Samsung Electronics (005930.KS) and BOE (200725.CH) are rivals, not quite directly but Samsung Electronics’ affiliate Samsung Display (pvt) competes head-to-head with BOE in the small panel display market and to a lesser degree in the large panel TV space.  As we have noted, Samsung Display has been at loggerheads with BOE over IP issues and after a recent partial win concerning BOE’s misuse of Samsung trade secrets and IP, Samsung Display continues to fight BOE in the courts.  That said, Samsung Electronics also has issues with BOE.  As the largest TV set producer, Samsung Electronics, requires that those who use “We supply to Samsung Electronics” in their advertising, pay a royalty.  In 2022 BOE, who was the second largest supplier of TV panels to Samsung in 2021, refused to pay and Samsung has reduced BOE’s share as a TV panel supplier considerably since that time as they continued to battle over the royalty situation.
It seems that the President of Samsung Electronics TV division is scheduled to visit China in the middle of May, and BOE officials are expected to visit Samsung in Korea, with both expected to try to negotiate an agreement between the two on both panel prices and royalties.  The idea is that BOE can either lower panel prices to compensate Samsung or can leave panel prices the same and pay the royalty. 
While this seems reasonable, it might not be to BOE, who is also a major supplier to LG Display (LPL), Samsung’s local rival.  LGD has recently sold it’s last LCD TV panel plant (Guangzhou, China) to Chinastar (pvt), also a supplier to both Samsung and LG (066570.KS).  The large panel product that was being purchased from the LGD Guangzhou fab before the sale, would now become purchases from Chinastar.  Samsung has an internal requirement that no supplier of key materials can represent more than 30% share, and that means that it will have to maintain that 30% restriction, keeping it from purchasing panels from the Guangzhou fab now under the Chinastar banner.  While there are other large panel producers, such as AUO (2409.TT), Innolux (3481.TT), HKC (248.HK), and CHOT (pvt) that Samsung already buys panels from, Samsung tends to go with suppliers that have large capacity, leading to a secure supply, without violating the share limit..
At least to a degree, this puts BOE in the catbird seat or at least gives it some room to negotiate with Samsung, as Samsung Display is out of the large panel LCD business and supplies only QD/OLED TV panels to its parent which make up only a small portion of Samsung’s TV panel needs.  This leaves Samsung Electronics to outsource all of its LCD TV panel purchases.  As they cannot increase purchases from Chinastar without overstepping their limit, BOE is the obvious choice if they can come to an agreement over royalties.

China’s largest display producer BOE (200725.CH) and Korea’s largest display producer Samsung Display (pvt) are locked in a race to be the first to produce IT OLED panels on Gen 8.6 substrates.  Current production is done on existing Gen 6 OLED production lines, but with expectations that demand for OLED laptops and monitors will continue to increase, and the carrot of Apple’s (AAPL) slow but steady conversion of its mobile products to OLED, the race continues to escalate.  OLED It panels can and are produced by both (and others) on Gen 6 OLED lines, but the number of panels that can be produced on one substrate of Gen 8.6 glass is more than twice the number that can be processed on one Gen 6 substrate, so overall fab efficiency is higher for Gen 8.6.
Of course, the necessity for increasing OLED IT panel production volumes is based on demand, so both Samsung Display and BOE are making the bet that OLED IT volumes will continue to increase, although both are starting production at levels below the stated capacity of the fabs, and both stating that the expansion to full capacity will take place as the market continues to grow.  Some of this open-endedness comes from Apple, who has been thought to be adjusting its OLED transition plans due to weak market conditions, but when making long-term plans (fab equipment has a 5–7-year depreciation term in South Korea and a 7 year term in China) shorter -term factors carry less weight.
So how much does it cost BOE and Samsung Display to build out these new fabs?  SDC has the advantage of being able to reuse fab space that was previously used for large panel LCD production, so no greenfield cost, but lots of modifications for new equipment.  Samsung Display is using Canon (7751.JP) as a source for the deposition tools it is building its fab around, which are estimated to cost ~$400 million each (2 are needed for a 15k line) with another ~$100 million for vacuum chambers and logistical equipment that is tied to these tools, so the key equipment cost alone is over $600 million. 
