In a move that is not surprising, it seems that Samsung Display (pvt) has begun the conversion of its Asan Gen 7 fab to OLED.  While the company was asked by parent Samsung Electronics (005930.KS) late last year to keep some large panel production in service, despite it plans to end all large panel LCD production in South Korea, this fab, known as L7-2 has been rumored to be SDC’s next conversion project for some time, and despite the steadily increasing price of large LCD panels over the last year, the company halted production at the fab at the end of March.
Korean construction company YMC (155650.KS) signed a contract for the dismantlement of LCD equipment with Samsung Construction & Trading (028260.KS), a major affiliate of the Samsung Group (pvt).  The contract was signed on April 1 and was to extend through July 31, although it was recently shortened to July 20, but increased in size from $15.7m to $18.5m.  On 5/11/21 we noted that Samsung was taking bids on the equipment in L7-2, and possibly L8-2-1, which certainly seems the case given the relatively short length of the removal contract.
The L7-2 line has been in production since 2008 and had a peak stated capacity of 180,000 Gen 7 sheets/month will be converted into a Gen 6 OLED fab for what is expected to be ~$2.7b US, similar to the conversion cost of L7-1 line that was converted from LCD to OLED in 2017.  The new fab is expected to add 30,000 sheets/month to SDC’s small panel OLED capacity when completed, although we believe there will be room for additional capacity that could be added at a later date if necessary, as SDC has ample backplane capacity at other fabs and will not need to add to that at A4E. 
 As we had planned for the L7-2 closing at year-end, this will reduce SDC’s large panel output by 1.08m 65” units this year, although we expect Samsung Electronics has been sourcing from alternative suppliers and will see little change to their supply chain.  What this does do is move up the road map for SDC’s A4E fab which we had projected to begin operation in March 2023.  We move that up to September of 2022 (Phase 1) and phase 2 completion from 9/23 to 3/23, giving Samsung Display additional capacity for flexible and foldable OLED production.  We make the assumption that SDC will continue to produce large panel displays at the L8 fab until the end of this year

​OLED materials are a very significant part of OLED devices.  Not only due to their cost and sensitivity to exposure to air and water, but due to their characteristics, which greatly influence the performance of OLED displays.  The OLED ‘stack’, essentially layers of materials that either emit light or enhance the ability to emit light, is the basic structure that creates an OLED display, along with driving circuits that stimulate the materials into emission.  There are two ‘stack’ types in most OLED displays, either RGB, which is used primarily for smaller displays, such as smartphones, foldables, or notebooks,, or WOLED (white OLED), which is used in large OLED displays such as TVs.  When OLED TVs were first introduced the structure was two stack, two color, consisting of a yellow/green phosphorescent emitter stack, and a blue fluorescent emitter stack.  When both materials are excited, the result is a white light (the “W” in WOLED).

​

​Over time it was found that the efficiency of the blue material (fluorescent) was not great enough to produce the desired brightness, an additional layer of blue material was added, and while improved materials have evolved over time, the basic WOLED structure has remained.  LG Display (LPL) has indicated that it will now be adding more efficient materials and an additional layer to the WOLED stack, which is expected to add ~20% to the display’s luminous efficiency, essentially increasing the display’s ability to convert power into light, which would be seen as an increase in brightness or the same brightness with a reduction in power (~24%) consumption.  While one would expect the former to be the most important, driving the materials at a lower power could help to extend material lifetime and in theory, reduce the tendency for OLED materials to ‘burn-in’. 

Since LGD has indicated that they are adding another layer to the WOLED stack for some WOLED products, we wonder whether it would be another blue fluorescent layer or something new and different.  LGD has researched a number of other potential stack configurations over the last few years and we note that one in which they seem to have confidence in is one that adds another layer and another color to the WOLED stack.  While we do not know whether this is the advancement LGD will be adopting we present it as a possibility which, along with other possible configurations, would enhance such displays.
The stack configuration below adds a red phosphorescent emitter material layer to the yellow/green emitter at a specific ratio that reduces the intensity of the green component and adds the red.  This results in a ‘warmer’ white light and an increase in overall efficiency.  Again we emphasize that this is just one possible way LG Display could enhance its WOLED displays, with a multitude of other possibilitiess, but the significance in this case would be the addition of another emitter material. 
In our example, both red fluorescent and red phosphorescent materials could be used, although the phosphorescent would have better characteristics, but the impact to emitter material suppliers of another emitter material would have significant impact on material sales and royalties.  If additional phosphorescent material were added to the stack, it would benefit Universal Display (OLED), who owns the material IP for red and green phosphorescent emitters, while a red fluorescent would be open to competition among a number of OLED material suppliers.  We are certainly not speculating as to how LGD’s and UDC’s relationship might change, given the number of possible stack scenarios, but illustrating only that the addition of another phosphorescent material to the WOLED stack would be a significant gain for OLED material suppliers.
We will have to wait a bit until LGD reveals a bit more about what the actual stack changes will be, but with an increasing number of OLED TV displays being produced this year (LGD expects between 7m and 8m), the amounts of such materials will also increase.  While LGD has also decided to add some new OLED display sizes (83”, 42” and eventually some in the 20” to 30” tier) to current production, even the low end of LG Display’s planned 2021 production would represent a 56% increase in OLED TV panels produced over 2020, and with a full year of LGD’s Guangzhou OLED fab in production, an increase in LGD’s WOLED panel surface area of ~50% is expected this year.[1]


[1] Chang Wook Han, Hong-Seok Choi, Chanki Ha, Hongjae Shin, Hyun Chul Choi and In Byeong Kang (June 20th 2018). Advanced Technologies for Large-Sized OLED Display, Green Electronics, Cristian Ravariu and Dan Mihaiescu, IntechOpen, DOI: 10.5772/intechopen.74869. 

