​In a recent interview, Mike Hack, a VP of Business Development at Universal Display (OLED), indicated that regardless of whether UDC or another company was able to develop a commercial blue phosphorescent OLED emitter material, they would still have to obtain a license from UDC, which we assume, would entail paying royalties.  The conversation came about as Samsung recently purchased the IP assets of blue TADF developer Cynora (pvt), without actually purchasing the development team or other assets.  This implied that Samsung was either protecting its own development program by trying to cover a large swath of potential TADF IP, or they were trying to keep another party from acquiring same.
Additionally, the CEO of Samsung Display indicated that the company was working on the development of its own ‘blue’ , which was a bit unusual in that most emitter materials are developed by companies such as UDC, along with customers who tend to provide parameters and leave the actual chemistry to others who have background in material science.  We are still not convinced that the statements made by SDC were quite what they seemed and more likely SDC is involved in the development of a blue emitter material with a partner, although perhaps a bit more deeply than in the past, but those statements opened the door to further questions about who will be the first to commercialize a blue emitter and how it might be licensed.
US patent law is about as complex and arcane as law can be and requires very specific knowledge that can require understanding both science and the nuances of language, but we expect Mr. Hack was referring to UDC’s ownership of Utility patents that cover the use of heavy metals in organic phosphorescent materials and their use in a light-emitting device.  The metals involved are Iridium, Osmium, Platinum and others, so if someone were to find another way to produce a phosphorescent emitter that did not use heavy metal ligands, they might be able to bypass the material side of the IP, but if they were to use a phosphorescent material to produce a light-emitting device, they would have to license the IP as Mr. Hack suggested and while such a new material could be produced and sold by other than UDC, its use in any device would require licensing. 
We are the first to admit we are not patent attorneys or organic material scientists, but after reading hundreds of patents relating to organic materials we have some knowledge of how the system works.  For reference…
There are requirements that must be met to apply for patent protection, and here is where things get fuzzy.  The first requirement is it has to be ‘patentable subject matter’, which seems obvious until you ask what is patentable subject matter, and that is somewhat open to legal interpretation.  Some of the things that are not patentable are natural phenomena, abstract ideas, printed matter, and business methods, however the last item is no longer part of the ‘no’ list as new rulings have allowed certain business processes.  Additional requirements are the patent has to be novel, it has to have utility, it has to be non-obvious, and it has to be subject to ‘enablement’, with each of those being subject to interpretation.  In terms of just ‘utility’ or the ability to garner a ‘utility patent’  the subject has to be a process, a machine, a composition of matter, a manufacturing process, and an improvement over existing process or IP.  If that doesn’t prove that IP is a subject that could lend itself to an almost infinite amount of conjecture, and if the US patent courts are any indication, it does.
That said, while the specific IP relating to Mr. Hack’s comments were not given, the fact that every commercial OLED manufacturer (or at least those producing full color OLED displays with phosphorescent materials, which is most of them) licenses UDC’s device  and material patents, is a good indication that the vast UDC IP portfolio covers all aspects of using phosphorescent materials in a light-emitting device and that regardless of who is the first to commercialize a blue phosphorescent emitter, license negotiations will occur with UDC. 

OLED TV, continues to grow as a percentage of total TV sales and shipments, but in the ‘premium’ TV market, which, in theory, consists of OLED TVs, 8K TVs (all types), LCD TVs with Quantum Dots, which would include all with Mini-LEDs., OLED TVs face a more difficult share growth path as overall LCD capacity is vastly larger than  that of OLED TV capacity and the inclusion of a quantum dot layer does not require dedicated fabs, as does OLED TV production.  Given that LG Display (LPL) is the primary producer of OLED TV displays, with Samsung Display (pvt) recently joining with its QD/OLED offerings, maximum capacity for OLED TV is limited to the existing capacity of LG Display and Samsung Display, which is 190,000 Gen 8.5 sheets/month between the two.
