​As the COVID-19 pandemic has greatly increased demand for notebooks, we look at the notebook market in terms of the migration from a-Si (amorphous silicon) backplanes, which has been the category’s mainstay, to LTPS (Low temperature polysilicon), IGZO (Indium Gallium Zinc Oxide), and OLED.  Given that last year was a significant growth year for notebooks over a weak 2019, and this year is expected to see notebook shipment growth between 19% and 22%, unit volumes in the smaller share categories will substantial change, and given the relatively small number of producers in the smaller categories, the change could be important.
While LTPS is the most common backplane for smartphones, it has a small share of the notebook market, but one that should continue to grow.  It is a simpler production process than Oxide and has a generally higher yield, but oxide has the benefit of lower power usage, which is an important feature in mobile devices, despite its higher cost.  OLED is the new kid in town, as we have noted in the past, but is supported by Samsung Display (pvt) and parent Samsung Electronics (005930.KS), with Samsung targeting 4m units this year, ~11% above the projections below.  Given the strength of the notebook market we would lean more toward Samsung’s projection, although based on the lower forecast (3.6m units) for this year, the projection for 2022 would imply 6.3m units, or ~75% unit growth.  While Samsung Display is currently the sole supplier of OLED notebooks, China’s EverDisplay (688538.CH) is expected to begin commercial production sometime this year, although we would expect it will take some time to generate meaningful yields.
LTPS notebook displays are currently being supplied by AU Optronics, Chinastar (pvt) and Tianma (000050.CH), with AUO the dominant player and Innolux (3481.TT) expected to begin production later this year or early next year.  Given the higher volumes for IGZO notebooks, there are a number of panel producers building out or converting capacity toward this modality but current leaders ate LG Display (LPL), BOE (200725.CH), Sharp (6753.JP), and Panda (600775.CH) with HKC (248.HK) and Chinastar as the potential newcomers.
Amorphous silicon based notebooks will remain the most common, and while the technology will see some share decline by the end of next year.  That said, given the high volumes involved in a-Si notebooks and the infrastructure already in place, it will take a considerable amount of time to dislodge the technology from its dominant position, with Sharp and BOE offering the widest range of sizes and types.
All in over the longer-term, the high-end notebook market is the key to sustainability for panel producers, which does bode well for the newer backplane technologies, and the relatively limited number of producers gives those who were substantial producers before COVID-19 a distinct advantage, and with expectations of lower notebook shipments in 2022, the focus on those newer technologies to maintain ASP will be more intense.  As gaming has grown, there has been a shift from generic notebook panel production to panels with higher specifications, for which gamers are willing to pay, while on a global basis, more simplistic Chromebooks have sated the need of many in the education market pushing less focus on the mid-priced notebook segment and more toward the upper and lower ties, allowing those newer and more expensive technologies to grow.  Mini-LEDs will help to sustain all modalities other than OLED, which is self-emissive, but has just begun to build a real volume supply chain.  Couple Mini-LEDs and quantum dot enhancement together in a notebook and you have a potential challenger to OLED, albeit with both being at the top end of the notebook market.

​The SEC issued a statement that will require additional disclosure from Chinese companies that wish to list on US exchanges or are currently listed.  The information that the SEC is requesting relates to a practice used by some Chinese companies to avoid Chinese government restrictions about foreign ownership or direct listing on foreign exchanges.  In order to avoid the restriction, Chinese companies set up what is called a VIE (Variable Interest Entity) in an offshore location.  The offshore entity enters into contracts and agreements with the Chinese operating company and is able to consolidate the operating company for accounting purposes.  By listing the shell corporation on foreign exchanges, investors would believe they are directly investing in the Chinese operating company, however they actually only own shares in the ‘shell’, which has no ownership in the Chinese operating company, only service contracts.
The SEC believes that the average investor would not realize that the ownership in such a listed entity does not represent ownership in the Chinese entity due to the accounting consolidation and is now requesting information from such VIEs on registration and will force full disclosure to investors about the lack of direct ownership in the Chinese operating entity, particularly in light of tighter restrictions and examinations I China itself, which could change the relationship between such entities and the operating company.  Taking it one step further, the SEC will require that the PCAOB (Public Company Accounting Oversight Board) must be able to examine the issuing entities public accounting firm for the previous three years or face delisting.
Given the popularity of the more speculative Chinese markets, the relatively opaque accounting of same, and the use of social media as an information source both in China and in the US, we see this as a good rule but one that will meet with considerable opposition from the Chinese government that will likely claim it has already put in place the necessary safeguards, and from Chinese companies themselves, at least those that are a bit lax in disclosure, financial accuracy, or just don’t want to give accurate information to those outside of China, despite their willingness to use same for financing.  We expect the majority of Chinese companies that are seeking or have US listing are legit or open about actual disclosure, but it certainly won’t hurt to get a bit more transparency from some of the smaller companies, many of whom use social media as their ‘disclosure’ platform, where there is far less consequence for inaccurate promotion or incomplete disclosure.
 

