LG Display (LPL) reported 2Q results of 5.607t won ($4.278b US), down 13.4% q/q and down 19.5% y/y.  Operating income was a loss of 488b won ($372.4m US), the first quarterly operating loss since 2Q 2020.  Gross margins declined from 12.6% in 1Q to 4.9% in 2Q, against 20.8% in 2Q last year as volumes decreased and panel prices declined.  Little in the basic numbers was a surprise although for the first time in the last 4 quarters, the percentage of revenue generated by the production of TV panels increased, although likely as a result of IT panel shipments and prices slowing more rapidly.  On an area basis LG Display saw both shipments and capacity decline, which has been the case since 4Q 2021, with the area utilization rate rising slightly from last quarter’s low of 70.4%.  We note this is not full fab utilization, meaning against the total capacity of the fab, but against the area currently being used.

The company attributed the weakness to soft demand, weak LCD panel prices, and disruptions in the supply chain in China, resulting in lower LCD panel utilization and shipments, although OLED TV shipments were up in the quarter, a ray of hope for OLED emitter supplier Universal Display (OLED) that derives material sales and unit price royalties from LGD.  OLED TV sales were up ~25% y/y in the 1st half, however the company is forecasting that while there will be OLED TV shipment growth in 2H, it will be at a slower pace than in 1H,, likely closer to 13% to 17% as retailers are expected to order more cautiously in 2H.
In that same vein, inventory levels increased in 2Q by 11.6%, which is concerning considering the company is forecasting continued soft demand at both TV set manufacturers and retailers as a result of excessive inventory levels at those points in the supply chain.  The rational, despite the company’s expected further reductions in utilization were based on new model introductions and the potential need for higher inventory levels heading into the holiday build period, although Figure 4 would indicate that such levels are out of line with historic norms, with the company indicating it expects to return to more normal inventory levels by the end of the year.  We expect some of the inventory build in 3Q is related to the company’s display supply contracts with Apple (AAPL) for the upcoming iPhone, but no specifics were given.
Guidance for 3Q was a bit more specific, with area shipments projected to be up between 4% and 6% q/q as IT and OLED shipments recover, and ASPs (Area basis) increase as the share of smartphones and wearables, which carry higher profitability on an area basis, increase in 3Q, but at the same time the company was forecasting IT panel prices to continue to decline and TV panel prices to also continue to decline, but at a more gradual rate as other LCD panel producers continue to lower utilization rates.

As the risk levels for panel manufacturers rises most companies indicate a desire to expand their product lines away from more generic LCD IT and TV panels and to more value-added displays that are both less competitive and carry higher margins, and LGD indicated the same mantra, with a focus on expanding its already market leading automotive display penetration while increasing both its OLED TV penetration rate and expanding what it calls a ‘made to order’ business, which we assume to mean more product co-development with large customers. 
Much of this is the same corporate speak that appears when the macro environment begins to sour, and should be addressed more closely when things are going well, but LG Display, along with Samsung Display (pvt) has been in the camp of winding down its large panel LCD production for the last few years, although at a much slower pace than their rival.  This brought up the question of the company’s plans for that process, with LGD being a bit more open about plans for their LCD large panel business.  The company’s largest production line known as P7 is a Gen 7.5 a-Si LCD line that was built to produce 225,000 sheets/month.  The company has already brought capacity down to 150,000 sheets and plans to reduce that by another 60,000 during 2H and another 30,000 in the 1st half of next year.  The original plan was to end all production by the end of next year but the company has indicated that they will likely accelerate that process now that large panel prices have been declining.