While we expect Samsung Display to increase its QD/OLED capacity over the next 18 months, overall OLED capacity seems static for the remainder of 2022 and at least the first half of 2023, if not the entire year.  Estimates for display equipment spending overall have come down for this year as high inventory levels and declining panel prices have slowed expansion plans across the industry, and while spending for LCD will come down by 28.5% y/y spending for OLED (both large and small panel) is expected to increase by 21.9%.  Both categories are expected to decline next year but return to growth in 2024 for both categories, while in 2025 LCD equipment spending is expected to decline while OLED equipment spending is expected to increase as shown in Figure 1.  We are a bit skeptical as to by how much LCD and OLED equipment spending will decline next year and could foresee a scenario where some of the equipment spending currently estimated for 2024 and 2025 could find its way back into 2023, but for now the outlook for 2023 display equipment spending continues to look rather grim.
Along with the decline in spending this year and next comes the decline in TV set shipments overall, which have been declining yearly after peaking in 2020 during the early days of the COVID pandemic.  Both Samsung (005930.KS) Electronics and LG Electronics (066570.KS), the leaders in TV set sales, are expected to see declines in shipments this year, leading to a unit volume decline in set units this year of ~3%.  While we expect much of the unit decline will fall to generic LCD TV sets, the decline has put pressure on the overall TV market, including OLED TVs.  With estimates of ~10m units for WOLED panel shipments this year, we believe that the potential for LGD to miss this target has increased, particularly given that the negotiations between Samsung and LG Display for the purchase of ~2m WOLED panels this year seem to have evaporated. 
While Samsung Display’s QD/OLED shipments will be modest this year, likely under 1m units, they will also impact what might have been potential WOLED panel shipments from LGD, which adds to the possibility of a shortfall.  On the positive side of the ledger, we expect Sony (SNE) to increase its presence in the OLED space, although they will be a QD/OLED customer, along with Samsung Electronics, which could lessen the positive impact of the Sony OLED expansion this year.  Recently there have been rumors that utilization rates have dropped at LG Display’s E4 fab, the larger of LGD’s South Korean OLED fabs, which could indicate that like LCD panel producers, LGD is trying to work down some excess inventory.  With 79 days until the unofficial start of the holiday season a slowdown in WOLED production does not bode well for the full year target of 10m units, however as long as the potential shortfall is not greater than 2m units, there will be some, albeit small, growth in the OLED TV business this year. 
The bigger risk is that LGD continues to produce at a rate that gets it near or to its target of 10m panels as this will create an even larger inventory issue going into 2023.  We expect production to decline by over 18% q/q in 3Q and by ~15% in 4Q, along with a modest (6.8%) increase in demand over the worst case scenario, which would create a 13.0% panel excess.  Given a safety level of 10%, the best case scenario would set the stage for a better 2023, while the worst case scenario would create a ~27% excess in panel stock, making 2023 another difficult year.  Much will rest on LGD’s production decisions and brand demand, but we expect TV brands are ordering on an almost day-to-day basis to try to gauge how consumer demand is flowing.

As we have noted many times, typical small OLED devices such as smartphones and tablets operate using RGB (Red, green, blue) sub-pixels to create color.  The RGB process differs from large panel OLED manufacturing, which coats the substrate surface with a combination of OLED materials that create white light, which is then passed through a color filter, essentially a sheet of red, green, and blue dots, to create color.  The RGB process is more complex, involving separate process steps for each color and has limitations on the size of the substrate, but the color filter in the WOLED process reduces the amount of light that reaches the user while the RGB stack does not.  The red and green (and yellow/green in the case of WOLED) OLED emitters are phosphorescent materials, which simply put, generate much more light than fluorescent materials, such as the blue emitter material used in both instances, as a commercial blue phosphorescent emitter does not exist…yet.