BOE has selected Sunic Systems (171090.KS) to supply their deposition tools for an expected ~$500 million price tag (inclusive of associated equipment) so BOE will have a cost advantage.  This seems to have lit a fire under Samsung Display to beat BOE in being the first to mass produce IT OLED products on a Gen 8.6 platform, gaining the advantage of experience, a key to improving yield.  In that vein, SDC took delivery of its 1st (of two) Gen 8.6 OLED deposition tools about a year ago and has been refining the process and tool characteristics since the installation was completed.  The 2nd tool is expected to be delivered within the next 2 – 3 months.  SDC has stated that they expect to begin mass production in 2026, however more recently there have been indications that SDC is planning to begin mass production this year, likely putting at least the first (of two) lines about a year to 18 months ahead of BOE.
Again, the risk to both producers is how rapidly the market for OLED IT products develops and how much of that capacity can be produced on existing Gen 6 capacity.  In the table below we look at rough (very) shipments for OLED IT products in 2023 and 2024 and we note that it is estimated that Apple (iPad Pro) was responsible for at least half of the growth in OLED tablet shipments.  Given that there is a considerable amount of global Gen 6 capacity, even another year of strong unit growth could be covered by existing Gen 6 capacity, albeit a bit less efficiently, so the necessity for either SDC or BOE to begin production at these new facilities is less critical.  

​That said, much of the existing Gen 6 OLED capacity is unable (as it stands currently) to produce some of the more esoteric OLED stacks and backplane configurations that Apple seems to desire and are becoming the leading edge in IT OLED production technology, so we have to sub-divide  demand further into ‘advanced’ OLED IT and ‘regular’ OLED IT production, and that is where both SDC and BOE will really compete.  LG Display (LPL), who produces ‘Advanced’ OLED IT products on its Gen 6 OLED lines and has yet to announce plans for a Gen 8.6 OLED IT project, is also a competitor and one that has been qualified as a full-scale producer for Apple using its current Gen 6 fab, so things get even murkier when LG Display is put into the mix.
All in, SDC and BOE will duke it out for leadership in this new Gen 8.6 OLED IT category and will likely not get much out of the results for the first few years, while LG Display has the option of remaining a Gen 6 OLED IT player or stepping up to Gen 8.6 and incurring the risk of taking on a considerable financial burden and hoping that the market can support all three players quickly.  It is good that the industry is progressing in terms of its ability to efficiently produce OLED IT products, but the necessity for immediacy seems a bit harder to understand.  Samsung Display has always been the leader in RGB OLED production and as BOE is the masthead producer for the highly competitive Chinese display industry, neither seems to have much choice that to compete at this point, while LG Display will likely be the only profitable supplier of IT OLED for the next few years without the cost and depreciation of a new fab.  If it’s between 1st or 2nd place and losing money for the next few years and 3rd place and making money now, we go for the bronze.

​Samsung Display (pvt) has committed to OLED in a big way, ending its many years of large panel LCD production.  The company’s OLED focus has made it the leader in RGB panel production for smartphones, but as OLED became dominant in the small panel market SDC realized that it could not maintain it singular dominance in that space as competition from China increased.  To that end, SDC is building RGB Gen 8.6 capacity specifically designed for the production of larger OLED panels for IT products, such as tablets, monitors, and notebooks.  There are a number of manufacturing challenges that make this expansion more than just adding capacity as the deposition equipment has to be specially designed and processes have to be modified to make such a change, but as is typical of SDC, they are willing to take the risk to become the leader.
China’s leading panel producer BOE (200725.CH) understands that while it continues to produce large panel LCD displays, it must compete directly with SDC in this emerging space and has begun construction of its own Gen 8.6 OLED for IT fab and Visionox (002387.CH), a smaller Chinese OLD producer has begun the planning for OLED for IT capacity.  This leaves one major panel producer, LG Display (LPL), with no announced plans for such expansion, despite its close relationship with Apple (AAPL), who is expected to drive OLED IT demand as it transitions its product line to OLED over the next few years.