AU Optronics (AUOTY) reported 2Q sales of NT$95.65b ($3.42b US), up 15.3% q/q and up 50.6%% y/y/.  Gross margins increased from last quarter’s 22.0% to 28.7% against last year’s 2.7%, and net margin increased from 14.3% last quarter to 20.8% this quarter, against last year’s -0.2%.  As did a number of panel producers in 2Q AU Optronics paid down debt, but there were two points that we believe were most significant in the quarter.
First, AU Optronics saw gross margins hit 28.7%, the highest in a decade, as their fabs saw high utilization.  AUO has been one of the few panel producers who has been able to maintain positive gross margins for much of the last few years, falling into the negative only during the steep panel price decline seen in late 2019 and the COVID-19 outbreak in 1Q 2020.
Second, since 2019 AUO has been reducing its exposure to the TV panel business (see Fig. 2) and offsetting that with increasing its exposure to IT products, automotive displays, signage, and industrial applications.  While management had no inkling of COVID-19 and how that would boost those segments, the plan was a prescient one that has put the company’s panel product line in the sweet spot since the pandemic.  In the TV panel space itself, the company has been focused on a number of high value products where it can be a sole supplier or share leader, moving away from products where they might be competing directly with Chinese panel producers.
This strategy has paid off considerably during the last few quarters and should insulate AUO from the early effects of a flattening or decline in TV panel prices, and should help AUO to generate strong sales for the 2nd half as continuing panel price increases in the segment are expected, at least in 3Q.  That said, and we don’t wish to be a downer, but that same leverage toward IT products will be tricky to manage if overall demand weakens in 2022. 
AUO gave 3Q guidance that indicated that shipment area would increase by low single digits and ASP (area basis) are expected to increase by mid-single digits, while the loading rate (utilization) rate would remain high.  Equally important is their order visibility through 3Q.  The company did caution that transportation costs and component shortages could limit sales, but had yet to have an impact on shipment levels.
All in, this was about as expected and while most of the panel industry saw strong results primarily from panel price increases, AUO has been working toward their current product layout before the pandemic and before most other panel producers began to react to the demand changes brought about by same.  We give them credit for their commitment to what might be called specialty products far in advance of most others that have more recently adopted the ‘focus on high margin products’ mantra.

DRAM pricing rose in July as new quarterly contracts were drawn up.  The increase of 7.89% over the previous quarter was above expectations of a 5.5% increase predicted last month.  This is the third DRAM price increase this year, putting the average price for DDR4 (8Gb) up 44% over end-of-the-year pricing in 2020.  NAND flash (128Gb) also saw a price increase in July of 5.81%, now up 15% since 12/31/20.   
Expectations for DDR4 pricing in the 4th quarter are for a decline, although 4Q contract prices will not become apparent until late September, right in the heart of the holiday build season, so with the number of moving parts influencing those decisions, things could easily change.  We note that Fig. 3 denotes the actual contract price for July and the forecasted price for comparison.
 

Suddenly display prognosticators have changed their tune.  While panel price increases have lessened over the last few months, August is shaping up to be the first month where some panel prices will decline, although there seems to be considerable disagreement as to by how much.  Monitor and Notebook panel prices are still likely to increase, but TV panel prices will not and again with considerable differences between the amounts, the trend is decidedly different than in previous months, and while negotiations between panel buyers and panel producers continue, we notice that even over the last week, TV panel price estimates have declined a bit further.
Accurate panel prices are almost an impossibility as there are so many types in each panel size category, so our angle has always been to average as much of the data as possible to come up with a more normalized price.  This is especially helpful when the spread between low and high panel prices for each size increases, a result of both customer allocation at the producer level and double ordering.   While the spread had narrowed for many panel types and sizes in 2Q, the spread is beginning to widen again, indicating less buyer willingness to accede to the price demands of panel producers. 
That said, experience says when panels have been in relatively short supply, smaller purchasers tend to get allocations below targets, so when demand from large customers begins to slow, panel producers can fill those smaller customers and extend a high level of utilization despite lower demand.  We expect this was the case in July and could help to insulate panel producers from the effects of weaker demand for a month or so, but the sustainability of such a situation is poor and those producers focused on TV panel production will take the hit relatively quickly.
As this month there seem to be an inordinate number of panel price prognosticators willing to share their thoughts as to August panel pricing, we have put together early averages, although we expect they will change quickly as rumor and innuendo about orders circulate further.