OLED displays are praised for their contrast and color, especially in small panel devices where they are the choice for high-end smartphones and have been moving down the price curve to mid-priced devices.  OLED displays are also well-known for their capabilities for TV displays, and as a self-emitting display, are considered the highest performing display in many categories.  That said, what other uses have there been for OLED displays in the consumer electronics world?  There are OLED tablets, although since 2016 only Samsung Electronics (005930.KS) and the parent of OLED display producer Samsung Display (pvt) has released OLED based tablets.  There are a number of OLED panel producers developing OLED automotive displays, but few high-volume CE products have favored OLED displays other than a number of high-end reference and gaming monitors and laptops.
Samsung Display wants that to change, and will be expanding its offerings for OLED laptop displays, but not toward the high-end.  Samsung is heading toward a 13.3” FHD model (1920 x 1080) that will be lower in price than the typical 4K (3840 x 2160) OLED display used in premium laptops.  Samsung is working toward bringing OLED displays to a broader swath of mobile devices by moving OLED displays to lower resolutions, which will widen its potential customer base.  Other considerations aside, the FMM (masks) used for lower resolution OLED displays should cost less which should lead to a lower cost, but more importantly, it will help to fill excess OLED capacity that Samsung Display might have, once they establish a steady customer base.
There are a number of OLED laptops available today, from a variety of brands, although Samsung itself only uses the technology for its tablets and has no OLED laptop offerings.  We believe this is a marketing issue, as Samsung has been a proponent of quantum dots for large panel products and uses OLED only in its smartphones and tablets.  In fact Samsung is expected to offer a quantum dot laptop in 2020, despite Samsung Display’s development efforts for OLED laptop displays.  Samsung Display does sell OLED laptop displays to a number of customers (see Table 1) as noted below and with the introduction of a lower resolution OLED display that is priced below more typical 4K (3840 x 2160) offerings, they should be able to attract new laptop customers who operate at a lower price tier.

​As we noted, Samsung Display is always interested in filling idle OLED capacity, and raising the company’s overall OLED utilization level is the key to maintaining and increasing OLED display profitability.  Obviously the smartphone market will generate very high unit volumes, but as larger devices, laptops, even with much lower volumes (see Table 2), use a significant amount of display capacity.

​All in, if Samsung Display is able to price its lower resolution OLED displays at a level that can reasonably compare with LCD laptop displays, they will be able to capture a more significant portion of the laptop display market and generate higher sales and utilization for its OLED plant.  This will not be an easy task given the weak LCD display pricing seen over the last few quarters, but laptop designers and marketers would jump at the chance to have another differentiating factor to use in a crowded laptop market.  Rather than offer OLED based laptops only to gamers and videographers, such displays could bring OLED laptops down to rank and file laptop consumers and expand the range of OLED displays to more than just a handful of high-end laptops.

Back on 2/27/17 we noted that Samsung Electronics (005930.KS) had verified that it would release a new Galaxy Tab S3 at Mobile World Congress, returning its tablet business to OLED displays.  Samsung had used an OLED display in its Tab s (7/2014) and Tab S2 (9/2015), but returned to LCD technology for the Tab A (3/2016) and Tab E (1/2016).  We believe Samsung Display (pvt) will be sticking with OLED displays for new tablet models and is considering using OLED for some laptop production this year.

We believe Samsung Display will be converting at least a portion of its L6 LCD production line from a-Si[1] to Oxide[2] backplane production and OLED display lines.  The L6 fab had a raw capacity of 268,125 m2 as of November 2016, which represented 7.5% of Samsung Display’s overall capacity, and 1.3% of worldwide capacity, and we believe had begun to reduce production on at least one of the three L6 lines at the end of last year.  We expect that line to be closed by May and the conversion to Oxide and OLED to begin.  We expect phase 1 of the oxide conversion to be fully ramped by April/May 2018, with lower output levels beginning this summer, and the ramp down of L6 phase 2 starting in July of this year, completed by year-end, and the conversion of L6 phase 2 to be completed by July/August 2018.  The L6 phase 3 ramp down will begin at the end of this year, with the conversion completed by 1Q 2019.