There are a number of large companies involved in R&D to develop a blue phosphorescent OLED emitter as its use would vastly improve the characteristics of the OLED stack, but, as opposed to red and green OLED emitters, the energy levels of blue emitters makes them unstable and limits their lifetimes.  Universal Display OLED) the primary supplier of phosphorescent OLED emitters to the industry spends ~$20m/quarter on R&D, and while not all of that goes toward the development of blue phosphorescent emitters, we expect a large portion of that budget does.  Of course, OLED panel producers, the buyers of phosphorescent OLED materials, have a particular interest in the development of a blue phosphorescent OLED emitter, both from the standpoint of improving the efficiency and quality of their OLED display products, and from a competitive standpoint.  The quality side is easy to understand but owning the IP to such a material, as does UDC for red and green, would be an enormous asset and would allow the owner to license (or not license) or sell (or not sell) the material to other OLED display producers.
All  OLED producers test emitter materials, both the emitters themselves and host materials in which the emitters are ‘doped’, looking for, in the case of blue, a phosphorescent material that is ‘deep blue’, has a high efficiency, and a long lifetime, but as manufacturers their job is to produce OLED panels, not research new OLED materials, and most do not have the resources to do so, however Samsung Display (pvt), the largest producer of small panel (RGB) OLED displays and affiliate of Samsung Electronics (005930.KS), the largest producer of OLED smartphone, does.  In our 8/26/22 note, we mentioned that the CEO of Samsung Display indicated that it expects to move from using fluorescent blue emitter material to using blue phosphorescent or blue TADF emitter materials.  While we believe all OLED producers have the same plans ‘eventually’, when a commercial blue phosphorescent emitter is developed, we expect SDC or SDC and a partner will be the first to commercialize such a material.
SDC has applied for a number of patents, both in Korea and in the US that relate to blue OLED materials, particularly those that have a Boron component along with the more typical heavy metal ligand structure that most phosphorescent materials are based on.  By substituting Boron and Nitrogen for Carbon in some of the molecular ring structures, the IP filing states,
“The organometallic compound…may emit blue light having an emission wave-length of about 450nm or greater and less than 490nm.  When the organometallic compound…is included in the emission layer of an organic light-emitting device, formation of an eximer and exiplex with a host may be suppressed.  Accordingly, the colorimetric purity and lifespan of an organic light-emitting device including the organometallic compound may be improved.”
What that means is that by changing the molecular structure of the blue phosphorescent emitter material, some of the pesky ‘byproducts’ of phosphorescence that reduce lifetime can be removed, and while the IP noted here did not give an indication as to the lifetime of such substitutions, the indication was that the blue emitter material’s characteristics improved.  We note that given the 161 pages of potential molecular structures in the SDC IP we reference, the specifics as to whether SDC is just covering its bases by listing almost an infinite number of possible chemical combinations and structures that would help it build a case for an IP lock on any blue phosphorescent organometallic Boron-based material that might come to market, or whether it is purposefully obscuring a specific material structure that it believes would have commercial value, is a question we cannot answer. 
We note that other R&D teams have made many similar broad claims as to improvements in blue phosphorescent material characteristics, although the industry still lacks a commercial blue phosphorescent OLED emitter material.  UDC has given a loose timeline for commercial production in 2024, with industry specs met by the end of this year and TADF material developers have promised a commercial blue as far back as 2020 but have been unable to meet those goals.  That said, Samsung recently purchased Cynora (pvt), one of the few TADF developers that have been working toward the commercialization of a blue OLED emitter with phosphorescent characteristics, but actually only purchased the company’s IP, more likely as a way to cover a broader swath of potential blue material development than it would have had as an investor. 
So as the activity toward a commercial blue material gain momentum, it would seem that Samsung Display is not only using dollars and IP to keep itself in the game, but is also working toward the possibility of an internal development, or one jointly with UDC (the logical choice) or another partner.  UDC’s IP and supply contract with SDC will expire at the end of this year, although it can be renewed for two additional years, and while the terms of the contract are not public, we believe the current contract only covers red and green (and similar derivatives) phosphorescent IP, with blue to be negotiated when necessary.  It would be difficult to disaggregate a change in contract terms between UDC and SDC that would relate to blue IP, but it is something to watch as we head into 2023.