While we understand that LGD has supply contracts with customers that it must fulfill, and certainly does not want to maintain fabs that run at a small portion of stated capacity, we have been surprised as to how long it took for the company to make the decision to accelerate the wind-down process, with the company stating that the fab had been running at high utilization rates, but as of last July (2021) large panel prices began to decline at a rapid pace and it seemed inevitable that the high utilization rates of 1H 2020 were not sustainable, at which point the push to cut large panel exposure should have been made.  The company did indicate that its Gen 8 fab in Guangzhou China will not be closed but will be converted to the production of smaller IT panels, rather than larger TV panels, for which 10% - 15% has already been completed, with the remainder by the end of 2H next year, which will reduce the company’s exposure to large panel production by 40% (their number).  Other company fabs in Korea, which are Gen 5 and Gen 6 are already oriented toward IT panel production.  The company indicated that the profitability of its IT panel production declined in 2Q but saw less impact than the overall market due to its focus on high-end products.
While the question was asked about plans for expansion of the company’s OLED TV capacity, no answer was given other than the general reference to the development of new OLED oriented products (including automotive), but more importantly when asked about the on-again off-again negotiations with Samsung Electronics (005930.KS) concerning that company’s purchase of multiple millions of OLED TV panels, management indicated that such negotiations had taken place but there was nothing in progress, followed by the more general comment that the company would negotiate with any major customer ‘as long as they recognized value’, which would seem to indicate that price negotiations between the two did not end well.
The circumstances under which panel producers such as LG Display had to operate in 2Q were difficult, but not unexpected and we are always surprised at how slowly pane producers react to what seemed an inevitable conclusion as to panel prices, both TV and IT, and now that the inevitable has occurred panel producers seem a bit surprised at how rapidly things deteriorated, although few were complaining when pane prices were rising rapidly and hitting unprecedented heights.   Now it seems everyone, LGD included, have gained ‘religion’ and are looking at a more conservative approach to production and longer-term plans.  Of course it is easy to me an arm-chair quarterback but there is one consistency in the CE space and that is history repeats itself, so when things like prices get far out of line with historic norms, the elastic band always snaps back, so we wonder if those being ‘snapped’ really thought things were really at ‘a new normal’ or they just did not want to think about anything other than near-term prospects.  Its actually not that hard to answer.

The smartphone market has been relatively weak this year, with optimistic shipment targets made late last year being trimmed so far this year.  There has been little hope that sales will pick up appreciably, outside of seasonal norms in 3Q and 4Q, other than Apple’s (AAPL) iPhone 14 family release in mid- September, and that could be delayed a bit if there are problems with logistics.  Typically (5 year average) smartphone shipments increase ~1.1% in 2Q and 13.5% in 3Q, and while much of the hard shipment data for 2Q has yet to be published, early estimates are that shipments are expected to decline ~3.0%.  3Q however is more of a crapshoot (non-technical term for statistical anomaly)) as the typical 3Q q/q gain is 13.5%, which, given the macro environment, might be a bit difficult for the industry to meet, especially given the higher than normal inventories plaguing a number of CE product categories.
In the past OLED based smartphones have defied broader growth patterns for the broad smartphone market as share grew, but with OLED smartphone share reaching ~43% last year and continued share growth this year, OLED smartphones are mainstream and face macro challenges similar to those for LCD smartphone displays.  This is made more understandable considering that the competitive nature of the OLED display space continues to increase with Chinese small panel OLED display producers pushing to gain share to prove their worth in the overall display market, as they have done in the large panel LCD space and Chinese rhetoric about how they are challenging the dominance of South Korean small panel OLED producers Samsung Display (pvt) and LG Display (LPL) with a bent toward the goal of ‘world dominance’.
As we have previously noted, South Korean small panel OLED producers have a number of advantages over Chinese small panel OLED producers, primarily the production experience that comes from 15 years of small panel OLED fab operation and a broad supporting infrastructure, while Chinese players began what would barely be called commercial production 9 years ago.  That said, Chinese small panel OLED producers do have one large advantage, and that is capital, which despite questionable operational profitability (without subsidies), seems to be readily available to OLED producers for expansion and to make up operational shortfalls.  The expansion capital has allowed Chinese small panel OLED producers to add considerable capacity over the years as seen in Figure 2, and without question we expect Chinese small panel OLED producers to eclipse South Korean capacity some time over the next 2 – 3 years.
