​We have mentioned that Samsung Display has been developing a vertically oriented OLED Gen 8 deposition tool with Ulvac (6728.JP) on which it hopes to produce IT OLED displays.  The concept of a vertical deposition tool is one that has been suggested as a way to avoid the issues surrounding the use of fine metal masks that create sub-pixel patterns as OLED materials are deposited on substrates.  While the metals used for the masks are extremely rigid, as the masks get larger they tend to sag which disrupts the deposition process and causes low yields.  The industry is currently limited to Gen 6 substrates and processes only a half or a quarter of the sheet at a time to avoid the sagging issue, which increases costs and process time.  The idea of a larger (Gen 8+) deposition tool that operated vertically instead of horizontally, would keep gravity from working toward sagging the larger mask.
 
Given that this development was being done in order to improve the yield of larger OLED displays, rather than the relatively small displays of smartphones, SDC’s goal is to satisfy the requirements of customers for OLED IT products while being able to remain profitable while dominating the space.  SDC is not doing such work only for itself, but with the potential for garnering what most believe will be Apple’s further dive into OLED displays for additional products, with those being of larger sizes.  If they are able to produce those panels using a Gen 8+ deposition system, without the mask issues mentioned above, they will lead the industry and expand their domination of the OLED display space.
 
That said, this is new technology that is unproven in mass production, and while we expect SDC has spent time and money on the project, given it potential for repeat tool sales if successful, Ulvac has probably taken much of the financial risk,  However there seems to be some talk that Samsung Display has decided not to go with the Ulvac vertical system and has chosen a horizontal Gen 8+ deposition system from Canon-Tokki (7751.JP), the leading supplier of OLED deposition tools worldwide.  The Canon tool is said to be half-cut, meaning the Gen 8+ substrate is processed in two pieces, but little has been said about how the system would combat the ‘sagging mask syndrome’.  Further, the cost of the Canon tool is said to be 33% more expensive than the Ulvac tool, making such a potential decision even more unusual.  It seems that Apple was involved with the decision, opting for Canon’s experience in mass production OLED deposition over the untested Ulvac tool, and at least according to some sources, is choosing the Canon tool on Apple’s request.
 
While there has been no verification of any decision by SDC, if the company is privy to Apple’s timeline for adding more OLED displays to its IT product line, a decision needs to be made soon, as such equipment is complex, tends to be customized by the customer, and in this case, has yet to be used in a mass production setting.  We would expect the lead time for such a tool to be between 9 and 12 months, during which Samsung Display would be refitting an exiting LCD fab to accommodate this new OLED line.  If such an order were placed today, we would expect product to begin to be available in mid-2024 and real volume production by the end of 3Q in that year.  That said, until SDC, Ulvac, Canon or a sub-vendor confirms the order, it remains speculation.
 

​We have mentioned that several LCD and OLED panel producers have slowed or postponed decisions or plans to expand capacity over the last few months, a result of the macro inflationary environment and the concurrent lack of consumer spending.  While Chinese panel producers still have groundbreaking ceremonies and sign both letters of understanding and form new entities with local governments to build out existing or add local LCD or OLED capacity, the realities of the current situation tell a somewhat different story.  Chinastar (pvt), a subsidiary of TCL (000100.CH) has been building its T5 fab since the middle of last year, originally to be a Gen 6 OLED fab, with the possibility that it could change to an LCD fab for IT products and a micro-LED backplane line. 
As the display and CE market deteriorated this year Chinastar, while having ordered a considerable amount of fab equipment form a variety of vendors, seems to have pushed out the delivery dates, some of which were to have been delivered this month.  Two South Korean equipment suppliers indicated that they had seen such delays for contracts with near-term delivery dates, totaling $24.2m US, one of which seems to have been pushed into late 2023 (unconfirmed), and the potential micro-LED project seems to have been indefinitely postponed.  While last year panel producers were competing with semiconductor manufacturers for equipment for the TFT portion of display production, causing unusually high demand and long delivery schedules, display tool vendors are now putting the breaks on those deliveries, causing serious problems at equipment vendors who have invested in materials and labor but cannot claim customer acceptance.
While these issues are devastating to LCD and OLED equipment manufacturers, the postponement or cancellation of potential capacity expansion projects is a positive for the industry, albeit a bit later than hoped.  With little demand expansion expected for the display space over the next year, and the expansion of new product categories, such as AR/VR and Micro-LED still a few years out, there is little need for greenfield capacity, unless it is dedicated, such as has been the case with Apple (AAPL) and LG Display (LPL) in years gone by.  But with a number of OLED panel producers chasing the same potential future Apple business, and the thought that the automotive display business cannot be supported by existing capacity, has pushed some to set capacity goals a bit unrealistically. 
While most expansion plans are rarely fully cancelled (it does happen), most slow considerably or change from one display modality to another as display perspective change, and delays or postponements of new capacity currently serve to tighten the supply side of what is an unbalanced equation currently.  Without a return to the incremental demand seen during the height of the COVID pandemic, or a more conducive spending environment, the display and even the entire CE space must focus on supply, at least for the 1st half of 2023, so we view any delays and postponements as a positive, despite the implications for tool vendors and similar suppliers, as it seems better to take a short-term hit than to live through an extended downturn that could impact the entire industry.  It’s the best of a bad situation.