​A court in Hangzhou, China has ruled that its original decision in China’s first lawsuit relating to the use of facial recognition will be upheld, which gives Chinese citizens the right to approve or disapprove of the use of their facial recognition data.  The suit was filed by a law professor that asked for his money back after being told he could not enter the Huangzhou Safari Park without a facial scan.   The decision by the People’s Supreme Court states that the collection and analysis of facial data by commercial enterprises must receive independent consent from the individual, and if such is not given it can be the basis for an infringement of personal rights civil lawsuit that can result in fines and/or compensation.  In the case above, the professor was awarded ~$158 in compensation and the park was required to delete the facial information and fingerprints that had been used for identification before the facial recognition system was installed.  The court did not require the park to refund the professors annual dues.
This has great significance in China as facial recognition is becoming the ‘go-to’ mode for entry to recreation sites, gated communities, and final identifiers in financial transactions, that now will be open to the court’s interpretation, with the state run People’s Daily saying that the ruling gives Chinese citizens the ability to “bravely say no to facial recognition.”  While that statement draws headlines and likely will calm some fears about the use of biometric information in China, it certainly will not change the Chinese government’s very extensive surveillance programs, which has the support of over 60% of the citizenry (or at least that’s what the government says) because they feel safer under the programs.
Much of the facial recognition controversy however has to do with the use and storage of such data, much of which is held by commercial businesses and has little regulation as to the protection of the data, leading to some very large data breeches in the past.  The Chinese government recently tabled a new personal information protection law that would have standardized data collection and processing, but cybercriminals are so far ahead of even the most stringent mandates that such a new law, if ever passed would make no dent in their nefarious businesses.  Facial data is sold in China for as little as $0.07 per face.  As the Chinese government is the biggest purchaser of facial recognition equipment and software, facial recognition collection and data rules are oriented toward developers rather than consumers, so one would expect only modest changes to existing rules despite the recent ruling. 
All in, commercial operations that have converted to all facial recognition entry will have to offer an alternative and a small segment of the population will request that their facial recognition information be deleted from such sites, but jaywalkers that get caught on camera and identified with facial recognition by the government will still face bans from public transport or similar prohibitions.  The wheels of change grind slowly, especially in China.

In March (3/15/21), (3/16/21) we noted a number of supply/demand scenarios that built out our data on unit volumes for a number of CE products.  While this exercise was more of an attempt to correlate a number of data sources, it turned out to be far more focused on demand than supply, given the unusual circumstances that the COVID-19 pandemic has caused.  Now that we have actual data for the first two quarters of the year, we went back to see how each of the four scenarios performed, with the purpose not of proving whether we were right or wrong but to try to assess whether the 1st half results actually fit into any ‘normal’ scenarios.
The demand data was constructed from four CE categories, notebooks, monitors, TVs, and tablets, which encompasses almost all of large panel display production.  Smartphones, AR/VR, watches, and most foldable devices are not in the calculations as they are considered ‘small panel’ devices that are produced under their own demand characteristics.  Small panel production in terms of units, represents between 65% and 72% of the total, but between only 16% and 19% of panel revenue, and despite the high unit volumes, is a small part of total panel area, with TV representing ~70% of panel production area.
Each of the supply/demand scenarios was based on 2020 data and seasonal norms and then tweaked by adjusting the ratios.  The four scenarios were named according to the balance between supply and demand and the outlook each schema had on a quarterly basis.  In this note we are only looking at the demand side of the scenario, although the results below reflect the performance of the entire scenario.

