make additional investments in building a mass production facility, likely costing billions, and would be taking on the risk of managing more leverage to the macro environment.  They would lose the ability to pit one supplier against another, which they have now, that allows them pricing leverage, and they would have to carry much larger PPE on their balance sheet, so in the long run, that loss of absolute control over pricing, process, etc. would be counterintuitive to Apple’s mandate.
More to the point would be the timeline that Apple might use to develop and commercialize what it has learned about Micro-LED display production, and that will likely happen more slowly than expected, as Apple is less of a technology pioneer than a reputation marketer.  A blot on that reputation from a product glitch or a move that could alienate a loyal customer base would upset the apple cart (sorry) far more than having to maintain an over-the-shoulder position with your key suppliers, or deal with a supplier that pushes back a bit because of their dominant technological or manufacturing position.  Apple is among the most customer-centric companies in the CE space and its reputation is far more valuable than its technology in our view.  Apple’s supply chain is among the best in the space and its control over its suppliers is legendary.  Why change it to gain a bit more control?

In order to reduce the effects of differentiated data sets, we tend to use averaged data from a number of sources and don’t draw conclusions until we have at least a few data points for each category.  That said, there are occasions when one data source is either early in their data collection or estimates, far out of line with others, or unusually different from what we might expect.  In those cases, unless we have empirical evidence that the outlier data is incorrect, we note that to our readers.  Much has been said, particularly by panel producers and CE brands about how the CE space will recover (usually with the ‘gradually’ caveat added), although there has been little, other than seasonality, to back up those predictions.  While seasonality typically does play into a better 2nd half, for any real sustainable recovery there has to be an underlying improvement in demand.
September is typically the strongest month (5 yr. avg.) for notebook panel sales, while March usually shows the biggest m/m sales gain, given that February typically records the lowest notebook panel sales month of the year.  That leaves April sales typically down 8.8% m/m, as CE ‘March Madness’ ends after the Chinese holiday in February, typically the worst m/m decline of the year.  What all of this is leading to is that one data source, Digitimes Research, is reporting that the top 5 notebook brands (excluding Apple) saw a 30% drop in m/m notebook sales in April, more than 3x the average and greater than any w/w April decline in notebook panel sales since at least 2011.  DT cited strong short-term orders in March for the large April decline, but also noted ‘a lack of confidence in end demand’ and relatively high inventories in the retail channel.
The DT data is only one source, and one that tends to be a bit on the aggressive side, but it was so far out of line with the tacit ‘gradual improvement’ scenario promoted by the industry, it is worthy of mention, although we are not surprised at the decline, only the magnitude as there has been little real change in demand after the category saw COVID pandemic demand peak in November of ‘2021.  While notebook panel sales do not always track against retail sales, the implication of a 30% decline in April’s notebook panel shipments would bring notebook panel shipments to a point slightly lower than January shipments, which were only slightly higher than panel shipments in February of 2020, the first month of the COVID pandemic, which would not be a good omen for the gradual recovery scenario, at least for notebooks., which last year represented 26.95% of panel shipment unit volume.
Before taking possible scenarios for the remainder of the year any further, we need to confirm that data with other sources, which tend to show up toward the end of the month, so we will wait to see if other sources confirm the data drop.  The top five notebook brands (excluding Apple, who would be #4 in 2022) are Lenovo (992.HK), Dell (DELL), HP (HPE), Acer (2353.TT), and Asus (2357.TT).
​

Chinese panel producers tend to be an optimistic lot, at least publicly, likely somewhat influenced by the fact that much of their funding comes from the state and local governments, who need to remain positive about their investments.  As listed Chinese companies are required to post at least a summary of conversations they have with analysts and investors, and maintain an on-line Q&A presence, there are times when one can get some insight into what the company is saying publicly, and at times a bit of nuance toward what they are really thinking.  Two weeks ago China’s largest LCD and OLED panel producer BOE (200725.CH) posted its analyst and investor meeting summary, which, if nothing else, gives some indication as to what the company’s near-term plans are based on.  Here is a summary of BOE’s most recent meeting with analysts and investors (139), and a few comments.

Industry Overview

• In the 1st quarter the market supply and demand gradually stabilized.
• LCD TV panel prices started to rise, driven by increased demand and promotional activities.  We would say ‘seasonal demand’ and an emphasis on promotional activities.
• Panel manufacturers adjusted production rates based on demand and focused on healthy development and dynamic control.  Not sure that ‘dynamic control’ is anything more than ‘build to order only.’
• Overall inventory levels were normal, and the industry is expected to gradually recover.  At least back to where it was before the pandemic.