Small panel OLED displays are ubiquitous in the mobile market, with a quick look at the current crop of smartphones showing 42.6% of available smartphone models with OLED displays, up from 38.7% last year, and 33.3% in 2020.  There are a relatively limited number of small panel OLED suppliers, at least currently, so calculating shipment share is feasible, but, as with many CE companies, they are not always forthcoming with shipment data, especially during cyclical industry declines.  There are a number of firms that generate OLED shipment data, although the numbers can vary considerably depending on the source, with suppliers more willing to quantify granular shipment data than others. 
That said, we use available data and conversations with panel producers to build out a picture of small panel OLED supply, as shown in Figure 1, and while there have been a multitude of stories as to how Samsung Display (pvt) is losing share in this lucrative market to other producers, even with the substantial quarterly variations seen below, the trend line for SDC’s shipments is almost flat.  There is growth among the other providers, but with SDC having such a share lead it becomes hard to discern both SDC’s share changes and the growth detail of other suppliers.  In Figure 2, which omits SDC’s data, it is a bit easier to see the growth in small panel OLED shipments from other suppliers, and the table below shows the CAGR for those companies.  We note that as the SDC trend line in Figure 1 shows, Samsung Display has seen a less than 1% decline in shipment growth rates over the 11 quarters of data shown.

As we have noted previously, we do expect Samsung Display to lose share in the 4th quarter as LG Display begins to supply LTPO OLED displays to Apple (AAPL), ending SDC’s reign as the sole supplier for the iPhone 14 Pro and Pro Max, with LGD ramping LTPO production further in 2023.  However Samsung Electronics (005930.KS), SDC’s parent accounts for ~22.1% of small panel OLED demand (2022 YTD) itself and while Samsung does contract out ~30% of its smartphone targets to OEMs who can choose components, these tend to be low to mid-tier phones.  Of the 28 Samsung smartphones currently offered, 46.1% are OLED, which drops to 30% for Samsung phones $500 or less, and to 12.5% for Samsung phones selling for $300 or less. 
While this gives SDC a bit of protection in the small panel OLED space, Apple has become a significant factor in small panel OLED demand over the last few years, and while much of that demand comes late in the year, Apple’s influence in the small panel OLED market continues to grow, as seen in Figure 3.  This reduces SDC ‘protection’, pushing the producer away from generic OLED panel production and more toward those OLED displays where price/area is higher, such as foldable displays, where the company holds a very significant lead.  We would expect to see Samsung Display’s share of the OLED market to decline, as such premium products are more niche oriented, but would expect sales share to remain more stable.
The small panel OLED market has moved from being a niche market itself, to developing into a ‘market of niche’s’, with rigid, flexible, foldable, and micro-OLED segments, along with the potential for further expansion into tablets and notebook/laptops, so while SDC might lose share on a unit volume basis, SDC continues to push the development of new OLED display modalities that keep it ahead of the pack.  It is inevitable that Chinese small panel OLED producers will encroach on the ‘generic’ small panel OLED market, as they did in the LCD space, but we believe SDC will remain the de facto leader in small panel OLED for the next few years, and while SDC will have to make a decision as to what emerging technology it might support as small panel OLED matures further, we believe they have been developing a number of LED based display solutions for a number of years.  With SDC the only small panel OLED producer that has a major semiconductor foundry as an affiliate, we believe that will prove to be a distinct advantage for SDC in later years, as we expect small panel display will shift toward silicon based production over a 10 year timeline.