That said, while the numbers would indicate that Chinese small panel OLED producers can take over the lead position in production capacity from South Korean rivals, there are missing factors in Figure 2, and those are utilization and yield.  Given Samsung Display and LG Display’s long-term small panel OLED production experience, they maintain high yield ratios, and while they vary according to how long a product has been in production and the complexity of the display, we believe South Korean small panel producers maintain higher yields than their Chinese rivals and are therefore able to produce more sophisticated small panel OLED displays.  While such sophisticated displays carry a higher profit margin, the market for same is smaller than that of more generic small panel OLED displays, which theoretically should lead Chinese small panel OLED producers to higher utilization rates and higher unit counts, however this is not the case based on our data, and even with China’s largest OLED producer BOE (200725.CH) becoming part of the Apple iPhone OLED display supply chain, utilization rates at Chinese small panel OLED producers remain low, and given the weakness in the overall smartphone market, we expect relatively low utilization rates to continue into 3Q for most Chinese small panel OLED producers.
We expect composite small panel OLED demand to be up 8.7% q/q, but down 1.8% y/y, with only 4 of 8 smartphone brands (including ‘other’) seeing an increase q/q, with Apple the greatest increase based on the iPhone 14 estimated release dat.   We do expect declines in small panel OLED displays from Huawei (pvt), Oppo (pvt), and Vivo (pvt) in 3Q, which would affect production at Visionox (002387.CH) and Tianma (000050.CH), while any Chinese branded smartphone order reductions at BOE will likely be offset by production for the iPhone 14, for which BOE is expected to produce 5m units.  To put that in perspective BOE has been producing ~15m small panel OLED units on average, for the last 6 quarters, with SDC and LGD expected to produce 60m and 25m respectively, based on a 90m order from Apple, which seems to be the latest estimate.
While we are certainly not denigrating the competitive threat to South Korean small panel OLED suppliers from Chinese suppliers, we point to the fact that even with BOE’s participation in the iPhone 14, Chinese small panel OLED producers have maintained a relatively stable supply share of ~23.6% (6 quarter average including 2Q/3Q forecasts) while South Korean producer share has averaged 76.4% over the same period.  Given our expectations for 23.2% and 76.8% respectively for 3Q, we see little change over the average.  As we noted above, we do expect China’s small panel OLED share to increase as their capacity and experience grows, but we are far more willing to accept that change when factoring in utilization, yield, and profitability and given how rapidly the technology seems to be changing, we expect it will take more than subsidies and capacity for Chinese small panel OLED producers to overtake South Korean suppliers in the near to mid-term.  After that, it’s anybody’s game…
 

​The headlines in a South Korean tech paper indicated that a research firm had discovered that Samsung Electronics (005930.KS) was selling its 65” QD/OLED TV (S95B) at a price $200 below that of its main competitor LG Electronics (066590.KS) 65” W-OLED TV (Model G2), which would imply Samsung is willing to keep this new technology priced as a direct alternative to LG’s OLED TV products, regardless of how LG prices its comparative products.  With the original 65” QD/OLED price of $3,000, Samsung has already reduced the price, which remains at $2,600 on their website and within a few dollars of that more major retailers.  That said, we did find one on-line vendor that was offering the unit for an unusually low price of $2,049 out of Hollywood, Florida, although neither sales nor support lines seem to be working.