Company Performance

• The company maintained its leading position in the semiconductor display industry across various applications.  BOE holds the largest share (31.5%) of global large panel LCD sales (March) and represents 57.7% of China’s large panel LCD sales.  With LG Display (LPL) #2 at 18.5% global share, BOE is certainly the leader in the large panel LCD space.
• The flexible OLED business showed steady growth, with a target of over 120m shipments for the year. Here is where BOE shines.  The company saw ~4% q/q flexible OLED unit growth in 1Q against an 18.4% decline for the industry and saw an 81.4% y/y unit increase in flexible OLED volume, against industry y/y flexible OLED growth of 27.2% (units).  For perspective, Samsung Display (pvt), the industry leader saw a 20.6% decline q/q and a 2.9% decline y/y.
• Short-term performance was affected by industry and macroeconomic conditions, but the company maintained resilient operations.  On a relative basis, yes, as BOE large panel LCD sales were down 2.7% q/q and down 30.0% y/y while the industry was down 15.9% q/q and down 36.1% y/y in 1Q.
• The company implemented lean management, resulting in improved capital structure and reduced expenses.  Companyspeak

Q&A

• Regarding industry production rates, the industry has been adjusting production rates to achieve a heathier supply-demand balance.  LCD TV panel prices have rebounded, and the production rate is expected to gradually recover.  Based on current estimates for demand and LCD panel capacity, and using an overall 85% utilization rate, there remains considerable overcapacity in the LCD space, so it is hard to call such a situation ‘a healthy supply-demand balance’.  We understand that demand estimates are likely at their lowest at this time of year and in current economic circumstances, but even with some demand improvements, LCD overcapacity will likely remain an issue this year.
• The company’s flexible OLED business has shown significant growth, and the shipment volume is expected to continue to increase.  The company aims to improve the proportion of high-end products and expand into new areas.  We give credit to BOE here as they have done a good job increasing OLED display volumes, particularly with Chinese brands.  They will have to push hard to challenge Samsung Display’s Gen 8 OLED push and a similar one from LG Display, but if nothing else, they are persistent.
• The MLED business is positioned as an important platform for the company’s next generation display development, focusing on various applications in backlighting and direct display.  BOE produces a number of LCD modules with it own Mini-LED backlighting, which puts those panels in the premium category and at a higher-than-average ASP, so we expect this segment will grow throughout 2023, but will also be somewhat dependent on the Chinese economic picture, which is a bit less vibrant than expected late last year.  It’s good business for BOE but higher-end products are in the sights of almost every panel producer and that leaves a concern over the necessity to compete on price to gain a foothold against SDC, which could impact MLED margins.
• The company’s financial performance in the first quarter improved due to cost reduction measures, lower asset impairment losses, and increased product prices.
• The company’s future capital expenditures will focus on strategic planning including enhancing OLED competitiveness, IoT solutions and upgrading manufacturing capabilities.  While BOE has been a bit more careful about capex, despite continued funding from the government, they will have to start spending on Gen 8.6 OLED capacity before the end of the year if they want to get a place in Apple’s OLED IT conversions in 2024.  The company has been working toward the development of Micro-LED displays for wearables, which could become a selling point for the Apple watch down the road, but in the interim they will have to continue to spend on LTPO small panel capacity and IT OLED.

All in and corporate speak aside, BOE’s investor meetings gave only an indication of what management is thinking about the prospects for the current year, particularly for the LCD display business.  Seemingly more confident about the growth of their OLED business, likely as Chinese brands see the company as an alternative to more expensive Samsung displays, and a growing relationship with Apple, albeit with the drama associated with that relationship.  As BOE learns more what it can and cannot do as to its Apple relationship, the company should see its small panel OLED business expand, but the OLED IT space is more of an open field, giving BOE the opportunity to gain an early foothold if it both has the expertise to build out a Gen 8.6 OLED fab that has a reasonable yield and that they can meet Apple’s typically stringent specifications, which have proved challenging for BOE in the past.  That said, they are certainly the most successful Chinese panel producer and have a dominant share of the global large panel LCD space.  Whether that proves ultimately the correct positioning over the next few years, however, is still an open question.

​eMagin (EMAN) and Samsung Display have announced a merger agreement under which SDC will purchase all of eMagin’s outstanding stock at $2.08, roughly a 10% premium to the closing price on May 16.  This values eMagin at ~$218m.  eMagin has been developing Micro-OLED displays since 1996, with considerable funding from the US military who has used their displays in military hardware, particularly night-vision goggles, and in 2004 released the first consumer-oriented OLED Micro-display that was used in an early Sony (SNE) VR headset.  eMagin, which is based in Hopewell Junction, NY at a former IBM (IBM) site,
eMagin currently produces a variety of full color Micro-OLED displays that range from VGA to 2Kx2K micro-OLED displays ranging in size from 0.47” to 1”.  Samsung’s interest likely stems from eMagin’s dPd OLED patterning technology that is part of its patent portfolio.  The technology allows for RGB side-by-side stripe patterning, rather than a white OLED Micro-display that uses a color filter to create sub-pixels.  Samsung is expected to adopt this type of Micro-OLED display technology in the future, although it will likely initially use the WOLED system until the dPd technology can be scaled to nigh volume production.  Upper management are former Eastman Kodak (KODK) executives who were involved in Kodak’s early work with OLED displays.
While major investors are Vanguard (pvt), Blackrock (BLK) and company management and directors, the largest single shareholder is the Stillwater Trust LLC, whose sole member is Mortimer D.A. Sackler, former (left in 2018) 20-year director of the notorious Purdue Pharma LLC, the developers, and marketers of oxycontin, considered a major cause of the national opioid crisis.  You don’t always get to choose who your shareholders are…