LG Display already produces OLED for IT panels on a Gen 6 line and was the first producer to develop the tandem display structure that Apple uses for the iPad, but it does this production on a Gen 6 line, which makes it less efficient than a Gen 8.6 line would be.  This has caused considerable speculation about why LG Display has not committed to building a dedicated Gen 8.6 OLED for IT line to compete with rivals SDC and BOE.  Much of the speculation was based on LG Display’s financial situation, which has been strained over the last few quarters, but with the sale of the company’s LCD fab in China, the pressure has lessened, and the assumption has been that LGD would commit to the new fab early this year.
It seems that this will not be the case if a story out of South Korea is correct, as it indicates that LG Display is actually preparing to do just the opposite.  Instead of adding Gen 8.6 OLED capacity, or adding additional Gen 6 OLED for IT capacity, the information suggests that LGD is actually planning to reduce its existing OLED for IT capacity and convert it to additional Gen 6 OLED capacity to produce iPhones.  The motivation for the change would seem to be Apple, who has seen relatively weak demand for the OLED iPad, which has led to lower utilization rates for LGD at its OLED for IT fab.  In response the story says that LGD wants to convert some of its Gen 6 OLED for IT capacity to iPhone capacity, as it expects to increase3 its iPhone production for Apple this year by almost 17%. 
Such a change would not be cheap as the new iPhone OLED line is expected to cost ~$1.36b US, after LGD spent almost $2.6b US to build the Gen 6 OLED for IT line.  It would also indicate that LG Display does not believe that the demand for OLED IT products will grow as quickly as some predict (OLED penetration into the IT market is expected to reach 2.8% this year and 5.2% next year), essentially betting on iPhone growth and its own ability to capture additional iPhone production share from SDC.  Given LGD’s relationship with Apple, and the fact that Apple has likely financed a portion of LGD’s Gen 6 OLED for IT fab construction cost with pre-payments, Apple would have to sign off on the plan, a tacit agreement as to the potential for a weaker demand picture for OLED for IT going forward.
All in, this is a major decision for LG Display if the story is true, and one that LG Display has been unable or unwilling to make while others have committed.  If LGD decides to reduce OLED for IT and that market takes off it will fall far behind its rivals.  If it reduces OLED for IT capacity and OLED IT demand is less than predicted it will have bypassed months or years of low utilization at a very expensive fab.  No pressure…

The rivalry between South Korean panel producers (Samsung Display (pvt) and LG Display (LPL)) and Chinese panel producers has been ongoing for a number of years as Chinese producers have pushed South Korean producers out of the large panel LCD business.  As it became obvious that Chinese producers had the advantage of significant government construction and operating subsidies, South Korean producers began shifting from LCD display production to OLED production, a relatively new technology at the time.  While Chinese large panel producers eventually won the battle for LCD display domination, South Korean producers went on to establish OLED as a higher quality technology, particularly for small panel displays.  Not to be outdone, Chinese panel producers have been building OLED capacity to challenge South Korean dominance in the OLED space, and while there are a multitude of CE brands that use OLED displays, the top of that list is Apple (AAPL).
Apple’s transition from LCD to OLED starting with the iPhone X, released om November 3, 2017, is expected to continue for the next few years as they migrate much of their product line to OLED.  Samsung Display and LG Display have been the primary small panel OLED suppliers to Apple but are continuingly being challenged by China’s largest panel producer BOE (200725.CH), who has made some inroad with Apple, supplying replacement displays for earlier iPhones and as a 3rd supplier for some later models.  While BOE has had its own issues with Apple, they continue to challenge SDC and LGD, along with a number of smaller Chinese OLED producers, and SDC has gone to the US ITC alleging patent infringement, with BOE, and other Chinese OLED producers (Chinastar (pvt), Tianma (000050.CH), and Visionox (002387.CH)) responding by challenging the validity of those patents in US Patent Court.