While we do expect that Samsung will try to remain competitive with LG’s OLED TV offerings with LG’s G2 series priced at $1,999 (55”) and $2,599 (65”), we were unable to find the offer mentioned in the trade press, although we expect there will be a few ‘door buster’ type sales over the next few months that might get the price a bit below the LG range, but we expect Samsung has built-in some substantial controls as to how the QD/OLED TVs are priced in order not to create unfair competition between vendors.  We believe it is frowned upon for brands to officially lock retailers into a price but we know of a number of instances where large brands have castigated those who beak the ‘suggested’ price points.  We do expect that Samsung will have some room to lower QD/OLED prices as it improves yield, and we would expect the company is still experimenting with how it is going to present the new technology from a pricing standpoint, so there might be a point where Samsung is willing to sell for little or no margin to make sure it sells out the targeted number of units before year end.  We are still watching…

​According to Korea’s ETNews, Apple has confirmed that the rumored OLED iPad will be released in 2024.  Apple and suppliers have been producing prototype of the device to make sure that the OLED displays can scale to while still meeting Apple’s specifications as the OLED iPad, should it be similar in size to the current model, would have a screen with almost 3x the size of an iPhone.  With sales in the 50m to 60m range, a mistake on the company’s first OLED base iPad would be quite expensive and damaging to the company’s reputation and the extra time the company is taking to make sure things are right is similar to how the company worked through the iPad OLED conversion years ago, which was slower than most major smartphone brands and started with one model, eventually expanding to the entire iPhone line.
There is still considerable speculation as to who will be supplying the displays for the OLED iPad with Samsung Display and LG Display in primary contention, with both indicating potential capacity expansion plans geared toward producing larger OLED panels on Gen 8 substrates rather than the more typical Gen 6, which would lead to more efficient processing.  China’s BOE is also angling to make its way further into Apple’s display supply chain, although the company is still behind SDC and LGD in terms of producing acceptable yields on LTPO displays, which have been the backplane technology of choice for Apple’s high-end iPhone models.  With the iPad typically being released in September, BOE and potentially others, will have a bit over a year to supply Apple with additional prototypes and gear up production, but it will be difficult for new fabs to be built and tested in that time, so we expect the first round of OLED iPads will still be produced o Gen 6 lines with the possibility that there will be more than one supplier, even if there is only one OLED iPad model in the 2024 year.
 
 

​Way back in February 2020 we noted that Samsung Display (pvt) had been evaluating ink-jet printing equipment from a number of suppliers for use as part of the development of the company’s QD/OLED process, which has recently become available for TV and monitor panels.  The ink-jet process was expected to be used for depositing quantum dots that convert the blue/green OLED materials to a full RGB pixels, and, as is the case in other OLED manufacturing, to encapsulate the OLED materials to protect them from exposure to damaging air and water vapor.  As the encapsulation process is one where a large swath of raea is covered with organic and inorganic materials, the IJP technology used is less advanced than what is necessary for the more precise placement of quantum dots, which must be precisely registered with the emitting OLED materials and the TFT below.
SDC was evaluating IJP tools from Kateeva (pvt) the leader in encapsulation IJP but chose tools made by SEMES (pvt), a Samsung affiliate, despite what we believe was data that indicated that the Kateeva product was the superior choice.  While we speculated that SDC was helping to bail out SEMES, which was seeing its LCD tool business decline as SDC wound down its large panel LCD production business, at the time we could only cite 2nd hand data.  SDC’s choice caused significant disruptions to Kateeva, who had produced working tools with the hope of recovering pre-order costs from SDC, and the company had to reduce its staff by over 50%, and refocus its attention on potential Chinese customers for its encapsulation IJPs.
It seems that HB Solutions (297890.KS) invested $13.5m in Kateeva earlier this year after it was thought that Samsung Display will be using Kateeva’s ink-jet printers for the potential expansion of its QD/OLED production line, after experiencing problems with the SEMES tools, with Kateeva collateralizing a number of its South Korean patents to secure the loan.    HB Solutions is also said to have purchased rights to additional Kateeva patents in the US, although those might be subject to the preferential rights of another purchaser.  HB Solutions would be the end supplier of the IJP tools to SDC, with Kateeva the actual source of the IJP tools.