In terms of unit volumes, the best of the four scenarios was low by 3.7% and the worst low by 21.3%, with all four predicting unit volume lower than actual 1H unit volumes.  There was no consistency in 1Q/2Q results in the scenarios, with two performing better in 1Q and two in 2Q.  Scenario 4 (Avalanche), which represented a steep drop in demand resulting in a substantial capacity oversupply, performed the worst across the board, but performed the best in the TV category specifically, predicting shipments within 1% and 2% of actual results in 1Q and 2Q respectively, while seriously underestimating shipments in all other device categories.  Scenario 1 (Slow Burn), which represented slightly weaker demand and modest oversupply in capacity, predicted monitor unit volume the most accurately, within 2.5% to 3.2% of actual, but joined all three other scenarios in mis-forecasting notebook unit volume.  The table below summarizes the results with each scenario.

​In terms of these scenarios, while we certainly look at the monthly and quarterly results, these scenarios were built around full year results, and we expect 2H to be both different from 1H and different from the ‘typical’ 2H, so we reserve judgement on how well the scenarios performed until we have full year data.  That said, on a general basis we underestimated the strength of demand in the 1st half, particularly with notebooks, which have continued to outperform our expectations as to unit volumes, but the 2nd half presents its own challenges, some of which are a continuation of those seen in the 1st half and others are new, such as the potential for declining TV panel prices.  We will update again after we have actual 3Q data, but being off by 16.4m panels out of 441.4m is not too bad…

​Quantum Dot supplier to the stars Nanosys (pvt) is said to be in talks with a SPAC firm to bring the company public, which we find somewhat surprising as the company has access to capital through a wide variety of investors that have participated in the company’s private funding, including Samsung (005930.KS), BOE (200725.CH), and LG Display (LPL).  The company’s recent acquisition of Glo (pvt) gives the company a leg up in the development of micro-LEDs and is a part of the Samsung’s QD/OLED program, along with the potential for development of quantum dots as direct emitters in the future.
While we hear SPAC rumors all the time, this one was among the most surprising as we would have expected Nanosys, if they were to SPAC out, to choose a high quality SPAC that has produced better results for investors, but we quote an old Thom McCann quote that is usually attributed to defunct CE retailer Crazy Eddie, “Money talks, Nobody Walks”.  See our recent notes for more information on Nanosys.

As LG Display (LPL) is the only high volume supplier of OLED TV panels and is the 2nd largest volume producer of LCD TV panels on a global basis, so we take particular note concerning the company’s performance and outlook.  That said, LG Display also faces some unusual challenges concerning their small panel OLED business as their parent LG Electronics (066570.KS), has exited the smartphone business, making a dent in LGD’s volumes.  Offsetting that issue is Apple’s (AAPL) increasing confidence in LGD’s small panel production abilities placing them in a position to compete directly with Samsung Display (pvt) for volume orders for the iPhone and other products.  With the massive LCD panel price increases seen over the last 12 months and Samsung Display’s tacit exit from large panel LCD production, LG Display’s biggest competitor is China’s BOE (200725.CH) who has added considerable capacity over the last few years, making LGD Display’s perspective and performance all that more important.
Below we review LG Display’s 2Q performance and commentary.  Please note that we have paraphrased some of the questions and responses in the Q&A section to get to the important points, but the intent of bot questions and answers has been preserved.  Our commentary is in red.
LG Display reported 2Q revenue up 1% q/q and up 31% y/y, while operating profit was up 34% q/q against a loss in 2Q 2020.  Gross margin was 20.8%, the highest since 2Q 2017, up from 17.9% last quarter and 2.4% last year.  On an overall basis, the revenue strength came from strong TV shipments, particularly OLED TV and the operating margin strength came from increasing LCD TV panel prices and improving OLED TV profitability as the company continues to gain OLED panel production scale.  TV panels represented 38% of revenue this quarter, a 7% share increase over 1Q and a 15% share increase over 2Q ’20 and the highest share since 2Q 2019. 
There was a downside to the increasing share of TV revenue in the total mix as even though area shipments were up 4.7% and overall capacity was up 3.6%, ASP (m2 basis) declined 4.5% (m2 basis) as more TV and IT panels reduced the share of small panel product, which carries the highest ASP on an m2 basis.  Net Debt to Equity ratio declined from 75% in 1Q to 69% in 2Q and 91% in 2Q last year, while inventories rose 15.8%, similar to the 15.3% increase seen in 1Q.  LGD notes that an increasing percentage of high value products and inventory building for the 2nd half are responsible for the increase, although we see this as an area to monitor closely as TV set price increases slow demand.  