As the ITC investigation continues (target date 3/17/25) the patent challenges also continue, and the US Patent Review Board has ruled on one of the 4 patents that Samsung claims were infringed upon.  The ‘683’ patent, filed by Samsung Display on 11/13/17 in the US and 3/6/12 in Korea makes 15 claims concerning OLED pixel structure, particularly Samsung’s ‘diamond’ pixel structure shown on the left side of  Figure 1.  The PTAB has decided that 10 of the 15 claims made in the original patent are not valid, while leaving 5 intact.  Samsung will have the opportunity to appeal that decision. 
Limiting the broad scope of a patent is not an unusual outcome in patent review cases, but narrowing the patent will also narrow the ITC’s investigation scope, making SDC’s case a bit harder, and could open one of the other patents included in the investigation to further scrutiny as it is essentially a continuation of the ‘683’ patent mentioned above.
All in, the validity of the ‘shape’ characteristics of the pixels (polygon, Octagon, or non-quadrilateral) as specified in the ‘683’ patent, remain in effect, which is a key point in terms of the infringement, but spacing between pixels, size, and arrangement, the other ‘683’ claims, are invalidated, reducing the points that SDC can cite in the ITC investigation.  We expect SDC will appeal the PTAB decision, but this ruling and any potential appeal will likely push out the final ITC decision and the battle for OLED supremacy will continue in both the consumer space and the courts for another year.  That’s how lawyers put their kids through college.

[Note: The US Patent Office considers a patent unpatentable when the difference between claimed subject matter and prior art would have been obvious at the time of invention by a person having ordinary skill in the art to which subject matter pertains, where ‘ordinary skill’ means a degree in electrical engineering, material science, physics, or similar disciplines, along with 2 years of professional experience working with display design, including OLED displays or an equivalent level of skill, knowledge, or experience.]

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.

​It has not been lost to the press that Apple (AAPL) has been working toward moving more of its product line toward OLED displays, and all sorts of timelines for the iPad, Macbooks, and potentially other products’ OLED adoption have been bandied about.  Given that there are only a few potential OLED suppliers who are both qualified by Apple and can deliver the volumes necessary, much of the discussion around Apple’s transition has been concerning Samsung Display (pvt), LG Display, and China’s BOE (200725.CH).  With current production of OLED IT panels limited to Gen 6 OLED fabs, all three OLED producers (and some others) have indicated or hinted that they would be making investments in new capacity to support Apple’s transition, of course, without naming Apple itself as a customer.
In order to improve efficiency and volume, there has been considerable speculation that such new facilities would be Gen 8 RGB OLED fabs, which currently do not exist (LG Display has Gen 8 OLED fabs but they use a non-RGB process that is not viable for Apple’s specifications), so considerable R&D has been, and still has to be done to design the equipment necessary to make the transition to Gen 8 OLED production for Apple’s (and others’) IT products. 
Up until the beginning of this year, most predictions included Samsung Display starting construction on a Gen 8 RGB OLED fab this year, either converting an idle Gen 8 LCD fab or converting a Gen 6 line to Gen 8.  LG Display, while a bit less specific, has been expected to do the same, and BOE, has hinted that they will follow a similar path ‘as the market demands’, but the ever-shifting sands of the CE space have begun to cast askance at those plans and concomitant timelines.  The equipment needed to deposit OLED materials on the larger Gen 8 substrates takes considerable R&D to develop, and as we have noted previously, there are only a few companies with the expertise to develop such tools.  Sunic Systems (171090.KS) is working with LG Display, and at one time Samsung Display was working with ULVAC (6728.JP) on such tool development, but has since abandon that project, and is looking at the industry leader Canon-Tokki (7751.JP) as a potential Gen 8 deposition tool supplier.  However, Canon does not want to bear the cost of the tool’s development, as Gen 8 OLED adoption is still an unknown, and expects Samsung Display to pay for the development as a part of the tool price.
