Back on 2/27/17 we noted that Samsung Electronics (005930.KS) had verified that it would release a new Galaxy Tab S3 at Mobile World Congress, returning its tablet business to OLED displays.  Samsung had used an OLED display in its Tab s (7/2014) and Tab S2 (9/2015), but returned to LCD technology for the Tab A (3/2016) and Tab E (1/2016).  We believe Samsung Display (pvt) will be sticking with OLED displays for new tablet models and is considering using OLED for some laptop production this year.

We believe Samsung Display will be converting at least a portion of its L6 LCD production line from a-Si[1] to Oxide[2] backplane production and OLED display lines.  The L6 fab had a raw capacity of 268,125 m2 as of November 2016, which represented 7.5% of Samsung Display’s overall capacity, and 1.3% of worldwide capacity, and we believe had begun to reduce production on at least one of the three L6 lines at the end of last year.  We expect that line to be closed by May and the conversion to Oxide and OLED to begin.  We expect phase 1 of the oxide conversion to be fully ramped by April/May 2018, with lower output levels beginning this summer, and the ramp down of L6 phase 2 starting in July of this year, completed by year-end, and the conversion of L6 phase 2 to be completed by July/August 2018.  The L6 phase 3 ramp down will begin at the end of this year, with the conversion completed by 1Q 2019.

Samsung Display has yet to signal whether the L6 conversion will change the substrate size from Gen 5, so we build the changes into our model using a Gen 5 format.  As the upgraded fab will be supplying both IGZO backplanes and OLED displays, we expect the actual OLED capacity to be considerably lower than what the fab had been producing for LCDs.  We believe that Samsung will shift its LCD tablet and notebook production to its L8 Gen 5.5 lines, albeit at a reduced rate, as it continues to supply Apple (AAPL) with panels for the iPad, along with Sharp (6753.JP) and LG Display (LPL).

While expectations are that Samsung will release the previously mentioned Galaxy Tab S3 this month, there have been rumors that they will also release a Win 10 tablet line this year, although that remains unconfirmed, and we believe has supplied OLED displays to HP (HPE) and Lenovo (992.HK) for their Spectre  and Yoga Thinkpad laptops.  But the laptop market is far different than the smartphone market, and the necessity for OLED displays is less urgent than for smartphones, where the device is on for a large portion of the day.  That said, there was little OLED capacity for laptop display sizes, and yields were lower than those for smartphones, so Samsung Display had less of an incentive to expand that segment.  So what makes Samsung Display willing to step up its ‘non-smartphone’ OLED production capacity?  Most likely it is interest from Apple for its iPad line, and while an immediate move to OLED would be somewhat premature, Samsung Display could be responding to both its parent company’s demand and the potential for Apple to move to at least an OLED iPad variant sometime in the future.  Apple will be announcing new iPads at a press event in April.

All in, Samsung Display and parent Samsung Electronics, continue to push OLED displays further into their mobile lines, and reduce their exposure to LCD in small panel devices.  If we are correct in our assumptions about the L6 conversion, Samsung Display should be able to produce the equivalent of 2.6m 13.5” OLED laptop screens/quarter at the completely converted facility[3].  Apple has been averaging about 11.5m iPad units/quarter for the last two years, so we have to assume that only a portion of the iPad line could be converted to OLED over the next few years, as Samsung Display will also use the new capacity for its captive customer, but even the possibility that Apple might use OLED for its iPad line keeps a fire burning under the OLED space, and will continue to drive Samsung Display and others to add capacity.



[1] A-Si – amorphous silicon – commonly used as an LCD backplane
[2] Indium Gallium Zinc Oxide – aka ‘Oxide’ – another type of backplane
[3] 100% yield – Actual rates will be lower

The smartphone world is abuzz as leaked photos of the upcoming Samsung (005930.KS) Galaxy S8 reveal a new button on the side of the device.  What secrets does it hold?  Will it cure cancer?  No, but it will give you direct access to “Bixby”, Samsung’s version of Apple’s (AAPL) 2011 AI platform based Siri.  Of course you can access Bixby vocally, similar to the ‘hello google’ voice command, but Bixby is so important that it gets its own button! In the rarified world of AI based digital assistants, Bixby is king. That said, the app will likely be released in a slightly reduced form, as the development of the tool is still continuing.  Updates will add to Bixby’s usability.