 

​In our note yesterday, we mentioned Samsung Display’s (pvt) potential expansion of its QD/OLED display capacity, both through improvements in process tact time and the eventual conversion of shuttered LCD fab to additional QD/OLED lines.  Some of what we noted was derived from a recent speech made by the CEO of Samsung Display where he made a number of specific references to SDC’s plans for QD/OLED, a technology that SDC is promoting as an alternative to LG Display’s (LPL) WOLED.  The two large panel display technologies are the same in that they are both based on OLED emitters as light sources, but differ in the way that they quantify that light into Red, green, and blue sub-pixels that are necessary for full color displays.
WOLED technology uses a yellow/green (We note that yellow is a combination of green and red in light) phosphorescent OLED emitter combined with a blue fluorescent emitter as its light source.  With all three primary colors represented, the mix produces white light.  The white light is then passed through a color filter, essentially a sheet of red, green, and blue dots of phosphor materials.  The red phosphor dots allow the red component of the white light to pass through, while the green and blue dots do the same, creating an RGB pixel, one of ~8.3m on a 4K display.  While this is a cost effective way of producing an OLED TV display, as each sub-pixel blocks what is theoretically 2/3 of the light, much of the light intensity of the OLED materials is lost at the color filter.
Samsung Display uses a different technology for their QD/OLED displays.  The light source is a blue fluorescent emitter, similar to the type used in the WOLED process, but the color filter phosphors are replaced with red and green quantum dots.  Quantum dots differ from phosphors in that they do not block light, but convert it from one frequency to another, which corresponds to changing the color, so in the SDC system, in theory, the blue light is converted to red and green sub-pixels while the blue light passes through unchanged without filtering out other color components, producing a brighter display.
Both systems has a drawback, and that is they rely on blue phosphorescent emitters, which differ from phosphorescent OLED emitters in that fluorescent emitter are only able to emit 25le to generate 25% of the light that phosphorescent emitter materials can.  The physics behind this issue is complex, but if OLED panel producers had the ability to use a blue phosphorescent emitter they would, other than the fact that they are not commercially available, hence the reliance on the lower output fluorescent blue.  Again, the physics behind why a blue phosphorescent emitter is not available is complex, but leave us to say that the higher energy levels of blue phosphorescent emitters causes them to break down more quickly than red or green, and deep blue phosphorescent emitters do not yet have the lifetime needed for commercial use.
There is an alternative, which is a derivative of fluorescent blue called TADF (Thermally activated delayed fluorescence) which improves the characteristics of generic blue fluorescent emitter materials, but they are still on the cusp of having the characteristics needed for commercial display, which leaves both Samsung Display and LG Display to use fluorescent blue emitters and look for ways to improve output until a blue TADF or phosphorescent OLED emitter can be commercialized.  Universal Display (OLED) and a number of other display material suppliers have been working toward the commercialization of such a material, with UDC expecting product by 2024, along with SDC itself, who has license agreements with UDC.  Samsung recently cited its own developments in the development of a blue platinum-based phosphorescent emitter material but gave no timeline as to its potential commercialization or internal use.
