​Back in January of this year we noted that Japan Display (6740.JP) was in negotiations to sell its Mobara, Japan display fab, after stating that it would wind down production at the fab by March of 2026 (JDI year-end).  At the time we noted that HKC (248.HK) seemed to be the intended buyer although no announcements had been made by either party, other than the intended shut-down date by JDI.  Those rumors have started up once again with the potential sale and purchase allowing Japan Display to set an earlier closure date, theoretically by the end of this calendar year. 
For HKC it gives the company potential to rapidly expand its OLED production capacity, but as the JDI fab itself was producing displays using LTPO backplanes (Low-Temperature Poly-Oxide) the question is whether HKC will license and use JDI’s LTPO technology or their own proprietary LTPO configuration.  More on that in a minute…
HKC and JDI signed a joint development agreement in 2023 to build a new OLED fab using eLEAP, Japan Display’s photolithographic OLED patterning process, but the program was cancelled later that year, ostensibly because HKC had a problem with JDI’s license fees.  Given the more desperate financial situation Japan Display is currently in, those fees might have changed.  How that plays out under the sale could determine what OLED course HKC eventually takes.
Last month HKC announced that it had produced its first OLED display, which has led some to speculate that HKC could take over production of displays for the Apple (AAPL) watch was being produced in the Mobara fab by Japan Display.  We recently noted that LG Display (LPL), would likely be picking up JDI’s production share for the Apple watch given Japan Display’s shutdown timeline, and we stick to that thought, at least for the 2026 year.  It is easy to assume that HKC will step right into Apple’s smartwatch supply chain, but the process is considerably more complex, especially with Apple.  HKC would likely have to get requalified both on a product basis and as a producer, both of which take time and can be daunting, especially from a manufacturing standpoint, as Apple is extremely meticulous about production methodology.  Given  HKC’s relatively short experience with OLED production we expect the process to take some time.
The question we noted above whether HKC will license JDI’s LTPO technology or use its own also comes into play here, as anything HKC can do to maintain production process continuity, will go toward helping HKC become an Apple display producer and shortening the product and process review.  If JDI is willing to offer the LTPO license at a reasonable price point, it might be worthwhile for HKC to license it, rather than go through another process evaluation.
The HKC acquisition of the Royole G5.5 fab presents some other challenges.  Royole has a proprietary low temperature backplane process that allowed the use of a plastic substrate, but the company was very vague about the process used for the actual OLED material deposition.  While HKC could shift the Royole fab to be exclusively producing TFT backplanes for OLED displays and focus Mobara strictly on deposition, it would involve a number of logistical and technical challenges, again making the qualification process at Mobara more complex.  A possible solution might be to move the Royole backplane lines to Mobara, but we have some trouble understanding what the Royole fab would then be used for.  It was quite inexpensive however, which was a bonus for HKC.
The Facts:

• China represents 56.1% of global panel sales value (as of 8/25)
• HKC represents 8.1% of global panel sales value.
• HKC represents 13.9% of China’s global panel sales.
• HKC generates ~424m/month in panel sales (2025)
• HKC operates four Gen 8.6 LCD fabs in various locations in China.
• HKC purchased what was a Gen 5.5 flexible OLED fab from Royole for less than $71m.  The company produced its first OLED display in July of this year.

All in, HKC has obviously made a decision to forge ahead with its entry into the OLED space, and as an experienced LCD producer is not starting from scratch.  That said, OLED production is more complex than LCD and HKC has far less experience in the OLED space than leaders Samsung Display (pvt), LG Display, and BOE (200725.CH) and less than second-tier OLED suppliers.  It is going to take time for HKC to become a significant factor in the OLED space despite the potential capacity that the Royole and JDI acquisitions add, but at least they are going about their entry into OLED with both feet.
 

Yesterday we noted how Chinese LCD panel producers had made a philosophical change in the way in which they managed panel pricing over the last 18 months.  We can add some more detailed information about the current state of sentiment among said LCD panel producers using utilization calculations based on their projected shut-down schedule for the Chinese National Holiday and Mid-Autumn Festival, which begins Monday October 1 and lasts for the week.  The three major Chinese large panel LCD manufacturers will be shutting down their fabs for a number of days during the holiday in anticipation of relatively weak demand in 4Q.  Thios is not as unusual as it sounds, but the number of days the fabs are closed is a good indicator of the level of concern that Chinese panel producers have for the upcoming quarter.  The math for this year seems to prove out that while publicly each producer is careful about projecting extended demand weakness, the shutdown schedule points to the largest supply contraction in the last three years.