With the objective of reducing costs/m2, a boost to tool costs will eat away at the process BOM, and SDC has been hesitating to place the order with Canon, with a cut-off of the end of 2Q if it is to meet the goal of Gen 8 production for Apple in 2024.  But it seems not only has the cost of building out Gen 8 OLED capacity been an issue, but the trade press has taken Apple’s recent Mac sales declines as an omen that is adding additional hesitation to the Gen 8 OLED build-out for all potential participants.  We differ.
As with almost all CE products, the COVID-19 pandemic changed what was previously a relatively stable demand picture for Apple products.  Mobile devices saw some early positive momentum, but the need to communicate online became the driver for tablet, laptop, and PC sales that set volume records.  We look at the years between 2020 and 2022 as ‘aberrational’ in terms of demand and look to more normalized unit volumes as a better indicator of what we should expect going forward.  In the case of Apple, particularly the Apple Mac, a tool that is known for its use among content developers who require high quality displays, the logic holds that Apple would like to make the transition to OLED for its color purity, high contrast, and color gamut, but recent headlines from overseas are decrying the fact that Apple’s Mac sales are declining and adding to OLED panel producers’ hesitation concerning spending for Gen 8 RGB OLED fabs. 
However looking at Apple’s Mac sales going back to 2018, they average $6.35b per quarter, including the heady COVID years, which puts the last two quarters above the LTY average, despite the decline from 2022.  More specifically, Apple’s 2Q Mac sales of $7.168b, which seemed to trigger the recent press concerns, are only 1.14% lower than the average of all 2Q results since 2018, including those in the COVID years, and just looking at the pre-COVID years (2018 – 2020), 2023 2Q Mac sales are 28.7% higher than the average.
We expect SDC and LGD are most concerned about the cost of making the conversions to Gen 8 against other larger substrate transitions, rather than Apple’s near-term results, and if either company has been assuming that demand during COVID was ‘real’, we have misjudged both companies.  Spending the billions necessary to build out a Gen 8 OLED infrastructure for IT was a risky business before COVID, during COVID, and will be after COVID, but those decisions tend not to be made on near-term issues, as they are bets that will play out over many years.  SDC does have the cost issue to settle with Canon, especially as LGD has aligned with Sunic Systems, but we expect that has more to do with the timing of Samsung Display’s decision than the relative decline in Apple’s Mac sales over the last two quarters.

​Display panel producers tend to be an optimistic lot, likely a function of the fact that they have billions of dollars’ worth of equipment sitting on the factory floor that needs to be running at near full capacity to generate profitable results that garner praise and bonuses.  Chinese LCD panel producers are among the most confident, and while some of that optimism is a function of the need to stimulate government agencies to provide capacity expansion and operating subsidies, there is also considerable national pride, much of it well-deserved, in that China was able to achieve dominance in the LCD panel production space against some formidable competitors in South Korea, Japan, and Taiwan.  Behind that conviction however, and this is certainly not limited to Chinese panel producers, is a bit of blind hope, fear of failure on the world stage, and a healthy dose of self-promotion, that sometimes leaves out some necessary details.   
BOE (200725.CH), China’s largest display producer, is, as a listed company, required to disclose meetings that it has with investors and analysts, and the content discussed.  Earlier this month the company disclosed a summary of the last meeting of this type it had on February 2 of this year, essentially a visit to the company’s production fab in Mianyang with 12 local and global sell-side firms, and a Q&A session.  While there was considerable discussion as to the company’s performance in 2022, to us, the most relevant conversation concerned the prospects for 2023, but we summarize BOE’s most relevant comments on 2022/2023 below, using the company’s own words when possible, along with some clarifying points (red):

• According to 3rd party consultation and institutional data, all five major display categories saw declining sales in 2022. (Monitor, Notebook, TV, Tablet, Mobile), while automotive, AR/VR, smartwatch and special displays remained stable. 