Back to the speech given by Samsung Display’s CEO this week…what caught our attention was the reference he made to changing the blue fluorescent emitter material currently used in the QD/OLED process to a blue phosphorescent ar blue TADF material to increase the light emitting efficiency.  This seems to imply that SDC is considering changing the QD/OLED stack with what would have to be a commercial blue emitter that has been developed by a partner or affiliate, which would be a major step forward in the development of OLED materials.  We expect the production of such a material would be done in outside of Samsung itself, which opens the question up as to whether this material will be exclusive to Samsung or whether it will be made available to other OLED producers.  While the advantage to Samsung would be obvious if the IP is limited, the licensing of said IP would allow the OLED industry to progress further, particularly large panel; OLED devices, and would improve the characteristics of both WOLED and QD/OLED, as well as improving small panel OLED displays by increasing their efficiency and reducing power requirements.  While this was a mention in a longer speech, we see it as carrying significant weight toward the commercialization of a blue phosphorescent material.  Only 494 days to wait to see if the prediction rings true… 

​Recent data concerning the sales of OLED materials in 2Q indicated that the industry saw a sales decline of 2.1% from the previous quarter although up 7.8% y/y.  According to UBI, a local Korean Research firm, the three largest small panel OLED producers saw declines in OLED material purchases in 2@, while OLED material for large panel displays remained roughly flat.  In order to validate that data we matched those changes to small panel OLED shipments in our database in the following table:

​According to UBI LG Display’s OLED material purchases for OLED TV production remained flat q/q in 2Q while Samsung Display’s large panel material purchases were up slightly, although considerably below those of LGD’s considering Samsung Display has limited large panel capacity for its QD/OLED displays.  We note that while sales of OLED materials at Universal Display represent only emitter materials, material sales in 2Q at UDC declined by 9.2%, although shipments to Korea (Samsung and LG) declined by 11.8% and to Customer A & Customer B, assumed to be Samsung and LG, declined by 9.2%, while BOE (Customer C) saw a decline of 6.7% q/q.  Note also that units shipped in the table above include small panel shipments only while material purchase ROC is for both small and large panel OLED displays.
While there are a  number of factors, particularly material inventory levels, that would affect OLED material purchases, the overall impact of what was a progressively more difficult quarter for the overall display space, was less so for the OLED display segment, and while we expect that the 3rd quarter will continue the weakness already seen in July for the LCD space, we expect the impact will again be less for OLED producers, especially in light of the build toward the release of the iPhone 14 series.  If you have to be producing materials for the display space, OLED is still the place to be, at least so far.

The CEO of Samsung Display (pvt), affiliate of Samsung Electronics (005930.KS), indicated that it will be building a Gen 8 OLED fab in its production complex in Asan, South Korea, designed for the production of IT OLED panels.  As we have noted previously (8/16/21, 06/30/22,5/26/22), the construction of such a facility has been rumored, particularly as SDC has been developing specialized OLED deposition equipment with tool supplier Ulvac (6728.JP) that will help overcome the physical limitations that restrict the use of fine metal masks to Gen 6 OLED fabs.  Fine metal masks are used to pattern OLED emitter materials on rigid or flexible substrates but begin to sag, causing defects, when they are used above Gen 6.  The new process that SDC is developing places the deposition chamber and the masks vertically, rather than horizontally, keeping gravity from deforming the masks.
We expect the fab will be built in the L8 building, where SDC formerly had two large LCD fabs, producing up to 350,000 sheets/month at its peak, or the equivalent of 25.2m 55” LCD TV panels/year.  SDC closed the first line in 2019, sold the equipment to Chinese LCD module producer Shenzhen Efonlong (pvt), and since built the production line for the company’s QD/OLED display products in that location.  While no specific details about the new fab’s capacity were given, the company is expected to begin production on the new line in 2024, which will improve the efficiency of OLED panel production for IT products (monitors and notebooks), which are currently being produced on less efficient Gen 6 OLED fabs at SDC.  This would coincide with Apple’s (AAPL) rumored plans to move the iPad from LCD to OLED displays in that year.
The OLED IT category is small relative to OLED smartphones, watches, and TVs, but represents a less competitive category and rapid growth. Current estimates see OLED monitor revenue growing from $57m last year to over $200m this year, although that includes QD/OLED and OLED notebooks growing almost 40% in sales y/y and over 60% in units.  The chairman also indicated that SDC would be pursuing two forms of micro-displays, micro-OLED and micro-LED, neither of which comes as much of a surprise considering Samsung’s micro-LED commercial products are already available albeit at extremely high prices.  The indication was that the company will be in mass production of micro-displays in the 2024 year along with the Gen 8 OLED IT line, which musts some significant milestones for SDC over the two years.  While SDC management did not indicate the cost of these projects, the Gen 8 fab alone is estimated to cost between $2.3b and $3b, and we would expect that the OLED micro-displays would be produced on silicon, which would entail a dedicated production line. 
