​Apple is a fan of LTPO (Low-temperature Poly-Oxide) backplane technology, a process that uses materials from both LTPS (Low-temperature poly-silicon), a common backplane technology, and LTPO.  By combining these materials and processes, panel producers can change the characteristics of OLED displays, allowing them to function at a 120Hz refresh rate.  With the screen be ‘repainted’ twice as often as usual, the chance that an image might blur as it moves across the screen is lessened, however at the same time the double refresh rate creates addition power consumption.  In order to compensate for this, LTPO can provide a lower overall power drain, and helps to keep the higher refresh rate displays from draining the battery.
That said, there are few panel producers who have the ability to produce displays with LTPO backplanes, and that limits those who wish to take advantage of 120Hz refresh rates to a small number of display producers, primarily Samsung Display (pvt), who is the leader in the space.  LG Display (LPL) also produces LTPO displays but in a more limited capacity, leaving Apple little choice but to use South Korean suppliers for its LTPO needs, with both the iPhone 13 Pro and the iPhone 13 Pro Max using the technology.  As we have noted previously, China’s BOE (200725.CH) has passed muster as a primary display producer for the iPhone, but is limited to producing LTPS displays (iPhone 13 currently) until it is able to get qualified for LTPO display production by Apple, which has yet to happen.
In the interim, China’s Visionox (002387.CH) has announced that they have launched China’s first LTPO OLED display and expects to see the display in new phones ‘soon’, putting them both in competition to garner attention from Apple and to compete with BOE, SDC, and LPL.  As BOE discovered, it can take quite a while to get through Apple’s intense qualification process, which not only considers the quality of the technology but also the ability to produce a stuffiest quantity for inclusion as a full supplier, and that means a yield that can be difficult to reach.  Visionox, while they will certainly push to develop customers on the Mainland, will have to begin the qualification process with Apple now that they have a commercial product, which can be both difficult and could require at least some capacity to be dedicated to such a project.  With that goal in mind we expect Visionox will make such an attempt although they have relatively small OLED production capacity (line in Hebei, Hefei & Kunshan) when compared to BOE and South Korean producers, so it could be some time before they would have the dedicated capacity needed to be a primary LTPO supplier to Apple.  As BOE faced a number of qualification disappointments that were regaled in the trade press, it might be best for Visionox to work with Chinese smartphone brands for a time rather than take the big step toward Apple.

In the broad display market, China’s BOE (200725.CH) is the leader in LCD panel production, however in the OLED display space BOE has been playing catch-up with Samsung Display (pvt) and LG Display (LPL), particularly when it comes to producing iPhone displays for Apple.   As we have noted previously, BOE has been included in Apple’s iPhone display supplier list this year after a number of futile attempts at qualification in 2020 and 2021.  While SDC produces the most sophisticated (LTPO) displays, LG Display has been gaining favor with Apple and has seen increasing OLED display volumes last year and again this year, while BOE is just beginning to bring production volumes to scale.
That said, BOE has put out expectations of producing ~40m OLED units overall, with ~30m for the iPhone this year and some optimistic prognosticators have stated that BOE’s share could be as high as 20% (40m+) with Apple this year, although we see more reasonable estimates in the 14% to 16% range.  However it seems that BOE has already hit a stumbling block in that a shortage of display driver silicon, an item absolutely necessary for display production, could limit BOE’s small panel OLED production this month and next.  BOE’s display driver supplier, LX Semiconductor (108320.KS), formerly known as Silicon Works, that is part of LX Holdings (pvt), owned by LG Group (pvt), the holding company of LG Electronics (066570.KS) and LG Display (among others), has been unable to meet its production goals and has had to allocate silicon capacity.  Not surprisingly LG Display’s driver needs come before BOE’s and BOE is expected to fall short of its production goals for 1Q by ~3m units.
Whether the shortage will reduce the overall 1Q and possibly 2Q total unit volume for the iPhone is still a question, with driver inventory level at Samsung and LGD unknown, but it will put BOE in a difficult position, albeit not completely its fault, in its first year as a primary OLED display provider for the iPhone.  Much has been said about BOE’s potential to displace SDC and LGD in the iPhone display market in Chinese trade press once the final qualification process was completed last year, but BOE is still far from catching Samsung or LG Display, as SDC is producing iPhone displays using LTPO, a more versatile backplane that allows for a number of features in the top-tier of the iPhone line and LGD is expanding its production of both LTPS and LTPO production to accommodate Apple’s capacity demands, so while BOE is certainly a competitor, and a potential source of negotiating power for Apple, they still have a way to go before they will be on par with SDC and LGD, and this setback will do little to help that situation.

​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
​

​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.