• Utilization rates, which sank to about 60%, saw a slight increase starting at the end of 2Q 2022, in order to meet end of the year promotions, but remained at relatively low levels, reducing the annual production of large-size LCDs. Notebook, Monitor & Tablet panel production declined in 2022, but TV panel production was up 0.4%.  Relative to pre-pandemic levels, 2022 shipments for many CE categories were up.
• The overseas promotion season performed well in the 4th quarter, and some brands were conservative as to purchasing strategies to control inventory.  The inventory of TV brands continued to decline in the 4th quarter and the overall inventory is approaching a healthy water level. We question the characterization of 4Q performance as while global 2022 holiday sales were up 6.7%, and 5.3% in the US, electronics and appliance sales (US) were down 5.7% (US), and while global sales were up, volumes were down, with inflation providing the sales boost.
• In terms of inventory, according to data from 3rd party consulting agencies, the low utilization rate of panel producers continues to be lower than the shipment area, and the inventory level drops significantly.
• Looking forward to 2023, according to the forecast of consulting agencies, the demand for large-sized LCD products will return to growth, especially the large size TV market.  Still too early to tell, but TV unit volumes are expected to be flat to down, so growth will be inflation related or limited to specialized TV segments.
• In terms of prices, under the influence of supply-side capacity control, in the 2nd half of 2022, the supply/demand ration of large-size LCD panels has fallen sharply in the 1st quarter of 2023.  The prices of mainstream-sized products remained relatively stable.  Correct so far.
• Semiconductors show that the industry will return to normal low-peak seasonal fluctuations, and thanks to current low inventory, in the 2nd quarter of 2023, as the industry turns from weak to prosperous, LCD products will have opportunities to usher in a rise in both volume and price.  TV panel producers are pushing for higher panel prices in March, but demand remains weak.  Still a toss-up as to whether TV set makers will buy into the potential panel price increase.
• Faced with greater depreciation pressure, the performance of OLED and other businesses continued to be under pressure. In terms of LCD, we will focus on high-value fields such as automotive, e-sports, and AR/VR, and enhance the overall profitability; significantly increase product shipments in terms of OLED and increase high-end production. The proportion of product shipments has achieved breakthroughs in the mass production of innovative products such as vehicles and foldable notebook computers.  The cost of building small panel OLED capacity, particularly for participation in Apple’s (AAPL) iPhone supply chain, will continue to pressure overall OLED profitability for BOE and thus far success has been relatively limited (see our recent notes), so volumes will have to increase considerably, without major price degradation for a quick OLED profitability turnaround, a difficult task for this year.
• In terms of market share, according to data from 3rd party consulting agencies, it is estimated that the company has the largest market share of the traditional five mainstream LCD products, while flexible OLED shipments continue to grow, with the company having the number one share in China and the world (in LCD).  We will continue to increase shipments of high-end in-vehicle products, where the company’s share in 3Q ’22 was 16%, the highest in the world.
• Entering the 1st quarter of 2023, in the traditional off-season, the industry is expected to maintain a low utilization rate.

Q&A
Question 1: What is the development trend of the flexible AMOLED industry in 2022?
In 2022, the overall flexible AMOLED industry shipments-maintained growth.  The penetration rate in the field of smart phones cand notebook computers continues to increase.  New application fields such as vehicles have emerged, but affected by weak terminal consumption, shipment growth rate was lower than expected; at the same time, some customers shipped entry-level products.  With the obvious low-price competition, the price of entry-level flexible AMOLED products has sharply declined.  Penetration is broadening but is still small relative to smartphones.
Question 2: How is the company's flexible AMOLED business progressing?
In the face of many adverse effects of the market, the company basically completed the annual shipment target, maintaining more than 30% compared with last year, especially the increase in the proportion of high-end products, in vehicles, notebook computers, etc.  However, due to the pressure of depreciation and the production of Android customers, the profitability of the products has dropped sharply, and the performance of the company's flexible AMOLED business still suffers pressure.