All in, these are big projects but necessary for SDC to maintain its leadership role in the RGB OLED space and compete for micro-LED commercialization with Chinese panel producers, who have also been making such investments.  While 2023 will be a year primarily dedicated to more traditional OLED products, which are increasingly influenced by macro factors, 2024 and 2025 will be years in which SDC is able to expand its display product line, particularly with new premium priced display products that will lessen its exposure to competition from Chinese panel producers.  There are still a large number of roadblocks to overcome but it is nice to have the backing of one of the world’s largest CE companies when it comes to taking such chances.

​LG Display is the world’s only supplier of OLED panels for TVs and has set the tone for large panel OLED products, offering WOLED displays from 97” down to 42”, with flexible, rollable and transparent offering across many of those sizes.  LGD’s TV OLED displays are based on technology that uses a substrate coated with yellow/green and blue OLED materials that produce a white light which passes through a color filter that consists of red, green, and blue phosphors that convert the white light to the colors necessary to produce highly color accurate images.  While this differs from smaller OLED displays that pattern red, green, and blue OLED emitters and do not need a color filter, limitations on the size of RGB OLED displays keeps the technologies from overlapping and given LGD’s experience in producing large panel OLED displays, the competition in the large panel space is limited.
Gamers push the display envelope, looking for larger, faster and more accurate displays, and OLED displays for gaming and monitors have become increasingly popular but at these smaller sizes, the choice of OLED technologies becomes more difficult and with Samsung Display’s QD/OLED the choices become even more complicated.  Small panel OLED producers are looking to find ways to bypass the size limitations of RGB OLED displays while LGD is looking to reduce the size of its displays to further feed the gaming market while still using existing OLED resources.  To that end LGD has indicated that it will introduce a 20” OLED display by the end of this year, which we assume will utilize its WOLED technology, while it works toward the commercialization of an RGB OLED process that is feasible for such panel sizes.  Samsung Display and others are looking to also find ways to bypass the RGB size restrictions to feed such demand but those projects are in the development stage, leaving LG Display’s smaller OLED panel size seeing only minor competition from ink-jet printed panels from JOLED (pvt), which seem to be produced in relatively small quantities.
If LGD is able to produce 20” or 21.5” displays under it current WOLED process it would have an efficiency advantage over those OLED producers that use Gen 6 fab lines as LGD’s large panel OLED lines are based on Gen 8.5.  Not only does this give LGD the ability to produce between 35 (21.5”) and 40 (20”) panels on a single substrate vs. 18 and 21 on a Gen 6 line, giving economies of scale, but also increases the substrate efficiency (the used substrate/total substrate size) from 85% to 93%, and while this doesn’t seem like a big advantage, when multiplied by hundreds of thousands or millions of units, it adds up.
LGD has also indicated that it is working with a customer to design a flexible gaming panel with a curvature that can be adjusted by the user.  This would allow a gamer to adapt the OLED display to the needs of particular games, some of which require extreme focus on the center of the display while others need more peripheral viewing, which would be enhanced by a tighter curvature.  LGD was quick to point out that its WOLED displays, which are based on a single substrate, would be able to provide such a function, while SDC’s QD/OLED displays, which are based on two substrates (OLED and quantum dots) would not.
