​Samsung Display (pvt) has committed to OLED in a big way, ending its many years of large panel LCD production.  The company’s OLED focus has made it the leader in RGB panel production for smartphones, but as OLED became dominant in the small panel market SDC realized that it could not maintain it singular dominance in that space as competition from China increased.  To that end, SDC is building RGB Gen 8.6 capacity specifically designed for the production of larger OLED panels for IT products, such as tablets, monitors, and notebooks.  There are a number of manufacturing challenges that make this expansion more than just adding capacity as the deposition equipment has to be specially designed and processes have to be modified to make such a change, but as is typical of SDC, they are willing to take the risk to become the leader.
China’s leading panel producer BOE (200725.CH) understands that while it continues to produce large panel LCD displays, it must compete directly with SDC in this emerging space and has begun construction of its own Gen 8.6 OLED for IT fab and Visionox (002387.CH), a smaller Chinese OLD producer has begun the planning for OLED for IT capacity.  This leaves one major panel producer, LG Display (LPL), with no announced plans for such expansion, despite its close relationship with Apple (AAPL), who is expected to drive OLED IT demand as it transitions its product line to OLED over the next few years.
LG Display already produces OLED for IT panels on a Gen 6 line and was the first producer to develop the tandem display structure that Apple uses for the iPad, but it does this production on a Gen 6 line, which makes it less efficient than a Gen 8.6 line would be.  This has caused considerable speculation about why LG Display has not committed to building a dedicated Gen 8.6 OLED for IT line to compete with rivals SDC and BOE.  Much of the speculation was based on LG Display’s financial situation, which has been strained over the last few quarters, but with the sale of the company’s LCD fab in China, the pressure has lessened, and the assumption has been that LGD would commit to the new fab early this year.
It seems that this will not be the case if a story out of South Korea is correct, as it indicates that LG Display is actually preparing to do just the opposite.  Instead of adding Gen 8.6 OLED capacity, or adding additional Gen 6 OLED for IT capacity, the information suggests that LGD is actually planning to reduce its existing OLED for IT capacity and convert it to additional Gen 6 OLED capacity to produce iPhones.  The motivation for the change would seem to be Apple, who has seen relatively weak demand for the OLED iPad, which has led to lower utilization rates for LGD at its OLED for IT fab.  In response the story says that LGD wants to convert some of its Gen 6 OLED for IT capacity to iPhone capacity, as it expects to increase3 its iPhone production for Apple this year by almost 17%. 
Such a change would not be cheap as the new iPhone OLED line is expected to cost ~$1.36b US, after LGD spent almost $2.6b US to build the Gen 6 OLED for IT line.  It would also indicate that LG Display does not believe that the demand for OLED IT products will grow as quickly as some predict (OLED penetration into the IT market is expected to reach 2.8% this year and 5.2% next year), essentially betting on iPhone growth and its own ability to capture additional iPhone production share from SDC.  Given LGD’s relationship with Apple, and the fact that Apple has likely financed a portion of LGD’s Gen 6 OLED for IT fab construction cost with pre-payments, Apple would have to sign off on the plan, a tacit agreement as to the potential for a weaker demand picture for OLED for IT going forward.
All in, this is a major decision for LG Display if the story is true, and one that LG Display has been unable or unwilling to make while others have committed.  If LGD decides to reduce OLED for IT and that market takes off it will fall far behind its rivals.  If it reduces OLED for IT capacity and OLED IT demand is less than predicted it will have bypassed months or years of low utilization at a very expensive fab.  No pressure…