As there have been a number of delays in the development of the QD/OLED process by SDC, with questions still remaining about how well the product is being accepted by consumers and parent Samsung Electronics’ (005930.KS) commitment to the QD/OLED product line, the pressure is on Kateeva to secure the hard orders for the equipment to maintain it ownership of its IP.  As we have noted yesterday, Samsun expanded its QD/OLED marketing footprint, and while we are want to take this as a positive sign toward the QD/OLED product line, the macro environment is such that a delay in stepping up production capacity at a 2nd QD/OLED fab could push what we originally though would be an end-of-2Q decision further down the road, putting even more pressure on Kateeva.  Hopefully the long-term picture for QD/OLED at Samsung Display will take precedence and a decision (including Kateeva’s IJP) will be forthcoming, but the heat is on once again at Kateeva. 

​In our 8/16/21 note we indicated that Samsung Display (pvt) had been developing an alternative method for the deposition of OLED materials for RGB displays.  The process involves both shifting from Gen 6 substrates (which are typically used for small panel and IT OLED production, to Gen 8.5 substrates, which are typically used for larger TV size panels.  The reason for the research is that as current deposition systems are horizontal, the masks are affected by gravity causing them to sag as they get larger which has limited their size to Gen 6 when producing RGB OLED displays.  SDC is working with tool vender Ulvac (6728.JP) to develop a deposition tool that is vertical rather than horizontal, eliminating the potential gravitational mask sag issue, allowing the tool to process larger Gen 8.5 substrates.  If successful, it will give SDC a cost advantage over other OLED producers when producing IT RGB OLED displays, such as those for laptops and monitors. 
We would expect SDC to convert existing Gen 8 LCD capacity to this new process, as the TFT portion of the display process would be quite similar to what had already been in the LCD fab, which would save considerable time and cost, but at the time of our note, much depended on whether the technology was viable and cost effective.  We expect that SDC has decided that the technology is viable but has yet to decide whether the process is cost effective, with a large portion of that cost being the Gen 8.5 vertical deposition tool designed by Ulvac.  Typical Gen 6 OLED deposition tools range from $350m to $400m with Ulvac asking for $540m to $617m for the new tool, which is far above SDC’s $309m offer.  SDC is saying that they are currently the only buyer of the tool and that Ulvac has yet to complete the final version, while we expect Ulvac is building in a premium to cover sunk development costs, the larger format, and the fact that no other manufacturer has made such a tool.
We expect SDC is not betting the ranch on the Ulvac tool and is likely looking to Canon-Tokki (CAJ), the company with the largest OLED deposition tool base, for an alternative, although we expect the tool development process is further along at Ulvac, but SDC is likely looking to get the new fab in place in time for Apple’s (AAPL) OLED iPads, which are expected in 2024.  SDC could produce such OLED displays on existing Gen 6 production lines, but would have little cost advantage over LG Display, who will be competing for the Apple business, which is why we expect a decision to be made within the next 30 to 60 days.

Over the last few years we have mentioned the development of TADFs (Thermally Activated Delayed Fluorescents) as complementary to or as an alternative to fluorescent and phosphorescent OLED emitter materials.  Given that TADFs are based on fluorescent materials, which are relatively inexpensive but exhibit a number of the more desirable properties of more costly phosphorescent OLED materials, they have been the subject of considerable research in the OLED material space since the early 2000’s, particularly at the university level, with the objective of designing less expensive alternatives to the red and green phosphorescent OLED emitter materials that are used in OLED displays currently.
In order to produce the light necessary for an OLED display, electrons in the emitter material absorb electrical energy which pushes them from what is called a ground state (it is easiest to think of it as an orbit around a planet) to an excited state (a higher orbit).  These excited electrons quickly fall back to their ground state but give off the electrical energy they absorbed in the form of light, essentially converting the electrical energy that you supply when you turn the display on, into the light you see on the screen, with the composition of the emitter material determining the color of the light.