All in, LGD continues to squeeze as much as possible out of its investment in WOLED which has given it the ability to maintain the massive lead it has in large panel OLED display production, and anything that extends those capabilities should be a plus, but we expect as sizes get down to around 20” the competition from small panel OLED producers will become intense, even if they are less efficient, and by the end of 2023 we expect there will be at least some Gen 8.5 RGB OLED capacity that will compete directly with LGD in that panel size category.  Grab the ring as soon as possible as new contenders are waiting in the wings…

Universal Display (OLED) reported 2Q revenue results ($136.6m) that were down 9.2% q/q but up 5.3% y/y and short of consensus of between $149.6m and $151.2m, with OLED material sales of $71.9m, down 17.1% q/q and down 7.2% y/y, while royalty &^ license revenue ($60.3m) increased slightly (0.8%) q/q and was up 25.0% y/y.  OLED material margin declined slightly to 65.2% while overall margin increased from 78.0% to 80.1%.  UDC lowered their full year guidance from a range of $625m to $650m to $600m single point, with a range of $540m to $660m while guiding material margins to the low end of the previous range of 65% to 70% and OP Ex increase also to the low end of the 10% to 15% previous range.  The ratio between material sales and license/royalty revenue is estimated to be 1.3 to 1 as deferred revenue is recognized from contracts that are near EOL.
From a customer standpoint, we believe Samsung Display (pvt) reduced material purchases slightly q/q while LG Display  (LPL) increased, with royalty/license up on increased unit volumes, while BOE (200725.CH) saw a 6.7% drop in combined sales, and China sales down 7.6% q/q but still up 41% y/y.  While macro issues are certainly in play in China, along with COVID lockdowns, we expect overall material and license revenue to continue to grow as Chinese panel producers, particularly BOE, expand their small panel OLED customer base, despite the occasional bumps.  On an overall basis, while we look specifically at quarterly red and green emitter sales, we feel smoothing the numbers across 6 quarters gives a better understanding of material sales growth by filtering out quarterly ordering inconsistencies.  We do note that raw material inventory levels increased substantially in 2Q (see Figure 2 & Figure 3) although the price of iridium, a metal on which UDC’s phosphorescent emitters are based, seems to have stabilized, however given the 3Q release of the new iPhone line, we expect UDC is making sure they have enough raw material to supply Apple’s (AAPL)  three iPhone display suppliers, all of whom are UDC’s largest customers, which is similar to what occurred in 2Q 2020.
Given the obvious macro issues that are facing the CE space, the weakness in UDC’s sales is not surprising and the days of OLED production capacity growth masking macro or seasonality are long gone, but we do note that revenue across the large panel LCD space declined by 17.6% q/q in 2Q, so a decline of 9.2% would seem to imply that overall OLED growth is still able to provide some protection from the full effects of weakening demand and high inventory levels, while the guidance also implies a bit over 8% sales growth for the full year.  While management looks at the current conditions as short-term, with a strong focus on 2024 when a number of planned OLED capacity additions are expected to come on-line, we expect that a weak 2H and 2023 Chinese New Year might slow those plans.  There are considerations as to deposition equipment ordering, which must be done far in advance of actual production to insure delivery schedules, but even those can slip by a quarter or so if things deteriorate further or Chinese finding becomes more difficult.
There is still considerable play in full-year sales for UDC, although we now expect sales of $597m, which implies hefty 4Q y/y revenue growth of 17.5% and a relatively flat 3Q as Apple releases the iPhone 14 family and a variety of smaller volume but higher surface area products are released for the holidays, with the potential for some of the growth to be pulled into 3Q.  We still believe there is growth in the OLED display space but with the higher macro risk level that comes from a more mature infrastructure and exposure to rising costs.  That said, we believe if there is some degree of safety in the display world, it is in the OLED space and as the primary material supplier to the industry UDC has the most exposure..

​Back in 2015 Japan Display (6740.JP), Sony, and Panasonic (6752.JP) all contributed their OLED businesses to the formation of a combined entity known as JOLED (pvt), with Sony retaining some small panel OLED assets.  The venture was funded primarily by INCJ (Innovation Network Corporation of Japan), a partnership between the Japanese government and a number of major Japanese companies.  INCJ provided 75% of the funding with JDI 15%, Panasonic 5% and Sony 5% with the goal of utilizing Panasonic’s ink-jet printing technology and Sony’s OLED R&D to develop IJP OLED displays, with JDI announcing its intention to increase its stake to 50% in 2017, which unfortunately did not occur due to financial issues at JDI, but JOLED was able to raise an additional $400m in 2018 from a group led by automotive component provider Denso (6902.JP).