  Guidance for 3Q was that area shipments will increase 4% to 6% q/q and area price (not product ASP) will also increase by 4% to 6%, however the company indicated that there is the possibility that component shortages could limit shipments despite the better seasonality in 3Q and 2H.  The increase in Area Price is being driven by growth in large shipments, according to the company.  That said, the implication is that going forward the share of revenue from small panel product, which carries a higher price on an m2 basis, will increase, even as large panel shipments also increase. 
We make the supposition that this is reflecting the panel production for the Apple iPhone 13 series, which is not only higher in total than last year, but LGD has seen its share of the total order also increase.  Since ASP here is based on area, it is influenced by mix more than product price, so a potential flattening of large panel price increases will have less effect on this metric, but would slow the top line growth seen in recent quarters, should that be the case.  Fig. 1 shows LG Display’s sales since 2018 and an upward sloping trend line.  The dotted red line shows the q/q rate of change, which has been smoothed to eliminate typical seasonality.  Given the strength in LCD panel prices and LGD’s increasing OLED TV production, the ROC trend line is a bit steeper.
LGD indicated that it shipped 3.5m OLED TV panels in the 1st half, ~80% of what was shipped the entire year in 2020, a result of the ramp of the Guangzhou OLED TV fab, improving yields, and the implementation of MMG (Multi-mode Glass), a process that allows for multiple size panels to be cut from an single substrate sheet, increasing the efficiency of the substrate.  The company expects to ship a bit over 2m units in 3Q, as they continue to ramp production and MMG allows for a higher unit count[1], which puts them in-line to meet expectations of between 7m and 8m units this year.  While not specific to OLED, the company again cautioned that both COVID-19 and shortages could increase the volatility in 2H, but we expect much of that caution is geared toward LCD TVs rather than OLED TVs, as panel prices for LCD TVs have been rising for a year, narrowing the gap between OLED TV panels and LCD TV panels.  With LCD set pricing rising to compensate for increased panel prices, the gap between LCD set prices and OLED TV set prices has also narrowed. 
LGD did mention that they hope to bring the large panel OLED business to profitability this year, with the goal of achieving 4% to 6% operating margins in 2022 and double digit margins in the longer-term.  With company operating margins averaging 8.8% this year, we had assumed that the large panel OLED business was at breakeven in 1Q, but that seems not to have been the case, although it seems that the company expects profitability at the volume levels its has now reached.  It was mentioned that LGD is also looking for OLED applications outside of TV to expand that business, which implies OLED monitors and notebooks, which we have highlighted as growth areas for the OLED space going forward.
LGD also indicated that its mobile OLED business has been stabilized, which we assume to mean that the company has reallocated small panel OLED resources from its parent, LG Electronics to Apple and other customers, as LG has ended its mobile business.  The increased order from Apple mentioned above will certainly go toward that end, but it is necessary for LGD to broaden its small panel OLED customer base to avoid the potential ‘Japan Display’ effect, where a change in Apple’s display modality almost put Japan Display out of business.
On a more general basis there was the usual ‘strengthening of the long-term relationships with customers to reduce sales volatility’, and ‘continued reduction of borrowing’ which are always present in panel producer calls when they have negotiating leverage, and the company did mention that it was formulating a dividend policy, but had not yet come up with a policy that would be stable under all circumstances.
Q&A
Will expansion of OLED business (large and small panel) lead to a postponement of profitability of that business?
We will examine any potential investment as to whether we can see an immediate return based on customer feedback and industry outlook, which leads us to believe that any such capacity investments in OLED will not postpone the path to segment profitability.
One big question, “Was that not the case before this?”  Apple’s investments in LGD should give them a good idea as to what to expect from Apple from a volume standpoint, but other customers are much harder to pin down as they do not usually make advanced payments against dedicated capacity.  This makes new OLED capacity investments fall a bit outside of the ‘immediate return’ philosophy, so we don’t put that much reliability in the statement.
What are your expectations for LCD panel prices?
For IT products we expect demand to remain strong through the end of this year.  In 2022 it is hard to predict given the influence of COVID-19 and potential component shortages.  We are operating under the assumption that IT panel prices will be stable or down until we know more.
For smaller TVs (32” – 43”) we are seeing demand slow, likely a result of COVID-19 resurgence in emerging markets where smaller sets are most popular (India, etc.).  We are unsure whether this is a structural change or a result of the pandemic but we are working under the assumption that pricing in this category will decline faster than IT panel pricing.
As we have previously noted, there is evidence that TV panel prices have reached a peak and there is increasing risk that they will no longer contribute to the growth in panel producer revenue, so the company’s admonition that they expect weakening in smaller TV panel sizes is no surprise.  However, as indicated below, they have shifted and continue to shift more LCD TV panel capacity to IT products, so the risk of weakening IT panel products continues to rise, and their unwillingness to predict where IT panel prices might go next year is also not surprising given the resurgence of COVID-19.  They do have a bias toward large panel LCD pricing as they are far more focused on 65”+ panel production than smaller sizes, so they might have a modicum of early cycle protection if those sizes see a slower decline toward flat or weaker prices, but at least they were able to give some relatively honest thoughts on panel pricing.
What about your plans for your LCD exit strategy?
It is not an exit strategy but a realignment of our LCD business.  We have shifted much LCD TV capacity to IT and will continue that trend and will continue to strengthen our relationships with IT customers, as we have both resources (fab capacity) and expertise in the space.  LCD TV capacity is about 50% of what it was at peak, but we remain flexible to market conditions.