​Here’s where it gets a bit more complex…  When the electrical energy is applied to that electron and it moves to an excited state that change can happen two ways, as a singlet or a triplet, with the technical difference between the two not germane here, but phosphorescent OLED materials produce triplets which have considerable higher efficiency when converting electrical energy to visible energy (light).  This makes phosphorescent OLED materials the preferred choice for display manufacturers.  However there are some drawbacks, the first of which is such phosphorescent emitters are only available in certain colors, with blue the exception, so in order to create an RGB (Red, green, blue) display, a less efficient fluorescent blue emitter must be included, which means a less efficient combination of materials and the potential for the materials to age at different rates.
Without going into the details of why creating a phosphorescent blue emitter has proven difficult, we leave it to say that material scientists have been working toward improving the efficiency of blue fluorescent materials for many years, which is where TADFs and Cynora (pvt) come in.  One technical detail of the difference between fluorescent and phosphorescent emitters is that the jump up to an excited state and the subsequent return to ground state in fluorescent emitters is rapid, while in phosphorescent emitters (triplets) it is relatively slow, which makes phosphorescents more efficient in converting electrical energy into light energy.  TADFs take the rapid fluorescent singlet reaction and slow it down (hence the ‘delayed’ in the name) to make them more efficient, giving the potential for TADFs to be used as a more efficient blue emitter when paired with phosphorescent red and green emitters.
This has been the objective of Cynora and a Japanese company Kyulux (pvt), who have been working toward the development of a blue TADF for a number of years, along with a vast group of universities and R&D arms of companies in the display materials business.  Unfortunately such development has proven more difficult than might have been originally thought and while there have been blue TADF materials released commercially, they have not been able to meet all of the characteristics needed by OLED display manufacturers.
Heretofore we have only mentioned OLED material efficiency, but commercial OLED emitter materials must meet a number of other characteristics, all of which are a sort of balancing act between efficiency, material lifetime, and color point, as each fluorescent, phosphorescent, or TADF material is trade-off of the three.  We have seen highly efficient blue phosphorescent OLED emitters that would certainly meet commercial requirements in that category, but had lifetimes that were not commercially viable, and we have seen efficient blue phosphorescent emitters that had longer lifetimes, but were not the deep blue necessary for commercial displays, so Cynora and other TADF developers have been competing with phosphorescent blue developers to hit that magic combination of all three characteristics that would push a new material into true commercial production.
If Cynora has not been able to produce the perfect blue TADF iteration, why would Samsung Display (pvt) , an affiliate of Samsung Electronics (005930.KS), and investor in Cynora, want to pay an estimated $300m (no confirmation on price has been noted) for the company, especially as it seems the company had been reducing its staff over the last few months?    We believe there are a number of reasons, the first of which is IP.  Cynora has filed or been granted over 600 patents, much of which relates to the development and application of TADFs, with an emphasis on blue.  Even if Cynora was unable to meet its goal of developing a commercial blue TADF OLED emitter material that offered better characteristics than existing fluorescent emitters, they have done very extensive work toward that end, which makes that IP valuable, particularly to Samsung Display, the leader in the RGB OLED space.  LG Display (LPL) was also an investor in Cynora, which means that SDC’s purchase would also force other OLED producers, including LG Display, to license any TADF IP that was developed by Cynora if it predates new material TADF discoveries and would give SDC a cost advantage if such materials became commercially viable.
We expect that while Cynora has sold relatively small amounts of various materials, their last funding round was in May of 2019 and were likely facing the prospects of a need for further financing, given a staff of ~120.  At the time of the 2019 financing the company’s CEO was replaced, likely to refocus the company toward a more financially viable commercial timeline.  Our history with the company has consisted of a number of meetings over the last seven or eight years where timeline estimates tended to be pushed forward, so we would expect that initial and early investors (2010 and earlier), might be looking for a way out of what has become a longer-term investment than originally thought.  While we have looked at a number of Cynora’s patents, we expect SDC has done a deep dive into the value behind the company’s IP in order to value the only part of Cynora that SDC seems to want.  If SDC is able to monetize that IP then the transaction will make sense, otherwise it seems to be a protective move to keep any hidden potential out of the hands of competitors and to bail out the company’s venture investment.