In 2023, with the continuous growth of the company's flexible AMOLED business, and the continuous increase in client share, it is expected that the company's flexible AMOLED products will maintain substantial growth; at the same time, the company will continue to increase shipments of high-end products, improve product portfolio profitability, promote LTPO, folding, automotive, IT, etc, striving for the leading position in the flexible AMOELD business.
All in, BOE’s dance over some of the more relevant points, such as capacity additions in both LCD and OLED, and the company’s (not 3rd party) expectations for demand growth in 2023, left us wanting, although we expect such a public forum was not the place to be asking difficult questions, if one wanted to be invited back, as these, and those asked at other recent meetings with analysts were all soft-ball questions. But the lack of specifics as to what the puts and takes will be for BOE this year, and a heavy reliance on 3rd party data, seemed to indicate that BOE was either not disclosing its actual forecasts or that it does not have them.  Even the company’s platitudinous comment from its last analyst meeting gave little toward what gives the company confidence to use the terms ‘rationality’ or ‘reasonable range’.  Here’s the previous quote:
“As the influence of uncertain factors is gradually digested, the industrial development pattern will gradually return to rationality.  The price of products will fluctuate within a reasonable range mainly due to the influence of low and peak seasons.”

According to sources in South Korea, which does tilt the story a bit, China’s largest panel producer, BOE (200725.CH) will only be supplying OLED displays for one model of the iPhone 15 to be released later this year.  While both Samsung Display (pvt) and LG Display (LPL) will be producing LTPO displays for the iPhone 15 Pro Max and iPhone 15 Pro, BOE is expected to be supplying displays only for the iPhone 15 model, rather than both the iPhone 15 and the iPhone 15+.  Samsung will be taking up the slack with the iPhone 15+.
BOE has had an up and down relationship with Apple (AAPL) concerning OLED displays, with a number of failed attempts to get on Apple’s OLED display provider list, which has been the exclusive territory of Samsung Display and LG Display.  BOE did supply Apple with replacement OLED displays, sort of a test run for inclusion and was able to convince Apple that it had the technical and volume capabilities to supply LTPS OLED displays for the iPhone 13, released in September 2021, and the iPhone 14, released in September of last year, a point that has been emphasized by the Chinese press innumerable times.  That said, BOE made a catastrophic mistake by changing the design of a TFT backplane in order to improve yield, without getting the change approved by Apple.  We assume that the change was made in order to bring yields to levels necessary to satisfy Apple’s demand requirements.  This caused BOE to be put in the penalty box for the iPhone 14, limited to only producing OLED displays for the iPhone 14 6.1” model and that seems to still be the case with the iPhone 15.
It had not been expected that BOE would be supplying OLED displays for the high-end iPhone 15 models (Pro Max & Pro), as they require LTPO backplanes, a process for which Samsung Display has the most expertise and capacity, along with LG Display, who also has LTPO capacity, but it was expected that BOE would expand its OLED display supply to both LTPS models (iPhone 15 and iPhone 15+), which, at least at this time, does not seem to be the case.   
While there is still time for things to change, as production for this year’s iPhone release does not usually start until July/August, there is also the fact that Samsung has warned BOE that it has been infringing on certain of its OLED patents, and while Apple would therefore be involved in an infringement case, if SDC were to bring the dispute to the courts, there is the possibility that Apple has limited BOE’s participation in the iPhone 15 for both reasons..  While we expect the Chinese press will spin the less than expected participation in the iPhone 15 in a more positive light, and BOE could stack the deck a bit by lowering its quote on the iPhone 15+ displays, but Apple has always been a stickler for suppliers meeting their stringent specifications, both technical and volume related, so it might be a bit more difficult for BOE to change the situation that with other customers, but we note that BOE is about as determined to challenge SDC’s and LGD’s OLED leadership as anyone could be and seems to have a massive amount of energy and will toward making its relationship with Apple continue to grow.  Essentially, they don’t seem to take no for an answer and rejection only seems to spark the company to work harder toward achieving that goal.

​Key = Light Blue – LTPO -  Gray – LTPS