JOLED was the first display manufacturer to produce commercial displays using IJP and in early 2018 began shipping what were then high resolution medical displays, followed by a 21” monitor panel for ASUS (2357.TT) and a year later began producing IJP OLED panels from a fab in Nomi Japan and in 2020 TCL (000100.CH) took a 10.76% stake ($280m US) in JOLED in order to license the JOLED IJP technology to Chinastar (pvt), TCL’s display affiliate.   Unfortunately the supply contracts that JOLED has been able to secure have not been particularly large, making it difficult for the company to realize the cost benefits afford to IJP relative to other OLED deposition platforms, and while the company supplied the display for LG Electronica (066570.KS) first OLED monitor,  certainly a feather in its cap considering LG’s affiliate LG Display (LPL) is the premier producer of large panel OLED displays, volumes and yields have not been strong and deal with Lexus (LEXUS.IN) fell through after years of development when the company was unable to deliver product that met specifications.
A recent visit from the chairman of TCL and the announcement that Chinastar and JOLED are sharing IP to develop new products in addition to the 65” 8K OLED ink-jet printed TV that was jointly developed, gives some hope that TCL is serious about maintaining JOLED as a partner and could fund them further if necessary, but whether that means an additional stake in JOLED or a takeover of the entire company by TCL, JOLED seems to be in need of one of two things, financial aid or higher volume orders, and while TCL could certainly provide either or both, would that undermine Chinastar’s OLED efforts, which have been oriented toward developing enough expertise in the OLED space to gain entry into the Apple display supply chain.  We would expect some movement either way by the end of this year.

Back in February (02/23/22 & 02/25/22) we noted that Samsung Display had decided to vary the OLED materials it used to produce displays for the Galaxy S22 series of smartphones, using its M10 materials for the lower priced S22 and switching to the newer M11 material set for the Galaxy S22 Plus and the Galaxy S22 Ultra displays.  While the difference to the average customer would likely be almost impossible to notice, the basis for the divergence in OLED material sets is based on cost, particularly the cost of emitter materials, those that actually produce the RGB light that we see.  The red and green emitters used in OLED displays are produced and licensed to display producers by Universal Display (OLED), while the blue fluorescent emitter materials are produced by SFC (112240.KS) and Idemitsu Kosan (5019.JP).
As we have noted in the past, UDC charges for those materials based on long-term contractual agreements that are based on material volumes, with the price/kilogram declining as volumes reach various trigger points until the reach a ‘terminal’ rate that remains the same for the life of the material.  This implies that ‘newer’ material stacks would be more expensive until the necessary higher volumes are reached, while older material stacks would be less expensive.  That said, this would also mean that Samsung would have to dedicate a particular deposition line to a specific Galaxy S series model so as not to have to change deposition tool settings, and that would only happen if overall model volumes remain high enough to justify dedicating a line to that model, as it does with the Galaxy S series products.
It seems that Samsung Display has convinced Apple that such a split process is also a viable cost savings measure for the iPhone 14 displays it will be producing.  Not only will SDC be using an LTPO (Low-temperature poly-Oxide) backplane that will allow for a higher refresh rate without higher power consumption, but will be using a newer (M12) material set for the display stack for the 6.1” iPhone Pro and 6.7” Pro Max and the M11 material stack for the 6.1” iPhone 14 and the new iPhone 14 Max in order to remain price competitive against LG Display and BOE, who will be supplying displays for the iPhone 14 and iPhone 14 Max.  While SDC is the primary provider of LTPO displays to Apple for the iPhone 14, the company faces considerable price competition from BOE and LGD for the iPhone 14 LTPS models and while the difference in OLED stacks might seem negligible to most consumers, when multiplied across some 80m units that Samsung is expected to supply, it can help to offset the price effect from the lower margins that BOE is likely to settle for in order to develop its OLED display relationship with Apple.