For panel producers, large or small, decisions about entering new markets or expanding or reducing capacity are significant given the cost of both the construction and equipment involved in such decisions.  The ~18 months needed for building out greenfield capacity, along with the additional 6 months of ‘tuning’ and yield management that follows, can make those decisions even more critical as the CE space sees shorter product cycles and considerable competition from Chinese producers.  A wrong decision can leave a panel producer with an expensive line that takes years, if ever, to become profitable, along with the burden of depreciation.
Both LG Display and Samsung Display are in the midst of that major decision making process, with both finding the current macro environment making those decisions harder and less likely to be made as originally expected.  SDC has been working toward the expansion of its OLED production capacity to facilitate a push to bring OLED technology further into the IT space, meaning monitors, notebooks, and tablets.  SDC is already producing relatively small numbers of such IT displays which have made it into mainstream products, but this production has been done on existing Gen 6 SDC infrastructure, which is more oriented toward small panel (smartphone) production.  While the glass substrate upon which mobile devices (smartphones) are produced are almost 30 ft2 and can contain almost 300 devices on a single sheet, the chambers used for the deposition of OLED materials are unable to process such sheets, forcing the substrate to be cut in half or quarters to be processed.  This slows production and makes it less efficient, so SDC and other OLED producers have been working toward moving their RGB OLED display production to Gen 8 lines, which use substrates that are over 2x larger, there are problems associated with such large substrates, along with the deposition chamber size issue mentioned earlier.  As we have noted previously, Samsung is working with partners to develop a deposition system that can process an entire Gen 8 substrate without cutting, which would have a significant impact on efficiency and therefore cost, but the decision as to whether to build out capacity based on a tool that has not been used for mass production is a serious one, along with the cost of such a tool, which we would expect to be $200m to $300m, and the other equipment and fitting needed.
Samsung Display is also evaluating the timeline for the expansion of its QD/OLED production capabilities, which are currently limited to a 30,000 sheet/month line.  The expansion of that capacity would likely cost less than $1b, given it would be done in an existing SDC site that is currently not in operation, but again, it would include substantial depreciation, capital expense, and likely weigh on profitability for some time after it begins operation.  At the same time, LG Display is evaluating when it might order equipment for a potential OLEDos (OLED on Silicon) production line that would be used to produce AR/VR high resolution displays, with a timeline that must coincide with Apple’s plans for a 2nd generation AR/VR device (Sony (SNE) is expected to produce the displays for the 1st generation device).  Such a decision, particularly the equipment ordering, was expected last quarter but was postponed and could be pushed forward again.
These decisions are all being hampered by the state of the global economy, particularly the fear of a global recession in 2023, and the prospects for continuing Chinese COVID-19 lockdowns adding to the negativity.  As these are major capital and strategic decisions, it is understandable that managements want as much time as possible to see how the macro economy develops, and with the holiday season on the horizon, how consumers participate this year.  Other factors, like the war in Ukraine and the semiconductor trade issues with China add to a witch’s brew that seems to have put the display space and much of the CE space on hold until next year, with little excitement over delving into new technologies or capacity risk taking. 
All  of this is understandable, especially to those that cannot count on governmental subsidies to fund new projects or support extended payback periods, but at the same time the rapid change in demand that occurred when COVID became a global issue made it apparent that the JIT global supply chain was far less flexible than most had thought and without the capacity expansion and technology risk taking that seems to have gone by the wayside currently, the CE space will face another cycle of rapid price increases or shortages whenever the demand gap is suddenly filled by some global event.  In the past companies like Samsung and LG took big risks in the display space and in most cases reaped significant rewards, but we fear that the recent CE down cycle might have tempered some of the bravado that is necessary to lead an industry.  Hopefully the fear will pass quickly.

