​On 02/07/22 we noted that China’s BOE (200725.CH) was the responsible party for the massive LED display that served as the opening venue for the Winter Olympics.  While we were correct to a degree, it turns out that BOE was not the only party involved in the development and construction of the display, and the other primary supplier, China’s Leyard (300296.CH) took umbrage at the assumption we, and many other made that BOE was totally responsible for the LED displays, likely given the massive BOE promotion signs placed around the stadium.

As it turns out Leyard was responsible for 7,000 m2 of the 11,500 m2 stadium floor display (yellow portion in Figure 1), while BOE was responsible for 4,500 m2 (gray semicircles), and Leyard was 100% responsible for the 700m2 ‘ice cube’, 1200 m2 ‘ice waterfall’, and the two North and South Standing screens, for ~70% of the venue’s primary display area, and also provided the broadcast control system.  As previously noted both companies worked under the China Aerospace Corporation (state).  

Earlier this week we mentioned the BOE (200725.CH) LED display that was the basis for much of the Winter Olympics Opening Ceremony, considered the largest in the world (uncertified as of yet), although Guinness certifies the display at Resorts World in Las Vegas as the largest, but there is contention in the world of massive LED displays, as Samsung Electronics (005930.KS) claims that its “Infinity Screen” at SoFi Stadium is “the largest videoboard ever created in sports” and is the only dual-sided, center-hung videoboard.  The Samsung display, which hangs 122 feet above the field, is 70,000 ft2, which is smaller than the abovementioned displays, but is certainly unique in shape and is 1.2 times longer and 1.5 times wider than the field itself and weighs 2.2m pounds. 
The oval display has 4K resolution and HDR10+, with pixels spaced 8mm (0.31 in.) apart, and works with the 2,600 other large format displays and ribbon boards positioned around the stadium, but what good is video without sound, so Samsung has placed 260 “JBL by Harman” speakers in the display frame, which it claims is equal to 1,500 home theater systems.  Of course, JBL (pvt) is owned by Harman (pvt) who was purchased by Samsung in 2017.
All in, there seems to be no end to the expansion of LED video walls across the globe and the competition for ‘largest’ will continue as LED modules become less expensive and more sophisticated, along with the control systems and software needed to bring them to life.  Years from now these displays will likely look a bit simple as LED technology moves to smaller die and micro-LEDs, but it sure looks different than 120 years ago (see below) when the best you had was lots of light bulbs and a guy whose job it was to replace the ones that burned out each day.
https://news.samsung.com/us/game-on-how-infinity-screen-samsung-will-bring-sundays-big-game-life/