​OpenAI’s (pvt) ChatGPT chatbot has its limitations.  Among the most important to users is a time constraint.  Not one that prevents you from using the model for extended periods of time, but the fact that the system’s learning period ended in September 2021, which means it is unaware of things that have happened since then and cannot integrate them into its responses.  ChatGPT was also trained on specific data, much of which came from the internet, so the quality of that data can and does influence ChatGPT’s responses, which it couches with “I can sometimes provide incorrect or biased information.”  That said, if one knows the ins and outs of ChatGPT, as we have noted previously, the system can be extremely helpful and unusually prescient.
The problem is however that newer learning models, and when we say newer, we mean the data they were or are being taught on, is more up to date, inclusive of current events, and data from 2022, which pushes one to try other NLMs.  The folks at Open AI are not taking this competitive issue sitting down (actually they are probably are sitting down), but as of today they are making available a plug-in version of ChatGPT that developers can use to give ChatGPT access to up-to-date information, or specific data that 3rd party developers can provide.  If you are willing to join ChatGPT+, for a mere $20/month, you now have access to over 70 3rd party plug-ins, available at the ChatGPT plug-in store, that allow ChatGPT to perform a wide variety of functions based on.
Some examples might be sports scores (“ChatGPT, who was the player with the most goals in the last 10 minutes of the 3rd period during the last 7 games of the 2021 season?”), stock information (“ChatGPT, How many times did GLW violate its 30 day Moving Average during each Friday in 2019?”), or even more simple tasks like ordering food (“ChatGPT, How many restaurants within 10  miles with ratings above 4 serve Nabe as part of their take-out menu?”).  As the plug-ins are developed outside of ChatGPT, the data access is provided by the plug-in but the ChatGPT data and services, including an OpenAI verification process  remains accessible, particularly the language processing that makes ChatGPT conversational. 
Open AI provides a variety of examples, including code.  Here are a few:

• Keywords – Extract keywords from a block of text
• Ad from Product Description – Create ad copy from a product description
• Tweet Classifier – Decides whether a Tweet’s sentiment is positive, neutral or negative.
• English to Other Languages – Translates English into French, Spanish, or Japanese.
• Product Name Generator – Creates product names from example words.
• Marv the Sarcastic chat bot – Marv is a factual chat bot that is also sarcastic.
• Create Study Notes – Creates study notes from a given topic.

A few actual ChatGPT Plugins that are already available:

• KalendarAI – KalendarAI sales agents generate revenue with potential customers from 200+ million companies globally.
• Cloudflare Radar – Get real-time insights into internet traffic patterns and threats as seen by Cloudflare.
• Polarr – Search Polarr’s massive pool of user generated filters to make your photos and videos perfect.
• FiscalNote – Provides and enables access to select market, trading, real-time datasets for legal, political, and regulatory data and information.

When using ChatGPT with a plug-in it opens ChatGPT to additional databases that were not available to the NLM previously, giving ChatGPT new or highly specific information that it did not learn during its training phase in 2021, such as summarizing a personal or business document and translating it into a different language, or recommending a ‘quiet hotel in Paris that allows pets”, and then books the car to the airport, the flight, the car to the hotel, the hotel reservations, and the returns once you approve.  But the idea of using 3rd parties to create plug-ins for ChatGPT will open the NLM to data that it would never have access to, such as stock market trading data or SEC filings, which increases its usefulness by many orders of magnitude, and will lift Ai from being a curiosity, like Pong was in 1972 to Minecraft level (200m+ copies sold).

We have mentioned a number of times that over the last few quarters Samsung Electronics (005930.KS) and LG Display (LPL) have been negotiating over a panel supply deal for OLED displays.  Samsung, whose display affiliate Samsung Display (pvt) has exited the LCD TV panel business, has been looking to expand its premium TV offerings, and while it offers its own Quantum Dot/OLED TVs, production is limited to one 30K fab, leaving Micro-LED TVs at the top of the line, albeit far out of reach for almost all consumers, the company’s Mini-LED/Quantum Dot lines, a small QD/OLED line, and Samsung’s Quantum Dot only LCD TVs.  With the premium Tv market the only TV segment expected to show positive y/y growth this year, building out that segment is quite important currently and likely necessary for the next few years.