The rivalry between South Korean panel producers (Samsung Display (pvt) and LG Display (LPL)) and Chinese panel producers has been ongoing for a number of years as Chinese producers have pushed South Korean producers out of the large panel LCD business.  As it became obvious that Chinese producers had the advantage of significant government construction and operating subsidies, South Korean producers began shifting from LCD display production to OLED production, a relatively new technology at the time.  While Chinese large panel producers eventually won the battle for LCD display domination, South Korean producers went on to establish OLED as a higher quality technology, particularly for small panel displays.  Not to be outdone, Chinese panel producers have been building OLED capacity to challenge South Korean dominance in the OLED space, and while there are a multitude of CE brands that use OLED displays, the top of that list is Apple (AAPL).
Apple’s transition from LCD to OLED starting with the iPhone X, released om November 3, 2017, is expected to continue for the next few years as they migrate much of their product line to OLED.  Samsung Display and LG Display have been the primary small panel OLED suppliers to Apple but are continuingly being challenged by China’s largest panel producer BOE (200725.CH), who has made some inroad with Apple, supplying replacement displays for earlier iPhones and as a 3rd supplier for some later models.  While BOE has had its own issues with Apple, they continue to challenge SDC and LGD, along with a number of smaller Chinese OLED producers, and SDC has gone to the US ITC alleging patent infringement, with BOE, and other Chinese OLED producers (Chinastar (pvt), Tianma (000050.CH), and Visionox (002387.CH)) responding by challenging the validity of those patents in US Patent Court.
As the ITC investigation continues (target date 3/17/25) the patent challenges also continue, and the US Patent Review Board has ruled on one of the 4 patents that Samsung claims were infringed upon.  The ‘683’ patent, filed by Samsung Display on 11/13/17 in the US and 3/6/12 in Korea makes 15 claims concerning OLED pixel structure, particularly Samsung’s ‘diamond’ pixel structure shown on the left side of  Figure 1.  The PTAB has decided that 10 of the 15 claims made in the original patent are not valid, while leaving 5 intact.  Samsung will have the opportunity to appeal that decision. 
Limiting the broad scope of a patent is not an unusual outcome in patent review cases, but narrowing the patent will also narrow the ITC’s investigation scope, making SDC’s case a bit harder, and could open one of the other patents included in the investigation to further scrutiny as it is essentially a continuation of the ‘683’ patent mentioned above.
All in, the validity of the ‘shape’ characteristics of the pixels (polygon, Octagon, or non-quadrilateral) as specified in the ‘683’ patent, remain in effect, which is a key point in terms of the infringement, but spacing between pixels, size, and arrangement, the other ‘683’ claims, are invalidated, reducing the points that SDC can cite in the ITC investigation.  We expect SDC will appeal the PTAB decision, but this ruling and any potential appeal will likely push out the final ITC decision and the battle for OLED supremacy will continue in both the consumer space and the courts for another year.  That’s how lawyers put their kids through college.

[Note: The US Patent Office considers a patent unpatentable when the difference between claimed subject matter and prior art would have been obvious at the time of invention by a person having ordinary skill in the art to which subject matter pertains, where ‘ordinary skill’ means a degree in electrical engineering, material science, physics, or similar disciplines, along with 2 years of professional experience working with display design, including OLED displays or an equivalent level of skill, knowledge, or experience.]