If you saw the opening ceremony for the Olympic Games in Beijing, you saw what is the world’s largest LED display, and the platform on which the ceremonies were held and from which most of the lighting and images emanated.  The platform, which is 10,552 m2 or 113,587 ft2, was built from 42,000 LED modules that were developed by BOE (200725.CH), China’s largest display producer, and the China Academy of Launch Vehicle Technology (state), a state-owned subsidiary of China Aerospace Science & Technology Corp. (state), who prided the protective layers that allowed for water and ice to cover the displays.  To put the size in perspective, a standard football field is 67.7% of the size of the Olympics’ display.
According to Guinness, the largest LED display is the 7,500 m2 (80,729 ft2) display at The Palace, in Beijing, although we believe the display at Resorts World in Las Vegas was actually the largest at 100,000 ft2, but in any case, the display at the Olympics is larger than either.  While the specifications we have seen for the display show that the display has a refresh rate of 3,840 Hz, far above the 240 Hz (360Hz in one) seen in high-end gaming monitors and likely necessary to keep the accumulated lag across the display from becoming noticeable.  According to the same data, the resolution of the display is stated to be 29,800 x 15,096, but we take that with a grain of salt as to whether that number is for an individual module or the overall display.   All in, the display was extremely effective and coordinated with both a secondary vertical screen and the ‘light-sabre’-like hand-held devices that created some of the more spectacular effects during the ceremony.  For those that missed it, here are highlights from NBC Sports.
https://youtu.be/E3cLX07PD8c
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​Earlier this month we noted that China’s largest panel producer BOE (200725.CH) was said to be planning to orient the 3rd phase of its Gen 6 small panel OLED production line toward the production of IT panel products, looking to gain further traction with Apple (AAPL), with whom they have forged a relative new iPhone panel supplier relationship.  However recent South Korean trade press comments have indicated that the company is more interested in developing its ability to produce LTPO (Low-temperature Poly-Oxide) displays, a technology that Apple adopted last year for the iPhone 13 Pro.  The technology allows for a higher speed refresh rate (120 Hz.) and is key to the use of the variable refresh rate feature, which allows for the phone to adjust the refresh rate to the content type, which conserves battery life.
As we have noted previously, BOE entered Apple’s iPhone small panel OLED display supply chain after a protracted qualification examination and was able to supply between 15m and 16m flexible OLED displays for the iPhone 13 last year.  As part of the qualification process, BOE not only had to provide the quality that Apple required, but had to prove that they were able to produce the quantity necessary, meaning that their current yield was high enough to meet those requirements.  BOE had been producing the iPhone 13 displays at their B7 and B11 fabs, however the objective for the company is to shift production for the iPhone to its new fab (B12) in Chongqing, which began production on its phase 1 line, the first of three planned lines., late last year.  The second (phase 2) line is expected to go into operation during this year, although the date remains in question.  We would expected such sometime in 1H.
BOE has set a target of producing 40m to 50m iPhone panels this year, some of which will still be produced at the B11 fab, but with that higher target, it is necessary for BOE to also be able to produce LTPO flexible OLED displays, which would likely be produced at B12.  The issue however would be quantity, and comments from the media seem to indicate that while the second line at B12 will open this year, equipment for the 3rd line, which is expected to be producing LTPO displays, has yet to be ordered.  This will likely have little effect on the absolute number of units BOE produces for the iPhone this year, but will keep much of BOE’s production oriented toward those models that are not LTPO, meaning the lower end iPhone models. 
We expect BOE will have the opportunity to produce some LTPO displays for Apple this year, but they might be replacement screens, which is how the company began production for Apple initially.  That said, if BOE is able to procure the equipment for the 3rd B12 line and is able to begin production relatively early in 2023, we expect they will be able to become a primary supplier across the entire iPhone line in that year, challenging both Samsung Display (pvt), currently the primary LTPO display supplier for the iPhone, and LG Display (LPL), who has become a secondary LTPO supplier this year.  As to whether that 3rd line at B12 will be oriented toward smartphone production for Apple or whether it will be oriented toward OLED panels for IT is less of an issue as we expect BOE is orienting themselves toward also entering Apple’s iPad display supply chain in 2023, so the decision as to the B12 phase 3 line format would likely be based on how successful BOE is with LTPO production this year and next.

​If nothing else China’s largest LCD producer BOE (200725.CH) is persistent.   The company has been trying to enter Apple’s OLED display supply chain for over two years and finally has qualified to become a 3rd supplier to Apple for iPhone OLED displays (see our note 11/8/2021) late last year.  While the company is in the early stages of its flexible OLED relationship with Apple, it seems BOE is not wasting any time about pushing forward toward increasing that relationship.
According to local South Korean press, BOE is modifying the 3rd phase installation of its B12 Gen 6 OLED fab in Chongqing, to be able to produce flexible IT panels, rather than smaller flexible smartphone panels, as are  the other two lines at the B12 fab.  Expectations are that they will adapt the line, which is expected to begin equipment installation at the beginning of 2Q, to handle displays up to 15”, above the ~10” size used in the iPad.  The line is also expected to be able to manage a tandem (2 stack) OLED structure, different than the single stack used in smartphones.
BOE would again be in contention with Samsung Display (pvt) and LG Display (LPL), who are also small panel OLED suppliers to Apple, with Samsung dominating the flexible OLED tablet in laptop market.  Both SDC and LGD are said to be developing Gen 8 OLED fab capabilities in order to expand their ability to supply larger OLED displays to Apple and others, while BOE’s B12 fab is Gen 6, leading some to believe that the BOE B12 Phase 3 line is a pilot for a for a Gen 8.5 fab to be built in the future. 

​China’s largest panel producer BOE (200725.CH) will invest ~$47.1m (4.29% stake) in a fund being created by the Beijing government.  Each of the partners below will contribute their capital share in 5% increments as needed by the fund over a 4 year investment period and a 4 year exit period (which can be extended), although the withdrawal mechanism will depend on IPOs, technology transfers, M&A, etc.  The fund manager will get a 2% yearly fee of the investment amount, while the limited partners will receive 8% compounded interest.  80% of the profits (called surplus), if any, will be allocated to the limited partners, with the remaining 20% to the GP.