Samsung Display’s (pvt) CEO, JS Choi, seems to have taken on the additional roll of head of SDC marketing as he has been quite visible over the last few months promoting SDC’s new and developing products at conferences and trade shows all across the globe.  He did not miss a beat during his speaking time at the Intel (INTC) 2022 Innovation Forum to demonstrate a prototype of a slideable laptop that the company is developing that expands from a 13” tablet to a 17” laptop (see Figure 1 & link below).  Similar to smaller smartphone sized expandable/rollable prototypes, this device allows the user to pull the side frame to extend the tablet to laptop size, with the extended portion of the display being coiled internally until expanded.  When released the extended frame slides back to the smaller size and the additional display is then re-rolled internally.
While the SDC CEO ‘announced’ the device, no date for its release was given, which keeps it in the same category as the S-Folding displays (see Figure 2) that SDC has shown in recent months, that of ‘potential products’ that SDC and partners or affiliates are developing to exploit SDC’s foldable OLED display prowess.  We expect that SDC’s parent Samsung Electronics (005930.KS) will release at least one ‘advanced’ foldable/rollable model in 2023, and given the company’s massive media blitz promoting the most recent Galaxy Z Flip and Z Fold smartphones, there will be considerable customer interest in such as the category develops and refinements to the technology continue as we get closer to the reality of a truly rollable display configuration, as we show in Figure 3, a dream device (our favorite) that Universal Display (OLED) burned into our minds years ago to promote OLED technology.
Samsung Display has been the leader in the flexible display market since its initial release of the Galaxy Round in 2013 and the Galaxy Note Edge in 2014, the first commercial flexible OLED products[1], and continues to hold that lead, with China’s BOE (200725.CH) the only sizable contender albeit with a 9.2% share vs. SDC’s 71.2% in 2Q.  As the small panel OLED display market continues to mature, display producers struggle to differentiate their products to void the inevitable price degradation that occurs in the display space. 
By developing new small panel OLED display formats, such as those noted above, Samsung has been able to stay a step ahead of the pack, both on the production side with SDC, and on the product side with its successful Z Fold series of foldable smartphones.  That said, now that the public has been informed and likely convinced that foldable displays are smartphone fans’ new toy, there will be considerable momentum for foldable displays going forward, however that comes with the same caveats as any other feature that appears in consumer related devices, and that is practicality.  While foldable displays represent a significant leap in display technology, unless such displays serve a practical purpose, they will become ‘just another feature’, like multiple cameras, rapid chargers, or borderless displays, that consumers will assume they get for free after the initial excitement dies down.  If Samsung and other brands are able to come up with foldable/rollable devices that actually benefit consumers, the technology will have an extended lifetime and appeal, otherwise it will disappear into the world of generic display technology.


[1] Other brands have shown earlier prototypes of flexible OLED displays or devices, some based on e-paper or polymer materials, but we still consider Samsung’s ability for high volume flexible OLED mass production for the Note Edge to be the actual start of the ‘flexible OLED Age’.

https://www.digitaltrends.com/wp-content/uploads/2022/09/samsung-slidable-PC.webp?fit=720%2C423&p=1  (Ctl + Click)

​While the data we have on small panel OLED display demand is preliminary in that it represents only the rigid small panel display market, it is a bit disturbing in that actual 2Q small panel rigid OLED display demand was quite a bit below expectations.  We do note that rigid small panel OLED display share continues to decline, falling from 47.2% in 2020 to 44.0% last year and 38.2% in 2Q ’22, so the flexible small panel OLED business would be more representative of the overall small panel OLED display space, however the drop off in small panel rigid demand in 2Q was far greater than expected, pushing down 3Q expectations, and could portend 2Q small panel flexible display actual results and similarly lowered 3Q expectations.
Based on our data, 2Q small panel OLED rigid display demand was 25.9% below expectations, putting it down 19.5% q/q and down 33.2% y/y, led by a substantial difference between actual demand and 2Q expectations from Samsung (-37.4%) and Xiaomi (1810.HK) (-21.4%).  3Q expectations for small panel rigid OLED demand is now expected to decline by 25.9% q/q which implies a 46.5% decline in small panel rigid OLED demand on a y/y basis.  Again, rigid OLED is only 38.2% (2Q) of total small panel OLED display demand, but with 2Q actuals coming in so far below expectations for rigid small panel OLED, it is noteworthy in that we expect similar results from small panel flexible OLED data over the next week or so.  While much of the trade talk has been on the effect of inflation on demand in the LCD space, it looks like the small panel OLED display space was not spared based on this preliminary data.