While this is really semantics, LGD has made a shift away from more commoditized large panel TV production, looking to focus on more premium priced LCD panel applications.  Most of the large LCD panel producers have been doing the same, with Samsung Display the most aggressive and Chinese producers generally the least.  Call it what you want, but it is an exit strategy.
What about plans for Small panel flexible OLED expansion?
As we expect to keep capex within EBITDA, with D&A at ~₩4.5t and if we expect ₩1.1t in operating profit this year, EBITDA would be ~₩5.7t although we cannot predict actual profitability in 2H.  That said, small panel OLED expansion is still under review at this time, but that philosophy does not mean we will spend the entire EBITDA on capex, some of which we have used to reduce borrowing.  Aside from some more aggressive ESG spending this year, we still are being careful in our facilities spending, even with the increased EBITDA, but we also need to plan for new initiatives that will generate profitable results and other financial eventualities.
The gist of the question was “we think you are spending too much on capex because your EBITDA has expanded”, which the company obviously disagreed with.  While they have emphasized (particularly in this quarter) that they are being very judicious about spending, they still have some potentially ambitious capital spending plans (see below), which some are concerned might slow the path toward OLED profitability.  The company seems to be passed the ‘spend in advanced’ stage, having acknowledged that their original OLED profitability timelines were delayed, but spending for capacity adds for Apple and for OLED TV are still essential to the OLED story.
If large panel LCD prices decline how will the company deal with such a change?
First to understand, when large panel prices were declining (2019), it was not the LCD business that pushed the company into a loss position, even as sales declined, it was large panel OLED TV and the flexible OLED segments where investments had been made but we were unable to meet sales and production timelines, resulting in losses.  As far as our response to potential LCD panel price declines, as we mentioned we have already reduced TV capacity at out fab and are strengthening our relationships with customers to maintain a stable production scenario.
While a bit defensive, in previous large panel cycles LGD’s LCD business was their lifeboat, but that focus has changed a bit with the enlarged emphasis on IT products and OLED.  Almost every panel producer has given the ‘strengthen relationship ‘ argument as an offset to the potential for declining panel prices, but even with those relationships, demand is the driver for panel buyers and regardless of the relationships, when demand is weak they back off and sell out of inventory.  In our view the risk level for LG Display to weakening panel prices remains similar to what it has been with the increasing OLED exposure a small offset to that risk.
If large panel LCD prices do decline would you expect any pressure on OLED panel prices?
While LCD TV panel prices have double over the last year, the price of OLED TV panels has not.  This is because the OLED TV panel price is based on our market research (“sweet spot”) and discussions with set makers, rather than a tie to LCD panel prices.  We do expect some effect on OLED TV panel prices if LCD prices weaken, but we expect to be able to manage such an impact.
OLED TV panel pricing has been far more stable than LCD panel prices, and regardless of the ‘market research’ that LG Display does to determine the right price for OLED TV panels, there are only two factors that make a difference currently.  The first is that LG Display is the only supplier and the second is that OLED TV is a premium product that competes in a fast growing category (premium TV products).  Until that changes OLED TV panel prices should remain relatively unconnected to LCD TV panel prices.
What will be your OLED TV panel target for next year and would you expand capacity in Guangzhou?
We do have the ability to add an additional 30,000 sheets/month to our capacity in Guangzhou, and based on that we would have the capacity to produce 10m units as some have speculated, and with some productivity improvements, that number could reach 11m.
While not quite official guidance, the company was upfront about what they expect for OLED TV panel shipments next year, albeit dependent of the expansion of capacity at the Guangzhou fab.  10m to 11m is in keeping with most forecasts for 2022.
What is the status of the company’s automotive display business in light of issues facing that industry this year?
There have been semiconductor component issues, especially among OEM and 1st tier suppliers and it is a risk, but so far there have been no disruptions to our production due to those shortages.  In the past we have been producing automotive LCD displays using a-Si but have begun producing with LTPS backplanes as most of the orders we are receiving are for LTPS.  Over the next 2-3 years we expect that we will continue to increase automotive LTPS products and will end a-Si automotive display production over that period.
We believe that flexible OLED is the optimum display for electric vehicle automotive applications and we are working with OEMs toward developing such products, at which point we will work toward improving profitability. This is our plan for automotive displays.
While LCD for automotive does have some advantages, particularly brightness, OLED automotive displays can be conformed to almost any shape, making them the darling of automotive designers, but the automotive display product cycle is very different than those for most CE devices.  In this case developing long-term relationships with OEMs is the right way to go although the payoff might be years away, as the margins are considerably higher for automotive displays on an m2 basis.
Unusual in that this was a long call and one where the company was willing to give at least a small peek behind the curtain as to its plans.  Excluding the usual generic statements as to some of the more difficult questions to answer, LG Display was a bit more transparent about its business, particularly it OLED business.  Whether this was due to coming off of a strong quarter or a change in management’s style, it was certainly welcome.  That said, other than the improvement in the company’s financials, we still see the risk level increasing as panel prices near or are at peak levels.  If they can actually bring their large panel OLED business to a sustained profitability level, the very big OLED bet that the company has made will pay off, but it will probably be later in 2022 before that really becomes apparent.  As with most panel producers in 2Q we say, “It was a good quarter and an easy compare, so what have you done for me lately?”
 