​The boilerplate indicates that the fund will act as a link between the BSCOM (#1) and BOE, generating ‘the synergy effect’ to ‘create a complete industrial supply chain based on display, sensing, artificial intelligence and big data’, while creating no new competition (for BOE).  While the text is the familiar blather attached to such documents, it would seem that the fund is just another way in which the Chinese government funds the display industry.  Aside from the construction subsidies and infrastructure projects that have been supplied to all of China’s display projects and the operating subsidies that allow for capacity expansion projects (in some cases the difference between a profitable and a loss year), such state funds are used to build out upstream projects without burdening display companies themselves. 
While the limited partners all look relatively legitimate, we expect there is considerable pressure put on potential investors given their partial or full state-ownership., sort of a Godfather request, with such the Beijing government collecting yearly fees on all.  It seems a bit unfair to promote the success of the Chinese display industry knowing that it would not have been anywhere as successful if it had to have developed on its own, but such is life in a socialist republic.  We, on the other hand, encourage companies to build in the US by offering local tax breaks while partisan politics does little to actually provide help to industries that keep US leadership alive in the CE space.  Luckily local taxpayers don't seem to mind and local politicians fade away before any reconciliation comes due.  All is fair in love and war…
Fund Limited Partners:

Back on August 1`9, we noted that BOE had raised $3.14b  by selling shares in a private placement for a variety of projects including the ramp to production and capacity expansion of its new Gen 6 flexible OLED fab in Chongqing.  At the time we noted BOE’s top 10 shareholders which we duplicate here, with the focus on shareholder #1, who tops the list above, giving even more indication that the investment made in the abovementioned fund was less of a suggestion than a hopeful request.

​On December 28, BOE officially began mass production at its Gen 6 OLED fab in Chongqing, a fab that will eventually be capable of producing 48,000 Gen 6 sheets/month.  The fab, which is operating a 16,000 phase 1 line currently and constructing phase 2 and phase 3 lines which are expected to be opening in 2022, cost ~$7.3b to build and will help BOE compete against both Samsung Display and LG Display for Apple’s (AAPL) iPhone display business going forward.  While the local press says that phase 2 production will start in January, and BOE will increase shipments to 80m units next year, we expect mass production, based on a more conservative ramp to see an incremental 27m units from Chongqing in 2022, but we note that is at 100% yield, which we expect is far different than what is seen currently and what will be the case as the new Chongqing lines ramp up. 
On 11/08/21 we noted a more muted party at BOE, celebrating the company’s official inclusion into Apple’s iPhone display supply chain, something that had presented a number of challenges to the company since 2020.  When all three phases of the Chongqing fab are in operation and the even newer Gen 6 flexible OLED fab in Fuzhou is completed, BOE will have a combined Gen 6 capacity of 144,000 sheets/month, second only to Samsung Display, who remains the leader in the flexible OLED space, roughly double the capacity of LG Display’s small panel flexible OLED capacity and four times the flexible OLED capacity of any other Chinese small panel OLED producer.

