​In May we noted that Corning (GLW) had officially announced the opening its 2nd Gen 10.5 glass substrate facility in China, and its 6th class facility in the country, co-located with BOE’s (200725.CH) Gen 10.5 fab in Wuhan. Last night Corning announced that it will add production capacity to its facilities in Chongqing, producing substrates at Gen 8.5 and above.  There are two LCD fabs nearby, a Gen 8.5 LCD fab (B8) run by BOE, and a Gen 8.6 LCD fab (H1) run by HKC (248.HK) and one Gen 6 OLED (BOE) line.  The new glass processing lines are expected to be in production in 2023.

Corning (GLW) has been a glass supplier to almost all panel producers and has been a key supplier to Samsung’s smartphone business, with its Gorilla Glass® and Victus™ products and to affiliate Samsung Display, providing substrate product for LCD and rigid OLED displays.  Normally, parent and affiliate tend to be on the same page as to both short and long-term goals, but over the last year or so, that relationship seems to be less cordial and more disruptive.  There has been evidence that the decision made by Samsung Display to end its production of LCD displays and develop a quantum dot/OLED large panel product has not met with the kind of reception that SDC would have liked, and at times over the last year, rumors that Samsung would not be marketing a TV product using the new technology have surfaced and retreated a number of times, and since SDC and Samsung’s TV business are operated independently, both have had to make changes in the way in which they do business. 
Samsung’s TV business has been buying much of its LCD panel product from other suppliers and has been increasingly using ODMs to develop and produce some of its more generic LCD based product.  While this looked like a significant benefit early last year when LCD large panel prices were declining, it has become an increasingly more difficult market for large panel buyers as prices have been rising since the middle of last year.  While Samsung’s TV business has now endorsed Samsung Display’s QD/OLED product, the relationship between the two divisions still seems a bit strained.
At the same time, Samsung Display and Samsung’s Mobile division have also been at odds over the use of UTG (Ultra-thin glass) that is used as a cover glass for its foldable smartphones.  Samsung Mobile’s previous foldables, the Galaxy Z Fold 2 and the Galaxy Z Flip have both used UTG from Schott (AFX.GR) and processed by Dowooinsys (pvt), a company that Samsung Ventures has financed.  This relationship was developed by Samsung Display, and at least the Schott agreement, extends for three years from inception, however, Samsung Mobile considered the Schott/DowooInsys product too expensive but had no alternative, given that Corning’s UTG product was still under development last year. 
That seems to have changed with the new Galaxy Z Flip, where Samsung Mobile has agreed to split the cover glass for this next iteration between the Schott/Dowooinsus team and one comprised of Corning and eCONY (pvt), a Gumi based glass processor, which is in keeping with Corning’s stated timetable of UTG commercialization this year, and a nod to the Corning, eCONY process of laser cutting, rather than the wheel cutting used by the Schott/Insys team.  Rather than give Samsung Display the option to use whatever process they thought best, Samsung Mobile will handle the UTG relationship with Corning, which indicates a bit of continuing tension between the two divisions.
Whether this is business as usual for Samsung divisions, or a new, more competitive relationship among Samsung Electronics’ divisions remains to be seen, but it does have the earmarks of a mandate from senior management focusing on profitability, and if that means going to an outside source for an equivalent but less expensive product, so be it.  Competition from Chinese suppliers, a number of whom are subsidized by the Chinese government, has pressured a number of South Korean CE supply chain participants over the last few years, and pressure on LG (066570.KS) to divest its money-losing affiliate divisions has spurred a number of divestitures that we have noted.  While it is hard to tell whether the instances mentioned above are part of a ‘new’ Samsung or just a more public reveal of what has been going on behind closed doors, it seems that Samsung’s affiliates can no longer take for granted that they will be the preferred supplier to other Samsung affiliates, which in the long-run is a good thing for Samsung and for consumers, who will hopefully see better pricing as a result.

Taiwan based Digitimes indicated in an article that Samsung Display (pvt) and LG Display (LPL) are decreasing their reliance on outside sources for organic materials used to produce flexible OLED displays.  While this is ultimately true, that South Korean firms would ideally like to have ultimate control over the materials used in the production of flexible (and other) OLEDs, the article did little to specify any changes that have not been mentioned previously, generally citing mergers and investments by both producers that would help them gain the necessary IP to bring production of flexible OLED materials to Samsung SDI (006400.KS) and LG Chem (051910.KS) respectively.

The article specified that both producers obtained polyamide varnish from Japanese supplier Ube Industries (4208.JP) and a number of other TFT backplane production materials from South Korean suppliers ENF Technology (102710.KS), Dongjin Semichem (005290.KS) and Dongwoo Fine-Chem (pvt), a division of Sumitomo (8053.JP), none of whom struck us as different than would have been expected.  Further, deposition materials, a far more important component of the OLED production process, were specified coming from Idemitsu Kosan (5029.JP), Universal Display (OLED), Dow Chemical (DOW), and Merck (MRK), but hinted that the Samsung purchase of Novaled and an investment in Sun Fine Chem, a division of Hodogaya Chemical (4112.JP) were leading to the acquisition of IP that would allow these organics to be made internally, and finally that flexible substrates and cover glass were sourced from 3M (MMM) and Corning (GLW) respectively.

While there are a great number of materials and suppliers used in the OLED production process, this article did little to shed any light on current or potential changes that have been implemented by South Korean producers.  Samsung purchased Germany based Novaled for $347m back in August 2013, a company known for its ‘PIN OLED’ material that is used to enhance the electron mobility of certain OLED stack layers.  It doesn’t replace other stack components, but works with other stack materials to give better overall stack results, and an investment by Samsung in SFC (Sun Fine-Chem) a division of Hodogaya Chemical, goes back to 2011.

We believe that the only thing relating to OLED materials that has changed recently, other than the usual vying for a position in the OLED stack of these South Korean producers, is the change in backplane made by Samsung Display earlier this year.  This change, to the M8 backplane did make some changes in OLED material suppliers, with red host material moving from Dow to Duksan Neolux (213420.KS) and green host moving from Samsung SDI to Nippon Steel (5401.JP), while other emitter and host materials suppliers remained the same.  While on a long-term basis, OLED producers are always looking to reduce costs, using their leverage to pit one supplier against the other, that doesn’t always lead to using home country or in-house suppliers, as is seen in the change above where green host moved from an in-house South Korean supplier to a Japanese supplier, and both producers evaluate many materials from suppliers to find the right combination of performance and cost.  If a local or in-house supplier can meet those needs, everyone is satisfied, if not, there is no hesitation on the part of Samsung Display and LG Display to use outside suppliers, and that has not changed over the last few years.