​Here is what the shut-down schedule looks like:

So what does it mean in terms of utilization and capacity for October? 
For each 15K line (Divide the capacity column by 15) a Gen 8.6 fab operating at 90% utilization can produce 54,000 65” equivalent panels per month.  A 5 day hiatus for such a line would reduce the number of units produced from 54,000 to 44, 232, or an 18.1% reduction.  It would reduce the monthly utilization rate from 90% to 73.7%.  Gen 10.5 fabs have a unit count that is higher (6 units/sheet rather than 4) so the reduction percentage is the same but the reduction in the number of units is higher.
We have to make a number of assumptions to make these calculations, first of which is converting unit volumes to 65” equivalents.  Second is adding a ½ day of zero production to account form shut-down and restart periods.  Third, we have to make assumptions as to which fabs panel producers are shutting down, which makes the capacity estimates approximate. Fourth, we start by assuming that all fabs are typically operating at 90% utilization.  Perhaps a bit optimistic but a starting point.
All in, the utilization cuts indicated above show that Chinese panel producers are a bit less optimistic about the 4th quarter than they might be indicating publicly but are more willing to reduce utilization than to make price concessions that might keep fabs full.  The secondary problem is that many of these fabs have been operating just above break-even for the 3rd quarter, certainly lower than 2Q, so a price reduction would likely put the fabs in a loss position for the 4th quarter as it tends to be difficult to bring back panel price reductions toward year end.  Utilization drops are an internal adjustment (See yesterday’s note for more detail) so they can be more easily reversed and have less of a bottom line impact than product price reductions. 
Given that the demand outlook for the holiday season is not robust, panel producers have one last hope for a better 4th quarter, and that is based on the idea that brand panel buyers will anticipate a price increase in 1Q ’26 and pull-those 1Q orders into 4Q.  Unfortunately we have little hope that such a scenario will play out to a large enough degree to offset inherently weak 4Q demand, and even if it does play out, it would leave a weaker 1Q to deal with in a few short months.  While we can never rule anything out completely, we are unsure that these utilization cuts will even be adequate to tighten capacity significantly enough to avoid a 4Q loss for many producers and we are beginning to feel that not only will we see these aggressive utilization cuts but there is a chance that panel producers will also have to cut prices a bit to pull panel buyers out of their languor.   It’s a Hail Mary scenario, but you never know.

As panel producers begin production for the upcoming holiday period, they are negotiating with brands for next year’s shipments.   Rather than the rigid contracts that were the mode used years ago, current contracts are flexible and build in clauses that can adjust to changing economic conditions, and tend to include both long-term agreements for more generic panels, and shorter-term metrics for more specialized panels.  Samsung Electronics (005930.KS) is the largest purchaser of LCD TV panels as their display production affiliate Samsung Display (pvt) does not produce LCD panels, and purchases over 40m TV set panels from suppliers each year.  With 8 major LCD panel producers, Samsung has TV set panel production contracts with most, if not all, TV set panel producers.  Depending on the size of the producer, Samsung can represent between 5% and 30% of the producer’s capacity for the year, making these negotiations quite important and critical to the profitability of panel producers.
Years back BOE (200725.CH) was high of Samsung’s list as China’s largest LCD panel producer and among the lowest cost producer for many panels, however competition for Apple’s display business and conflicts over incentive fees reduced BOE’s share of Samsung’s LCD TV panel purchases to between 3% and 4%.  However, after a few visits from BOE officials talk out of South Korea indicates that Samsung and BOE might have settled their differences, giving BOE a chance at bringing it supply contracts with Samsung back up.  Expectations are for BOE to have a roughly 4% share of Samsung’s TV panel purchases next year, but if the settlement rumor proves true, that share could increase to as much as 10% next year. 
Samsung has an additional consideration next year.  LG Display (LPL), a supplier of LCD TV set panels to Samsung, sold their Gen 8.5 LCD fab in Guangzhou, China to Chinastar (pvt), which will reduce LG Display’s share of Samsung’s TV set panel business next year, but at the same time it creates another problem for Samsung.  Now that the Guangzhou fab is owned by Chinastar, who is already Samsung’s largest LCD TV panel supplier, that LGD supply contract is now Chinastar’s, and that pushes Chinastar over Samsung’s ‘production maximum’ .
We expect Samsung settled the conflict with BOE, in part, to give it the option to reduce its dependence on Chinastar and increase it reliance on BOE, leading to the current negotiations.  The production maximum mentioned above is not a legal or financial point, but one of risk, with too much of Samsung’s TV set panel purchases coming from one supplier a dangerous position that has hurt Samsung in the past.  By increasing BOE’s share, Samsung can reduce Chinastar’s share and reduce its overall supplier risk. 
OMDIA breaks out estimates for Samsung’s LCD TV set panel purchases for 2024 and this year, which we show below, along with our forecast of share under two BOE scenarios.  Scenario A is our current forecast, using a conservative share for BOE, while Scenario B is more aggressive, with Samsung reducing Chinastar’s share by increasing BOE’s.  It is too early to tell how this will play out and Samsung does not have to make a final decision yet but given the number of units Samsung is expected to purchase next year (40m+) the stakes are high.