We have noted China’s push toward expanding OLED capacity, particularly that of China’s largest panel producer BOE (200725.CH), who has now entered Apple’s (AAPL) flexible OLED supply chain.  Chinese small panel OLED producers added considerable capacity in 2020, up 23.4% y/y based on our fab survey database, but only added an additional 13.2% capacity this year.  While this seems a rather large reduction, it should be taken in context with expected small panel capacity expansion in 2022, as a number of this year’s expansion projects will not be completed this year.  This leads us to forecast a 23.4% increase in small panel OLED capacity in 2022 as these projects actually reach their targets. 
One issue that remains however, is the need for such capacity, and while each small panel OLED producer is focused on existing and potential customers and their ability to meet customer demands, the net increase in capacity is of a more direct concern to us as an observer of the industry, and the utilization rate of that capacity is key.  While ‘adding 16,000 sheets/month’ is what might be noted by a panel producer, 16,000 sheets do not usually come on line all at once.  OLED lines are based on both the TFT component, where circuitry that sits under each pixel is constructed, and the deposition of the OLED structures themselves, accomplished within a multi-chamber evaporative deposition tool (see Fig. 1), followed by an encapsulation process that is either part of the same tool or a separate process step. 
The Canon tool shown in Fig. 1 can process a substrate sheet (usually ½ sheet) in ~5 mins., which is over 90 6.5” smartphones.  Such a tool should be able to operate continuously for ~6 days, producing roughly 600,000 units/month including down time, particularly chamber cleaning and mask replacement and alignment.  Since each deposition tool processes ½ substrate, two such tools are needed to match the processing capabilities of the TFT structures in order for there to be no bottlenecks.  Equipment supplier backlog and build times for such tools are a consideration for OLED panel producers, so a line with 15,000 sheet stated capacity, might begin operation at half that rate until both deposition tools are operating at their target rate.  The equipment utilization rate, or the percent of a line’s equipment that is in operation, is different from the line’s yield, which is a bigger determinant as to actual production, and the above numbers assume 100% product yield, which is a theoretical number.
Product yield varies with each product and is initially low, especially with products that differ from previously produced displays.  Much fab equipment is dedicated to examining displays coming off the line, both optically and electrically, with the objective to trace back yield issues to the source, but such iterations can take time and are not always easy to correct given the complexity of the tools involved.  Product yield issues can keep an OLED fab from profitability for an extended period of time depending on the experience of the producers, and while the stated capacity of the fab might be 30,000 sheets/month, the yielded capacity can be far less.
The last contributor to fab output is customers.  The cost of producing OLED displays is high enough (the deposition tool mentioned above cost between $100m and $150m each) that small panel OLED producers tend to produce against customer orders and do not want to build unallocated inventory unless they see demand from distributors, or significant demand from parent or internal subsidiaries, but even the latter can leave the fab with excess inventory if parent demand changes, so again, while a fab might be able to produce 30,000 sheets/month, there are many reasons why that number tends to be more theoretical than actual.  More mature small panel OLED fabs, during periods of strong demand, can and do see high utilization and high product yield, but we have and continue to caution investors that stated capacity does not mean yielded capacity, and yielded capacity is what makes such fabs profitable. 
Based on our data, we believe the small panel OLED industry saw a utilization range between 29.6% and 49.5% over the last 8 quarters, and while that would be considered low in comparison to LCD production fabs, with the continuation of small panel OLED capacity expansion, relatively easy capital sourcing in China, and seasonal demand patterns, it is not surprising, but it does beg the question, “Does the industry need all of that new capacity?” 
There are a few other factors that play into such calculations, individual or otherwise, such as conversions of existing small panel OLED fabs from LTPS (Low Temperature Poly-Silicon) to LTPO (Low Temperature Poly-Crystalline Oxide), which affects the TFT portion of fab throughput, and LG Display’s (LPL) loss of its parent’s smartphone business, but even with expanding demand from OLED notebooks and similar new applications, the desire of some small panel OLED producers to gain share continues to push capacity expansion at a rate considerably higher than actual production, as noted in Fig. 2, leaving some suppliers facing losses in what has been a positive environment for small panel OLED displays. 
As we have seen in the LCD space, there is no way that individual small panel OLED producers will be convinced that continued expansion is not the best objective and the concept that growth will continue forever will remain the driving force for such expansion, that is until demand plateaus are reached or questions concerning the profitability of smaller producers become foremost in the minds of funding sources.  There is still demand expansion in the small panel OLED space with OLED displays now represent over 50% of all smartphone displays (see our note 11/22/21) but new markets develop slowly and any slowdown in small panel OLED area growth could puncture the expansion balloon, which, if rational behavior is not possible, could be a solution to the problem, albeit a less desirable one.

As we have noted previously, BOE (200725.CH), China’s largest panel producer maintains active communication with its shareholders or potential shareholders.  While this Q&A does not always answer questions or acknowledge the validity of suggestions, at least management responds to a reasonable proportion of the numerous questions asked.  Over the last 24 hours, the company responded to the most recent batch of questions and suggestions, some of which we detail here.

• (Suggestion) – BOE should consider buying Visionox.  According to the ‘investor’, Visionox’s (002387.CH) major shareholder is looking for an exit strategy and the value of the stock is ~10b yuan ($1.566b US), which would buy Visionox’s three OLED fabs at a price far cheaper than they could be built for today.  BOE’s response, “Thank you for the suggestion”.  Visionox has been struggling to achieve profitability for years and while they continue to build out the 3rd OLED fab in Hefei, they have been relying on government subsidies to provide operating capital, with net income negative despite increasing sales from fab ramps.  While BOE would be paying cents on the dollar and has the production experience to improve overall yield, such an increase in capacity would likely outstrip BOE’s customer demand.

 

• Status of Repurchase Plan? BOE has been operating a stock repurchase plan under which it has bought 248.6m shares.  While this seems like a very substantial amount, it represents 0.645% of the company’s outstanding shares and a purchase value of ~$213m US and seems to have done little for the stock, although the program continues.