Earlier this month we noted that it has been a difficult year for WOLED TV, with negotiations between Samsung Electronics and LG Display (LPL) for the purchase of ~2m WOLED displays failing, and overall TV demand falling below expectations as the global economy faced rising inflation and rising interest rates.  Our two demand scenarios yielded unit volume estimates of 7.77m units as the best case and 7.27m units as the worst case, with a ~3% over-supply in the best case and a ~17% oversupply in the worst case[1].  Since then it seems estimates for WOLED TV shipments have continued to erode with back half production being lowered at LG Display, the sole producer of WOLED panels for TV, and the lack of an agreement with Samsung, weak overall TV demand, and continuing LCD panel price declines, all contributing to lower expectations.
With our worst case estimate looking the more likely, we move our attention to 2023 for WOLED TV set shipments and look toward the possible scenarios that might develop next year.  While there are certainly many variable that could come into play during 2023 that would affect OLED TV shipments, we focus on two.  Fist, whether Samsung and LG Display can come to terms as to a deal for what would likely be ~2m WOLED units, and the price of LCD TV panels.  To some degree they are dependent on each other as the relative value of LGD’s WOLED panels to Samsung would be determined by Samsung’s alternative, which would likely be LCD panels with Mini-LED/QD backlighting, already a mainstay of Samsung’s premium TV business, so if LCD TV panel prices continue to decline, we expect Samsung will opt for the less expensive solution, LCD, and LGD will face more typical OLED TV demand.
As we have mentioned previously, TV panel prices, while still declining m/m, have at least slowed their precipitous declines, and could see at least a shot at stability toward the end of this year.  That said, we still believe it will be a rather difficult holiday season for the TV set market as inventories are coming into the holidays higher than demand might portend, and while some panel producers have reduced utilization rates substantially, others less so, reducing the drawn down of inventory levels.  If holiday sales are enough to deplete excess TV panel inventory, it could set the tone for at least a small TV panel price recovery in late 1Q ’23 and that scenario would, in our view, give Samsung more incentive to strike a deal with LG Display as the value of relatively fixed price WOLED panels would look more attractive.
All in, we see a best case scenario of 9.25m units next year and a worst case of 8.5m units as shown below, with both Samsung’s potential decision and LCD TV panel prices as the swing factors.  Samsung does have the upper hand in the negotiations, especially when it comes to negotiating prices for LCD TV panels, as they are the largest purchaser of LCD panels that has no internal large panel LCD production capabilities.  While there are no other OLED TV panel producers who could supply mass production level volume, other than LG Display, Samsung seems to have chosen the LCD alternative this year and could do so again next year.


[1] 10% oversupply would be the normal baseline.

​We have mentioned flexible OLED panel producer Royole (pvt) a number of times over the years, first as the winner in the race to produce a commercial foldable OLED display (although it was a developer’s kit), beating small panel OLED leader Samsung Display (pvt) and Samsung Electronics (005930.KS), who now dominate the space, and later as the company repeatedly touted itself as the leader in China’s foldable OLED development’ and its leader as a genius who beat the leaders at their own game.  The company was able to raise over $1.1b from Chinese investors, venture firms and regional and state-owned banks and filed an S-1 with the SEC for an IPO in 2020 at a valuation of ~$6b.  Unfortunately the documents seem to indicate that very few of the company’s foldable phones had actually been sold and raised questions about the company’s Gen 6 flexible OLED production line, said to have cost a fraction of typical OLED fab costs due to its ‘unique’ processes, which eventually caused IPO plans to be scrapped.
The company continued its development plans with the release of a 2nd generation foldable later in 2020 and announced plans to build another flexible OLED fab ($2.4b) in Qingdao in cooperation with a number of local state-run organizations and file papers for listing on the Chinese STAR board where requirements were a bit less onerous.  Unfortunately the company did not meet those requirements and the STAR IPO was rejected as rumors of missed payments to employees and suppliers began to surface.  There was considerable talk of potential bailout partners for a few months late last year and early this year but by May Royole management issued a notice to many employees requesting that they take long (3 month) vacations, which did little but to stimulate workers to protest to the local government.  Some workers were paid missing wages by the local government but it seems the handwriting was already on the wall and no bailout appeared, leaving creditors hanging as to when or if they were to get paid as the company continued to flounder.
Recently a number of those creditors filed redress documents against the company and further investigation led to the discovery that there were a number of pending disputes between the company and construction companies, service providers, public relations firms, and advertising companies, which forced a review of the company’s standing by the courts.  As of the end of last month the courts ruled in favor of the plaintiffs and froze what came to $5.3m in assets held by a company holding entity, essentially preventing the company from access to any capital, potentially signaling the end to the company’s operations, at least until the courts can sort out the complete asset and creditor lists.
As we had noted a number of times, we have doubted Royole’s abilities from the start, as we could find few who had any customer relationships with the company, and once we were able to see paperwork from the IPO filings, it became obvious that there had been considerable speculation as to the company’s prospects when early funding was made, especially around the time of the aborted STAR listing, which placed a $2+b valuation on the company.  It was not that we doubted the ability of a small company to find a shorter path to building a better mousetrap than its infinitely larger brethren, but that the massive hype behind the company’s founder’s ability to create a process that cost a small percentage of the manufacturing cost of flexible OLED production, without any details ever being disclosed, seemed a bit of artifice, which it seems it was.  While we don’t know what the courts will ultimately decide, we expect Royole will likely be shut down, a sad day for unicorns everywhere given the hopes originally placed on the company’s success, but sooner or later Royole had to pay the piper….