[1] MMG’s higher substrate efficiency also gives the producer the opportunity to produce a higher volume of smaller panels along with large panels, increasing the overall panel count.

​Samsung and South Korean carriers continue to exclude 28GHz 5G (mmWave) both from upcoming foldable smartphones and from a residential customer standpoint, leaving that bandwidth for B2B services, despite Apple’s adoption in the iPhone 12 and potentially in the iPhone 13.  While this is the case in South Korea, where mmWave 5G roll-out has been slow and has received only lukewarm support from the government, with the carriers citing the increased cost burden of mmWave roll-outs on consumers, Apple’s support of the faster technology has given US carriers, particularly Verizon (VZ) an incentive to add such infrastructure,, despite its higher cost.  Given the competitive nature of carriers in the US, the ‘need for speed’ is a subscriber selling point, although average 5G speeds in the US don’t always reflect mmWave’s higher throughput.
It is surprising that Samsung continues to hold off implementing mmWave 5G however, due to the fact that the application processor that is expected in the Galaxy Z Fold 3 and Z Flip 3 (Qualcomm (QCOM) Snapdragon 888) are equipped with 28GHz functionality, but it seems in order to cut costs Samsung has removed the 28GHz antenna structures, eliminating mmWave capabilities, despite the AP’s ability to utilize those frequencies..  While the IPhone does not dictate policy to South Korean carriers, the fact that Apple continues to see value in the mmWave bands would be expected to make some difference, however there are less than 100 mmWave sites in South Korea, with most in industrial parks or at public attractions, and it seems they are unwilling to add much to that infrastructure at least this year based on their comments.  Samsung, of course, did not answer the question as to whether the new phones would be mmWave capable, but said, ”It is difficult to confirm the pre-launch products such as the Galaxy Z Fold 3 with regard to whether they are equipped with millimeter waves.”.  The perfect non-answer.
Speaking of Samsung, the President of Samsung’s Mobile Division confirmed in a blog that there will be no new Galaxy Note series, and while this supposedly answers the question that has been rumored for some time, we take this as a ‘today’ statement, which could be modified if necessary.  It was stated that a major function of the Note series, the S-Pen, would be pushed deeper into the Samsung Galaxy line, and that the Galaxy Z Fold would be among those, which has been rumored for some time as we have previously noted.  That we believe…