​There are many ways to produce OLED displays. Small OLED displays can be produced using a red, green, and blue stripe to produce a pixel that can reproduce millions of colors. Some create small OLED displays by patterning RGB OLED material dots in a variety of configurations, each with its own positives and negatives, but large OLED displays, such as those for TVs or monitors are another story.  LG Display stacks a number of OLED materials on top of each other across the entire TV and uses a color filter to create colored sub-pixels.  Samsung Display does something similar, but uses different OLED materials and then uses quantum dots to convert the light into colors.
While the techniques for creating small and large OLED displays are different, they both have to compete with other display technologies, particularly LCD and its more recent kin, Mini-LED TV.  OLED TVs tend to have richer colors and higher contrast than LCD TVs but they tend to be less bright than LCD TVs, and are more expensive to produce, so large panel OLED producers are always looking for ways to improve brightness.  There are micro-lenses that can be used to pull more light from the display and dozens of other techniques that will work toward improving brightness, but the most important focus for improving large panel OLED display brightness are the emitting materials themselves.
OLED material producers are constantly working to improve characteristics, and while new OLED materials with better characteristics are always being developed, brightness improvements are often a tradeoff against material lifetime or color accuracy and cost, yet the competitive nature of the display business forces OLED display producers to keep making improvements to counter the competition.  One way of doing such is to use more OLED material.  LG Display’s original WOLED displays were formed of three stacks of OLED materials in layers.  Each stack was composed of blue and yellow/green emitters.  That combination produced white light, which was then passed through a color filter of red, green, and blue phosphors, each removing the opposing colors.  The prolem with this method is that it is subtractive and results is considerably less light reaching the viewer.
Over time a red emitter was added to the stacks to improve the quality of the white light, but in order to maintain brightness after the color filter, a blank space is left on the color filter, allowing a white sub-pixel to be added to each pixel.  While this improved the overall brightness, it also washed out some of the colors.  LG Display has now decided to add a fourth stack to its upcoming displays by separating some of the emittercolors in the stacks into there own stacks.  This concept adds additional emitter material, which adds to the light outrput (brightness) and allows for more control over the ‘tuning’ of each layer.
Samsung Display (pvt) has a different method for producing large panel OLED displays.  They coat the entire panel with OLED emitter materials, in the same way LGD does, but the combination of materials produces blue light rather than white light.  The blue light is passed to red and green quantum dots, which shift the blue light to red and green, and  a space allow the blue light to pass through unchanged.  While there is some loss from the qualntum dot conversion, they convert rather than filter, so a white pixel is not needed and the colors tend to be truer.
That said, LCD displays are based on backlights and OLED displays are self-generating, so regardless of the method used, OLED displays tend to be less bright, and driving them harder with a higher current just reduces their lifetime, so Samsung Display is doing the same thing as LG Display and adding an additional stack of blue  light generating OLED material to its QD/OLED displays, starting with its smaller OLED monitors.  Consumers will benefit from the extra stacks from both producers, as will the OLED material suppliers, although the uptake will not be overnight, however the bigger question will be how the additional stack will affect the price of the displays.  OLED emitter materials are expensive so we expect producers will have to eat the cost at the onset, but if the concept of adding stacks makes enough difference that consumers are more comfortable with OLED, than it will be worth the cost.  We expect the answer will take at least a year to surface, and while the idea of adding stacks might seem nuanced to the average user, if it is able to increase the brightness of an OLED display by 20% or 25%, it will make a big difference in the battle between OLED and LCD over time.

We have read a considerable amount of Chinese tech propaganda concerning China’s push into the OLED display space and how, ‘with hard work and an undying devotion to China’s persistence and manufacturing expertise’, they have unseated the South Korean ‘dynasty’ and are poised to take over the OLED space, and while China’s OLED producers have made considerable progress toward becoming major contenders in the OLED display space, there are some points to be made.

• First, no matter who was the market share (units of dollars) in the early days of OLED display production, they faced a loss of share as others began to enter the niche.  With Samsung the leader in the small panel OLED space, especially the small panel flexible OLED space, the company was bound to lose share over time, which has been the case.  If China’s BOE, Visionox (002387.CH), or Tianma, had been the first to market, they would have faced the same fate.
• Second, on a unit volume basis, Samsung is still the leader in terms of unit shipments for small panel flexible OLED displays. In fact in only one quarter over the last 3 ½ years did Samsung’s unit shipment ratio fall below 2x that of the producer in 2nd place. 
• Third, while panel producers that produce both LCD and OLED displays rarely break out segment profitability, we expect there have been only a few instances when Chinese OLED producers were profitable for two consecutive quarters.  Samsung Display (pvt), at least on an operating basis, has been profitable for the last ten quarters, although we note that what remained of Samsung Display’s large panel LCD business likely had a negative effect on the early quarterly numbers and the most recent quarters would be influenced by SDC’s QD/OLED large panel business to a degree.

All in, yes, Samsung Display will continue to face increasing competition in the small panel flexible OLED space but remains the overall leader.  Perhaps in the future, one or more Chinese OLED producers will overtake SDC in terms of unit volume, but we expect it will be some time before any Chinese small panel OLED competitor becomes more profitable than SDC over more than a quarter or so.  With 1 new small panel OLED fab and three large panel OLED fabs under construction in China (one additional fab in planning stage), and 2 large panel OLED fabs under construction in Korea, it will be a race to see who can fill those fabs profitably, especially given the current weak state of demand for CE products, but we doubt SDC will lose its position as the most profitable small panel OLED display producer in the near-term.