Samsung Display has yet to signal whether the L6 conversion will change the substrate size from Gen 5, so we build the changes into our model using a Gen 5 format.  As the upgraded fab will be supplying both IGZO backplanes and OLED displays, we expect the actual OLED capacity to be considerably lower than what the fab had been producing for LCDs.  We believe that Samsung will shift its LCD tablet and notebook production to its L8 Gen 5.5 lines, albeit at a reduced rate, as it continues to supply Apple (AAPL) with panels for the iPad, along with Sharp (6753.JP) and LG Display (LPL).

While expectations are that Samsung will release the previously mentioned Galaxy Tab S3 this month, there have been rumors that they will also release a Win 10 tablet line this year, although that remains unconfirmed, and we believe has supplied OLED displays to HP (HPE) and Lenovo (992.HK) for their Spectre  and Yoga Thinkpad laptops.  But the laptop market is far different than the smartphone market, and the necessity for OLED displays is less urgent than for smartphones, where the device is on for a large portion of the day.  That said, there was little OLED capacity for laptop display sizes, and yields were lower than those for smartphones, so Samsung Display had less of an incentive to expand that segment.  So what makes Samsung Display willing to step up its ‘non-smartphone’ OLED production capacity?  Most likely it is interest from Apple for its iPad line, and while an immediate move to OLED would be somewhat premature, Samsung Display could be responding to both its parent company’s demand and the potential for Apple to move to at least an OLED iPad variant sometime in the future.  Apple will be announcing new iPads at a press event in April.

All in, Samsung Display and parent Samsung Electronics, continue to push OLED displays further into their mobile lines, and reduce their exposure to LCD in small panel devices.  If we are correct in our assumptions about the L6 conversion, Samsung Display should be able to produce the equivalent of 2.6m 13.5” OLED laptop screens/quarter at the completely converted facility[3].  Apple has been averaging about 11.5m iPad units/quarter for the last two years, so we have to assume that only a portion of the iPad line could be converted to OLED over the next few years, as Samsung Display will also use the new capacity for its captive customer, but even the possibility that Apple might use OLED for its iPad line keeps a fire burning under the OLED space, and will continue to drive Samsung Display and others to add capacity.



[1] A-Si – amorphous silicon – commonly used as an LCD backplane
[2] Indium Gallium Zinc Oxide – aka ‘Oxide’ – another type of backplane
[3] 100% yield – Actual rates will be lower

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.

Recent articles in the Taiwan and Chinese technology press have shined light on the idea that smartphone vendors will be capacity constrained when adding OLED display-based smartphones to their brand offerings.  Recently cited was Huawei (pvt), who will have 8% of its line using OLED displays in 2017, making the assumption that they had expected to be using a greater percentage. 

Is this something new? Not really, as even when Samsung Electronics (005930.KS) was the only smartphone brand using OLED displays, they faced OLED display shortages that caused delays in shipments and apologies to potential buyers.  While Samsung Display the primary supplier of OLED displays for smartphones continues to expand its OLED production capacity, their largest customer remains Samsung Electronics, their parent, which makes them a semi captive supplier.  In fact, this issue was responsible for the delays seen in adoption by other smartphone brands, who knew that they would be in a secondary position to Samsung Electronics, holding many from adopting the technology.

That all changed over the last few months when the industry concluded that Apple (AAPL) would be adopting OLED displays for its iPhone line this year.  Suddenly brands rushed to adopt the technology to keep themselves at least in line with Apple, and the display industry responded with announcements of new OLED capacity plans and accelerated timelines, but the question remains, ‘Will the industry be able to meet demand?’  Raw capacity (see Fig.1), the measure most used to evaluate the supply/demand balance in the display space, is a poor metric for understanding what the industry can actually produce, and while the growth of capacity looks just like investors would want to see, it does not correlate to industry results.

Figure 2 shows a comparison between the ‘raw’ capacity and ‘utilized’ capacity, which includes a number of variables that are far more relevant to actual industry results that the ‘prettier’ raw metric.  Included in the utilized numbers are ramp times, experience of the producer, equipment tuning, and other variables, all of which come before the most important product level variable, yield.  Now that the industry has decided that another major player will be entering the OLED display demand side, these simple constraints become far more important to brands that might be in contention with Apple for what is already limited OLED display capacity.

While we will not detail our conclusions here, we will add a monkey wrench or two, just to let investors understand how complex these issues are.  First, OLED industry capacity is divided between small panel production fabs, such as those run by Samsung Display, and large panel OLED fabs, such as those run by LG Display for its OLED TV production.  This reduces capacity available for smartphone production on both a raw and utilized basis, as those fabs designed for large panel OLED production cannot be used for OLED smartphone production in most cases.  Second, drilling down a level further, what format will be used for each OLED smartphone brands?  Will they be built on rigid substrates or flexible substrates?  Figure 3 shows that raw OLED capacity is further defined by the type of substrate used, limiting capacity further as the industry shifts its focus from rigid to flexible OLED smartphone displays.  Fret not, as we have built our OLED industry model to reflect all of these variables, which allows us to gain significant insight into Apple’s potential path toward OLED smartphones and the opportunities available to other smartphone brands as they add OLED displays to their smartphone lineups.  Just the tip of the iceberg…more to come.