Smartphone shipments have been weak and estimates for full year mobile shipments have been slowly declining as expectations for 2Q smartphone shipments, particularly in China, are not expected to see much of a recovery, other than modest seasonal improvement from the low in February.  As can be seen in Figure 1, in years prior to COVID-19, there was a steady build toward the 4th quarter shipment peak, which was interrupted in 2020 with the onset of the virus, and boosted in 1Q ’21 as some COVID restrictions were lifted as vaccination programs began to take hold.  This year however, there has been no return to a more normalized pattern, assuming 2Q estimates are correct, as the COVID lockdowns in China and the war in Ukraine, coupled with global inflation pressure consumer spending power. 
While Chinese smartphone shipments seem to be settling into a new, lower level, 5G has resumed its growth path and reached 85.1% of smartphone shipments in May, the highest level ever recorded, and 5G unit volume has returned to more normalized levels after a weak February, even as the number of new 5G models released in May declined.  We expect 5G share in China to remain above 80% for the remainder of the year.
In the past OLED displays were reserved for high-end or flagship smartphone models, given their high contrast, response time, and color stability, but as RGB OLED process technology became more adapted to mass production, OLED displays have been made available to a wider variety of smartphone models, with 43.8% of smartphone models released this year (YTD) with OLED displays, ahead of 2021’s 40.1%, and 2020’s 34.1%.  The premium status garnered by OLED displays in smartphones has made shipments less vulnerable to the ups and downs of shipments in the broad smartphone market, but as that share increases OLED displays are beginning to exhibit the same supply/demand characteristics as the mobile LCD display market.
A portion of that increased volatility comes from the inclusion of Chinese small panel OLED producers, with much being said, particularly in the Chinese trade press, about how Chinese small panel OLED producers are challenging South Korea’s dominance in the small panel OLED space.  Of course, Chinese small panel OLED producers have made inroads, particularly as smartphone brands look to find ways to gain leverage over Samsung Display (pvt), who is the absolute leader, and local Chinese smartphone brands look to local suppliers whenever possible, but as seen in Figure 4, South Korea’s regional share in the small panel OLED display market remains above 75% and defined further in Figure 5.  We are certainly not saying that Chinese small panel OLED producers are not making headway, but while on a percentage basis y/y shipment growth by Chinese small panel OLED producers has been impressive, the overall shipments are still small relative to Samsung, and if the last few quarters are any indication of what is to come, Chinese small panel OLED producers face the same seasonality and customer issues that South Korean producers face.
China’s BOE (200725.CH) has been expanding its small panel OLED capacity over the last two years and has become part of the Apple (AAPL) OLED display supply chain, which has been exclusive to Samsung Display and LG Display (LPL) in the past.  The path has not been an easy one for BOE, as we have outlined in a number of notes, but they have made it to the Apple iPhone platform, which is an accomplishment in itself, while other Chinese small panel OLED producers remain closely tied to local smartphone brands.  We expect Apple to utilize BOE as a tertiary supplier through 2023 as BOE must prove itself to be both reliable in terms of volume and in terms of panel consistency, issues that both SDC and LGD have faced at times.
All in, we expect growth to continue at Chinese OLED suppliers, and with BOE’s potential feed into the iPhone 14 build, the overall Chinese share will increase, but both South Korean small panel OLED suppliers, particularly SDC, have continued to invest in technology over capacity in the OLED space and that has been the one factor that keeps them from the rapid share loss that some predicted.  As the small, panel OLED display space matures further, we believe that Chinese small panel OLED producers will need to spend more on technology development in order to compete on the same level as SDC and LGD, while still increasing capacity, which will push the need for financial support higher, without the ‘automatic’ growth OLED has seen in the past.  The strong customer base that South Korean OLED producers have developed over the years, while certainly not immune to seasonality and macro factors, will allow them to hold onto premium product oriented customers, while we expect Chinese OLED producers will take the same path as they did in the LCD business, that of more generic suppliers, and while that will likely lead to more share gains over time, we expect it will prove hard for Chinese small panel  OLED producers to unseat the incumbents.