The holy grail in the OLED material space is phosphorescent blue emitter material, with the reason being that in current RGB OLED displays (all OLED smartphones and IT devices but not OLED TVs) the OLED stack is comprised of a Red phosphorescent emitter, a green phosphorescent emitter, and a blue fluorescent emitter.  The nuance between phosphorescent and fluorescent is a big one in the OLED material space as broadly, fluorescent materials generate less light per unit of energy than phosphorescent ones.  By converting the blue fluorescent emitter material currently used in most OLED stacks, to a phosphorescent one, the amount of power consumed by the emitter stack could be reduced by ~25%, an important point for mobile devices, and with numerous labs and companies working toward the commercialization of a blue phosphorescent emitter, the long-term stakes are high.
It seems that the average investor believes that when blue phosphorescent emitter material is commercialized, the winner of the race, whoever that might be, is due to see a windfall in terms of OLED material sales, but while we believe that is the case over time, we are less sanguine about an immediate and significant jump in revenue from blue phosphorescent sales, as both physics and marketing must be figured into such equations. 
There are two factors that come into play when planning OLED pixels.  First is the efficiency of the materials, or their ability to convert electrical energy into light, and the 2nd is the eye’s sensitivity to each color.  If we assume the efficiency of both red and green phosphorescent emitter materials is the same (its not), for both colors to look equally bright to the huma eye, the pixel would contain two times the amount of red material to green material, but in practice that ratio is closer to 2 (red) to 3 (green), and again assuming the same efficiency for blue phosphorescent material, the theoretical ratio for blue would be only 16.3% of red, or 33% of green. So if red emitter cost $1,000 per kilogram (arbitrary price), the theoretical cost of a display that used 1 gram of red emitter would be $1.67, consisting of $1.00 of red, $0.50 of green, and $0.17 of blue, remembering that these are theoretical not practical ratios.
Back to reality, just by looking at a common pentile pixel layout, those ratios are not even close, especially as the efficiency of fluorescent blue (currently used) is considerably lower than that of (hopefully) phosphorescent blue, so ‘more’ fluorescent blue is needed currently to make up for that inefficiency, which leads to the idea that if fluorescent blue is replaced by a more efficient phosphorescent blue emitter, wouldn’t that mean that less blue is needed?  If all were of equal efficiency, yes, but that is certainly not the case with OLED materials. 
OLED material developers must find a balance between three major factors.  Color point (such as deep blue, not sky blue), efficiency, the ability to convert energy applied to light, and lifetime, or how long it takes for the material to degrade to a set point.  Finding a true deep blue phosphorescent material is not an impossible task, but finding one that has a reasonable efficiency is much harder, and finding one that is deep blue, with a high efficiency, but does not degrade in a few hours is very difficult, so material scientists continue to wrestle with materials until the right combination is found.  Even at that point however, we don’t know what the efficiency of this new blue phosphorescent material will be, and that will be a determinant in how much blue phosphorescent emitter material is needed to balance existing red and green phosphorescent emitter materials, which will also determine how much blue phosphorescent emitter material an OLED panel producer must buy when incorporating it in a new OLED display, so the variables are truly ‘variable’.
With all of those physical issues, there is another one as important, and that is the manufacturing cost of this new blue material.  Again, in theory, the amount of heavy metal, in this case iridium, needed to produce the increasingly higher energy levels of green and blue emitters, would make a phosphorescent blue emitter more expensive to produce than green or red, and under the assumption that the cost of raw materials for emitters is ~40%, this does represent a bit of an incremental cost, along with a relatively immature manufacturing process and considerable R&D that needs to be amortized, so the price/kg of a blue phosphorescent emitter is going to have to be higher than red or green.
That said, while the cost of a blue phosphorescent emitter material will be higher than that of a fluorescent blue emitter, less will be needed (in theory) unless the efficiency is low, which will make the changeover less onerous from a total OLED stack cost.  However it is important to understand that the adoption of a blue phosphorescent emitter material will not happen overnight, just as the adoption of a green phosphorescent material took time, as shown below.  While we expect the idea of being able to reduce power consumption by 25% or have an OLED display that is brighter than is currently possible, will be an attraction to OLED panel producers, but implementing new OLED materials into existing manufacturing processes takes time and considerable effort, and could affect yield for an extended period of time.  Typically such a change would be implemented on a single line, so once the new materials are proven, they would be expanded across other lines over time.
All in, while it will be exciting to see a commercial blue phosphorescent emitter material to complete the OLED stack, we hesitate to build in the high early expectations that are typical in the OLED space and take a more conservative view of how such a new material will be adopted.  With Universal Display (OLED) expected to have an all-phosphorescent stack commercially available next year, expectations will be high, but we expect adoption to the levels seen for current red and green phosphorescent emitter materials will take some time and investors should be wary of building in high expectations at the onset.