 

• Who is Your Glass supplier for the Vehicle Display Base Project?  Last month BOE announced it will spend $390m to build a ‘Vehicle Display Base’ in Chengdu.  It seems some investors are confused about what this actually entails as the project is an assembly facility that takes open cell panels (those without backlights) and customizes them according to customer specifications.  That would include adding a backlight, frame, and a number of other possible components, so the only glass that might be used in such a situation would be a cover glass.

 

• What are your capabilities for LTPO?  BOE responded that LTPO is in development and would be ‘introduced in a timely manner’ and that all of the company’s flexible OLED lines ‘have conditions to upgrade part of the production capacity to LTPO’.  We expect 2023 at the earliest.  This question was most likely asked in reference to BOE’s tacit final approval from Apple to be supplying OLED displays for the iPhone 13 and future iPhone series.  Some iPhone models are expected to be using TFT systems using LTPO rather than the more typical LTPS backplanes in the future, with the LTPO process being more complex and more costly.  We believe only Samsung Display (pvt) is currently able to supply high volume LTPO OLED displays to Apple and will probably be the primary supplier of those models in 2022, with LG Display (LPL) developing MP capabilities for LTPO to a small degree next year and expanding that in 2023. 

 

• It seems the company is behind plan as to flexible OLED shipments.  In July and August 11m and 14m units were shipped.  How many in September?  Surprisingly the company indicated that they had shipped 40m flexible OLED panels by the end of 3Q, which would imply ~15m in September, although they did not confirm the correctness of the July and August figures.  We believe they are correct.

While BOE continues to gain traction in the OLED space, at the end of 3Q we estimate that they had a 16.3% share of the small panel flexible OLED market, in terms of units.  This is larger than any other small panel flexible OLED producer, including LG Display, but quite a bit behind Samsung Display’s 62.2% share over the same period.  We do expect BOE’s share to increase considerably as it builds production into Apple’s iPhone supply chain, but despite the increasing unit numbers, we expect Samsung’s ability to produce higher value LTPO displays for Apple, will continue to give SDC a sales dollar advantage that is out of proportion with its unit volume share.  That said, BOE continues to push hard to develop its small panel flexible OLED business with Apple, and while the stock likely reflects more of the company’s exposure to the LCD panel business, they are now the #2 player in the small panel flexible OLED space and will see considerable growth in 2022.

​On October 29, BOE (200725.CH), China’s largest panel producer, held a quiet ceremony marking the final certification needed to become a full scale OLED supplier to Apple for the iPhone 13 line.  As we have noted on numerous occasions, this has not been an easy path for BOE, as the company was unable to qualify for full production at least twice that we know of, and was most recently put on a limited production schedule until final certification could be affirmed.  While BOE has been producing small panel OLED for Apple, an estimated 5.5m units in 1H, the final certification proves out the company’s ability to reach both quality and production goals set by Apple, with an additional 6.5m units produced between July and the end of October, and a current run rate of between 1.5m and 1.9m units/month.  According to Chinese press, by the end of the year this run rate would represent ~10% of Apple’s iPhone shipment target of 160m units, with BOE showing a total of ~50m OLED units (all customers) this year.
In 2022 BOE should be increasing capacity at its Gen 6 Chongqing OLED fab as phase 2 capacity begins production.  While the local press says that production will start in January, and BOE will increase shipments to 80m units next year, we expect mass production, based on a more conservative ramp to see an incremental 27m units from Chongqing in 2022, but we note that is at 100% yield, which we expect is far different than what is seen currently and what will be the case as the new Chongqing lines ramp up.  While we expect BOE will certainly be a bigger contributor to Apple’s OLED supply chain in 2022, we hesitate to make predictions as to absolute share as much will depend on BOE’s ability to ramp production to a viable yield, and BOE’s ability to produce the particular OLED display variations that Apple will request in 2022. 
As we expect most, if not all of the LTPO OLED displays for the top iPhone models will be produced by Samsung Display (pvt), and LG Display (LPL) will produce much of the intermediate model, BOE’s share will be limited somewhat, depending on Apple’s application of LTPO across the iPhone line.  This is certainly a big win for BOE, after a long and difficult path to success, but we expect the Chinese press will take the win to mean that BOE’s ‘glorious success’ will ‘mark the end of South Korean OLED domination’, a bit of a stretch in 2022.  It does mean more competition for both SDC and LGD, but we assume they have been expecting that for some time