On a general basis, displays tend to be a palette for images, video, text, and live action but a subset of displays does something different, they allow you to not only see the image on the display but also to see what is behind the display.  These transparent displays have been around for over a dozen years, based on a number of technologies, primarily LCD and OLED, and have a number of uses, primarily in the retail genre as digital signage that allows the user to see through the display to the products behind it.  While the transparency of the display is a function of how the pixel structure is arranged, transparent displays tend to be a trade off against display quality, which makes them less than perfect for applications where image quality is of the essence.
Applications for transparent displays outside of retail are few, and while HUD (Heads Up Displays) are often mentioned, projectors are often used as an alternative to physically transparent displays.  As OLED displays are made of extremely thin layers of materials, some of which are transparent, much has been said as to their ability to be used to produce transparent displays, particularly large transparent displays, and LG Display , the only commercial producer of large panel OLED displays, has been promoting the idea of transparent OLED displays for a number of years and recently they have tried to exemplify the concept by installing 38 55” transparent OLED displays at what is called a ‘futuristic’ new bakery in South Korea.
With displays at the entrance to the store, on the walls, and between the baking areas, the installation is said to be the largest use of transparent OLED displays to date and creates a ‘futuristic’ look while allowing customers a view of new products.  We are not sure how necessary it is to customers to see videos and messages about the products being produced while looking directly at the bakers producing them, or why it is necessary to use a transparent display when it is mounted against a wall, but we understand that the promotional value of the store is more likely the goal, rather than the practicality of the system.
There are a number of uses for transparent displays, such as AR, where a small transparent display could act as the ‘glasses’ in a headset while images are added to the user’s visual field, but we see the sacrifice in quality from the transparency a stumbling block to such a use, especially when micro-projectors are able to put a video image directly on the eye of the user.  However the ideal application for transparency would be for lighting, where not only would a large transparent window panel would allow light to enter a room during daylight hours but could become a source of light during the night.  In such an application cost would be the mitigating factor, but such an application strikes us as far more practical as the transparent TV screens we have seen demoed, which seem to be a technology looking for an application.
All in, the idea of transparent displays certainly has technical merit, but we see little value in such splashy displays to promote the concept.  There are certainly public display applications where a transparent display would be less obtrusive than a non-transparent one, but installations such as the one in the images below, or those we have seen as a replacement for subway car windows seem to be a major stretch and just overkill in a world where overkill in advertising is a way of life. 

​Despite the reductions in forecasts for OLED unit volume this year, in the wake of rising inflation and China’s strict COVID p[policies, it seems that if you want to build out your OLED display business, you still have access to capital, and in this case it is not coming from the Chinese government.  LG Display (LPL) has announced that it has received $1b in funding for the expansion of its small panel OLED assembly manufacturing facilities in Vietnam, a part of its expansion plans that will facilitate a greater product flow to Apple (AAPL) and includes the expansion of small panel production lines at its plant in Paju, South Korea, a $2.5b project overall.  Funding, by way of long-term loans, was provided by Australia & New Zealand Banking Group (ANZ.AU), HSBC (HSBC), Citibank (C), and Caixa Bank (CABA.SM), with guarantees by the Korea Eximbank (state), Korea Export Insurance Corp. (state). 
 LG Display currently provides both LTPS and LTPO OLED panels to Apple for the iPhone 14 series, but faces competition from leader Samsung Display (pvt) and more recently from China’s BOE (200725.CH), who entered the iPhone supply chain last year after a number of failed attempts.  Since then BOE has been said to have been awarded a share of the iPhone 14 LTPS display production but more recently has been said to have been put on hiatus from Apple’s OLED supplier list after the company allegedly made changes to a display design without consulting Apple.  LGD is also looking to secure a place as a supplier of larger OLED displays to Apple and is developing production capabilities to that end as Apple is expected to continue to move its display procurement from LCD to OLED over the next few years.