​eMagin (EMAN) and Samsung Display have announced a merger agreement under which SDC will purchase all of eMagin’s outstanding stock at $2.08, roughly a 10% premium to the closing price on May 16.  This values eMagin at ~$218m.  eMagin has been developing Micro-OLED displays since 1996, with considerable funding from the US military who has used their displays in military hardware, particularly night-vision goggles, and in 2004 released the first consumer-oriented OLED Micro-display that was used in an early Sony (SNE) VR headset.  eMagin, which is based in Hopewell Junction, NY at a former IBM (IBM) site,
eMagin currently produces a variety of full color Micro-OLED displays that range from VGA to 2Kx2K micro-OLED displays ranging in size from 0.47” to 1”.  Samsung’s interest likely stems from eMagin’s dPd OLED patterning technology that is part of its patent portfolio.  The technology allows for RGB side-by-side stripe patterning, rather than a white OLED Micro-display that uses a color filter to create sub-pixels.  Samsung is expected to adopt this type of Micro-OLED display technology in the future, although it will likely initially use the WOLED system until the dPd technology can be scaled to nigh volume production.  Upper management are former Eastman Kodak (KODK) executives who were involved in Kodak’s early work with OLED displays.
While major investors are Vanguard (pvt), Blackrock (BLK) and company management and directors, the largest single shareholder is the Stillwater Trust LLC, whose sole member is Mortimer D.A. Sackler, former (left in 2018) 20-year director of the notorious Purdue Pharma LLC, the developers, and marketers of oxycontin, considered a major cause of the national opioid crisis.  You don’t always get to choose who your shareholders are…
 

​eMagin (EMAN) and Samsung Display have announced a merger agreement under which SDC will purchase all of eMagin’s outstanding stock at $2.08, roughly a 10% premium to the closing price on May 16.  This values eMagin at ~$218m.  eMagin has been developing Micro-OLED displays since 1996, with considerable funding from the US military who has used their displays in military hardware, particularly night-vision goggles, and in 2004 released the first consumer-oriented OLED Micro-display that was used in an early Sony (SNE) VR headset.  eMagin, which is based in Hopewell Junction, NY at a former IBM (IBM) site,
eMagin currently produces a variety of full color Micro-OLED displays that range from VGA to 2Kx2K micro-OLED displays ranging in size from 0.47” to 1”.  Samsung’s interest likely stems from eMagin’s dPd OLED patterning technology that is part of its patent portfolio.  The technology allows for RGB side-by-side stripe patterning, rather than a white OLED Micro-display that uses a color filter to create sub-pixels.  Samsung is expected to adopt this type of Micro-OLED display technology in the future, although it will likely initially use the WOLED system until the dPd technology can be scaled to nigh volume production.  Upper management are former Eastman Kodak (KODK) executives who were involved in Kodak’s early work with OLED displays.
While major investors are Vanguard (pvt), Blackrock (BLK) and company management and directors, the largest single shareholder is the Stillwater Trust LLC, whose sole member is Mortimer D.A. Sackler, former (left in 2018) 20-year director of the notorious Purdue Pharma LLC, the developers, and marketers of oxycontin, considered a major cause of the national opioid crisis.  You don’t always get to choose who your shareholders are…