​As we have noted a number of times, Royole (pvt), once the company that beat display industry giants to the development of a commercial flexible OLED display, was forced into bankruptcy by its unpaid employees, who are owed over $14m in salary and unfunded equity.  The company’s remaining assets, which include almost 100,000 m2 of land, 235,000 m2 of building space, and $62.5m in equipment, went to a court-sponsored auction in December, with an asking price of $172m.
Unfortunately there were lots of lookers but no bids and subsequent attempts led to the same results, however it seems that the latest auction received a bid from a single petitioner for $70.5m, which seems to have been accepted.  The identity of the bidder has yet to be revealed, but there is considerable speculation that it is HKC, one of China’s four large panel LCD producers.  HKC has little or no OLED R&D, so there is the possibility that they are looking to enter OLED space, although one would expect that more modern equipment would be desired. They could sell off or scrap the more specialized OLED equipment and build out an OLED fab themselves or keep what can be used for LCD and create another large or small panel fab in the Royole space.  In either case it puts an end to what was once a highly speculative company that raised over $1.3b in debt and equity capital and was valued at $6b at its peak.  At least the employees can get paid.
 

​The China Securities Regulatory Commission has received an IPO and listing guidance report from China International Capital Corp. (601995.CH) concerning the potential IPO and listing of Huike Company (248.HK) (aka HKC), a producer of large panel LCD displays in China.  According to the report HKC has a ‘relatively complete accounting management system’ and is ‘relatively independent in terms of business, assets, personnel, finance, and organization.”  As we noted on 02/10/2022 HKC was added to the ‘unverified’ list managed by the US Department of Commerce’s Bureau of Industry & Security, which does not preclude US exporters from ‘engaging’ with listed parties or that there are specific foreign policy or national security concerns with those on this particular list, only that the BIS is unable to establish the legitimacy and reliability relating to the end use or end user of the items that fall under the US Export Administration Regulations (EAR) by such parties. 
The reasons for this inability could be an failure to contact or locate the parties involved, failure by those parties to demonstrate the disposition of items subject to EAR, or lack of cooperation by a host government with the BIS when making end-use checks.  The corporate structure of HKC overall is a bit complex but the company that owns HKC’s Chongqing Gen 8.6 LCD fab (Chuzhou HKC Optoelectronics), which is owned by HKC and two Chongqing government entities, had submitted proposals for the purchase of equipment used in the display process and the US government was unable to verify that the end user for HKC products that were being produced (using US equipment) was not in violation of the BIS rules (no sales to Chinese military).
HKC itself, owns four Gen 8.5 LCD fabs and currently has a ~5.5% share of the total LCD market (by capacity) and an 11.6% share of the Gen 8+ LCD market and this year has been generating between $380m and $430m in sales on a monthly basis.  Peak sales were in June of last year when the company generated $540m in LCD panel sales.  We expect the actual IPO filing will reveal a bit more detail about HKC, in particular its recent performance as it has not yet released results in 2022.