While the definition of ‘premium’ in the Tv market varies, we define the ‘premium’ TV market as sets that are 55” or larger and cost $1,000 or more, and the lines shown in the graphic above all fall into that category, with a few models just below the ‘premium’ cut as shown in the table below.  As the Micro-LED line is not really a consumer-friendly priced item. We would expect Samsung, if a deal were concluded, to insert the ‘New OLED’ line at the same price points as the QD/OLED line to increase the volume of OLED offerings at those price points, and consequently, those price points are roughly equal to LG’s (066570.KS) own G3 OLED TV line, so price competition between the two rivals would not create further friction.
The big question however is Samsung’s margins on the new OLED line, much of which would be determined by the agreed-on price for the panels, which was said to be the contention throughout the earlier negotiations.  As Samsung is expected to purchase ~2m units next year, increasing to 3m and 5m in the following years (unconfirmed), and perhaps up to 1m panels this year, they are looking for a substantial discount to LGD’s normal transfer price.  LG Display has been running its WOLED fabs at less than full utilization so far this year, and such a deal would give a needed boost to OLED utilization rates that have dragged down profitability in recent quarters.  However rumors that Samsung is demanding prices below those offered to LG Display’s parent, which would likely cause a bit of bad blood between parent and affiliate.  That said, LG owns almost 60% of LG Display, so it’s an odd situation for LG.
While news services have picked up the supposed ‘movement’ in the negotiations, this would not be the first time a ‘deal done’ signal was given (or assumed) from local South Korean media.  While such a deal will have benefits for both parties, there is considerable emotional skin in the game for Samsung, who decided in 2013 that producing large RGB OLED panels was not a viable process.  In fact, they were correct in that assumption, as LG Display does not use and RGB patterning process in its OLED panels, but one encompassing creating a white light with a combination of OLED emitters and using a color filter to create the necessary red, green and blue sub-pixels., which reduces the brightness of the display.  Over the years LGD has adopted a number of improvements that have offset some of that issue, but the current-day management at Samsung must bow to the fact that the 2013 decision has given LGD a distinct advantage in the OLED TV space, as both the sole OLED TV panel supplier and LG’s over 50% share of the OLED TV set market.
It will be challenging for Samsung to come up with a marketing plan that continues to sell its QD/OLED technology while extoling the virtues of LG Display’s OLED TV panel vision, and not degrading the company’s Mini-LED/QD technology, which Samsung has been championing since 2021.  Of course that is what the marketing guys get paid for, so we expect rounds of advertisements providing little empirical information about the pluses and minuses of each technology, and more on why whatever the technology is, Samsung’s is better than others.  Samsung’s smartphone and TV divisions were ‘ordered’ to find solutions to improve earnings after 1Q results led to an 18% decline in sales and the lowest operating profit the company has seen in many years.  Tv division sales were down 14.8% y/y, so there is considerable pressure to expand the premium set business and bring up margins from upper management, so likely less face saving, and more sales will be the holiday mantra this year.
 

At the end of last month we noted (4/27/23) that while there was still time for Samsung Display to decide to make its investment in a Gen 8 OLED fab a reality, time was beginning to run out.  It seems that, according to Korean sources, has created an internal organization to begin to execute plans for said Gen 8.6 OLED fab, and has begun to order equipment for same.  The new fab would be oriented toward the production of IT OLED products, with a potentially large consumer company () a likely customer over the next few years, along with parent Samsung Electronics.  When this fab is completed, it will be the first of its kind, producing RGB OLED displays on a substrate that is over double the surface area of the current Gen 6 fabs that are producing RGB OLED displays for smartphones and IT products, giving Samsung Display a volume and efficiency advantage over its competitors.
The project is expected to cost ~$3.1b US, and purchase orders are said to be released this month, starting the construction process, which has been in development for many months.  The heart of the fab will be the deposition tools, which pattern OLED materials on the substrate through fine metal masks.  These tools are typically designed for Gen 6 substrates, so tools for this larger base will have to be custom built, and as we have noted before, there has been some question as to who will be contracted to build such tools.  LG Display has aligned itself with Sunic Systems (171090.KS), but Samsung Display has yet to place an order with Sunic or the market leader Canon-Tokki (7751.JP), who developed a system that can automate a number of deposition functions, including cathode metal and organic material deposition, and encapsulation.  Samsung was said to be trying to negotiate a price that does not include development costs, which Canon wants to include.  Smaller Gen 6 systems start at ~$100m, likely putting the cost of a Gen 8 mass production system between $200m and $250m.