At the end of last month we noted (4/27/23) that while there was still time for Samsung Display to decide to make its investment in a Gen 8 OLED fab a reality, time was beginning to run out.  It seems that, according to Korean sources, has created an internal organization to begin to execute plans for said Gen 8.6 OLED fab, and has begun to order equipment for same.  The new fab would be oriented toward the production of IT OLED products, with a potentially large consumer company () a likely customer over the next few years, along with parent Samsung Electronics.  When this fab is completed, it will be the first of its kind, producing RGB OLED displays on a substrate that is over double the surface area of the current Gen 6 fabs that are producing RGB OLED displays for smartphones and IT products, giving Samsung Display a volume and efficiency advantage over its competitors.
The project is expected to cost ~$3.1b US, and purchase orders are said to be released this month, starting the construction process, which has been in development for many months.  The heart of the fab will be the deposition tools, which pattern OLED materials on the substrate through fine metal masks.  These tools are typically designed for Gen 6 substrates, so tools for this larger base will have to be custom built, and as we have noted before, there has been some question as to who will be contracted to build such tools.  LG Display has aligned itself with Sunic Systems (171090.KS), but Samsung Display has yet to place an order with Sunic or the market leader Canon-Tokki (7751.JP), who developed a system that can automate a number of deposition functions, including cathode metal and organic material deposition, and encapsulation.  Samsung was said to be trying to negotiate a price that does not include development costs, which Canon wants to include.  Smaller Gen 6 systems start at ~$100m, likely putting the cost of a Gen 8 mass production system between $200m and $250m.

According to sources in South Korea, which does tilt the story a bit, China’s largest panel producer, BOE (200725.CH) will only be supplying OLED displays for one model of the iPhone 15 to be released later this year.  While both Samsung Display (pvt) and LG Display (LPL) will be producing LTPO displays for the iPhone 15 Pro Max and iPhone 15 Pro, BOE is expected to be supplying displays only for the iPhone 15 model, rather than both the iPhone 15 and the iPhone 15+.  Samsung will be taking up the slack with the iPhone 15+.
BOE has had an up and down relationship with Apple (AAPL) concerning OLED displays, with a number of failed attempts to get on Apple’s OLED display provider list, which has been the exclusive territory of Samsung Display and LG Display.  BOE did supply Apple with replacement OLED displays, sort of a test run for inclusion and was able to convince Apple that it had the technical and volume capabilities to supply LTPS OLED displays for the iPhone 13, released in September 2021, and the iPhone 14, released in September of last year, a point that has been emphasized by the Chinese press innumerable times.  That said, BOE made a catastrophic mistake by changing the design of a TFT backplane in order to improve yield, without getting the change approved by Apple.  We assume that the change was made in order to bring yields to levels necessary to satisfy Apple’s demand requirements.  This caused BOE to be put in the penalty box for the iPhone 14, limited to only producing OLED displays for the iPhone 14 6.1” model and that seems to still be the case with the iPhone 15.
It had not been expected that BOE would be supplying OLED displays for the high-end iPhone 15 models (Pro Max & Pro), as they require LTPO backplanes, a process for which Samsung Display has the most expertise and capacity, along with LG Display, who also has LTPO capacity, but it was expected that BOE would expand its OLED display supply to both LTPS models (iPhone 15 and iPhone 15+), which, at least at this time, does not seem to be the case.   
While there is still time for things to change, as production for this year’s iPhone release does not usually start until July/August, there is also the fact that Samsung has warned BOE that it has been infringing on certain of its OLED patents, and while Apple would therefore be involved in an infringement case, if SDC were to bring the dispute to the courts, there is the possibility that Apple has limited BOE’s participation in the iPhone 15 for both reasons..  While we expect the Chinese press will spin the less than expected participation in the iPhone 15 in a more positive light, and BOE could stack the deck a bit by lowering its quote on the iPhone 15+ displays, but Apple has always been a stickler for suppliers meeting their stringent specifications, both technical and volume related, so it might be a bit more difficult for BOE to change the situation that with other customers, but we note that BOE is about as determined to challenge SDC’s and LGD’s OLED leadership as anyone could be and seems to have a massive amount of energy and will toward making its relationship with Apple continue to grow.  Essentially, they don’t seem to take no for an answer and rejection only seems to spark the company to work harder toward achieving that goal.