What is really at stake here is the entire display industry, as vocal interaction with search functions supplants a visual search, and while the necessity for eventually looking at whatever it is that you searched for is still a part of most searches, the use of voice activated search assistants lowers the value of displays.  While the use of voice to command interaction with computers has been around for many years, and the use of AI in search algorithms has also, the functionality, or ability to use natural language has improved steadily over the last few years. 

Will it obviate the need for visual displays?  Not likely, but it could have an effect on the overall habits of mobile and stationary device users over a generation.  Will your kids be satisfied that their smartphone AI told them that a restaurant got 5  ‘poor’ rating on Yelp, or will they have to read the reviews themselves?  Natural language interfaces have been tried before yielding less than spectacular results, but algos get better over time.  Does this mean we not only lose the use of our legs, see our hands evolve into a single pointy finger, and now see our ears enlarge and lose the ability to see?  Probably not, but speaking is easier than typing and listening is easier than looking, so we would have to expect some long-term changes to the display space should Bixby, Cortina, Alexa, and others become our children’s companions…

The Korean press has noted that Apple (AAPL) has received criticism for ‘disregarding Korea’ by announcing an additional $508m investment in two R&D centers in China, following the promise to build two other R&D centers in Beijing and Shenzhen.  Apple has yet to open an Apple store in South Korea, although one is being developed in Seoul although no date for opening has been set.  However they have 40 stores in China, with the R&D centers seen as a way to build what has been a declining share on the Chinese mainland.

Despite the country rhetoric, there are real reasons why Apple has not focused on South Korea, with the most obvious being it is the home of rivals Samsung Electronics and LG Electronics (066570.KS), who have a distinct home court advantage.  But the country points to the fact that South Korea has the highest smartphone penetration rate (88%) of any country worldwide, while China is in the middle of the pack at 58.5%.  That misses the point however that South Korea has a population of ~50.5m, while China has a population of 1.38b, so the simple math says South Korea has 44.4m individual smartphone users, while China has 808.5m smartphone users, or 18.2x as many, making the decision relatively simple from an economic standpoint.

Apple starting to roundup suppliers for OLED

While Apple (AAPL) has little choice but to choose Samsung Display (pvt) as the supplier for a potential OLED iPhone given SDs capacity and expertise in small panel OLED production, the supply chain for such a product remains an open field, with many vying for the opportunity to gain entrance to that select list.  Companies are already announcing expansion plans in order to garner Apple’s attention, as the supplier list is expected to be completed by year-end with component delivery starting in May 2017.  Indications are that Samsung display modules will be assembled in Vietnam, and a number of South Korean companies have slated enlargement of their facilities in that region to build out such an ecosystem.

The Korean press has focused on local supplier Interflex (051370.KS) as a strong contender to become a supplier of flexible PCBs[1] with the company issuing ~$60m of new stock to finance its facility expansion in Viet Nam, rather than in South Korea, and we note that Samsung Display, while it produces raw displays in South Korea, assembles display modules in Bac Ninh Province, Vietnam.  Apple is also expected to choose OLED material suppliers by the end of September, with competitions between suppliers already underway, with Samsung SDI (006400.KS), Duksan Neolux (077360.KS), Idemitsu Kosan (5019.JP), SFC (112240.KS) and Dow (DOW) whispered to be in contention.  We note that Apple has no say in the choice of phosphorescent OLED emitter materials, as Samsung Display’s license and material supply contract with Universal Display (OLED) precludes them from using any other phosphorescent organometallic OLED emitter supplier, but while Samsung Display engineers will likely have a very significant say in the other OLED stack materials, Apple’s potential buying power will certainly be part of the negotiations.

While the idea that Apple will use OLED displays, other than in the Apple Watch, in 2017 are valid, the product type and physicality of the device are what is really in contention.  From a physical standpoint, a standard fixed OLED smartphone would be a substantial, but manageable task for production at Samsung Display given their current capacity and expansion plans, even for a high volume product like the iPhone.  That said, should Apple decide to step up to a conformed or “flexible” OLED display, there are considerable issues that would have to be resolved, particularly relating to capacity availability.  Recent statements by South Korean research firm UBI indicating that they believe Apple will be producing more flexible devices than Samsung by 2020, which we find a stretch, lead us to run a few scenarios as to how the realities of Apple’s potential large-scale entry into the OLED world might look, which we will discuss at a later date, but if Apple is serious about a move toward scaling their OLED product production, they will be making such product and supply chain decisions soon, which have already had an effect on the OLED supply chain.



[1] PCB – Printed Circuit Board