​Key = Light Blue – LTPO -  Gray – LTPS

We have previously mentioned a potential decision process at Samsung Display (pvt) that needs to be made if the company is to expand its QD/OLED production capabilities at its Asan, Korea fab.  The QD/OLED fab, the company’s first, has a capacity of 30,000 sheets/month, which limits the total available capacity that can be produced for the QD/OLED display product.  SDC has two primary QD/OLED TV panel customers, parent Samsung Electronics (005930.KS), and Sony (SNE), both of whom have active retail consumer QD/OLED TV products .  Sony has two currently available models, a 55” and 65” but withheld new TV model announcements at CES in order to focus attention on other products, while Samsung Electronics has the same size models (2022 series) but has announced it will add 49” and 77” TV models this year.  SDC also produces 34” QD/OLED displays, which are used in an Alienware (DELL) QD/OLED monitor and a 49” QD/OLED display that will be used in Samsung’s upcoming 49” QD/OLED monitor.
Samsung Display has said little about its plans for expansion, after facing serious yield issues in the 1st half of 2022, which limited SDC’s ability to deliver displays to both parent Samsung and Sony.  This led to such a small number of displays being delivered to Samsung Electronics that Samsung was unable to prominently feature the technology in its 2022 TV lineup, and the sets were under promoted for much of the year.  As the year progressed, SDC was able to solve the yield issues and increased deliveries, but the TV environment remained weak, which we believe limited Samsung’s desire to increase marketing dollars and left Samsung Display with questions as to the future of the technology.  Toward the end of the year, SDC’s yield improved to the point that they were able to lower the panel price to Samsung, and there was then a bit of hope that Samsung would more fully back the product in the back end of last year as it made the consumer price point more attractive and boosted sales.
While Samsung nor SDC has revealed how many QD/OLED units were produced and/or sold last year, we expect, while disappointing overall, the price points reached in 2H made the product attractive to consumers and Samsung became more interested in using QD/OLED as a part of its TV line-up going forward, but given that Samsung ships 40m to 50m sets each year, shipments of QD/OLED TVs represented roughly 1% of total shipments, leaving the product in limbo as to its place in the Samsung 2023 TV lineup.  That said, there was considerably more Samsung traction for QD/OLED at CES this year and the company indicated that it would be adding 77” and 49” models to the line this year.  In order to make the QD/OLED product significant enough to take a real place in the TV line, we expect Samsung must be able to bring shipments to between 4% and 5% of total TV units, or between 1.8m and 2.3m units this year.
We believe SDC was able to produce ~1m units last year, although they produced less, and while they have brought yields to over 90%, they would be limited to under 2.2m units at full capacity for the 2023 year, leaving little room for Sony, Dell, and other potential customers, along with safety stock.  That has led us to expect SDC to announce that it will expand production , building out additional capacity, although no such announcement has been made.  However a number of rumors have been circulating in South Korea indicating that Samsung Display will be increasing capacity at the QD/OLED Asan plant from the current 30,000 sheets/month to 45,000 sheets/month during the year, which we assume would be co-located with the existing lines.  Based on our timing and capacity estimates, we believe this will enable SDC to produce ~2.5m units, enough to justify parent Samsung’s increasing product support with a path to a more significant place in the 2024 TV product line
As SDC is currently the only producer of QD/OLED technology, it is up to them to produce quantities that make it worthwhile for customers to support the technology, so SDC must balance the need for capacity against the cost of that capacity and the risk that a weak macro environment will weigh on overall TV shipments this year.  A line-by-line expansion makes considerable sense given that the QD/OLED process is a bit less complex than typical RGB OLED and we assume that there is already sufficient TFT backplane capacity at the existing fab, keeping the cost of the expansion relatively low.  This would imply the installation of a new 15k line, with the major tools being an open-mask deposition tool and QD ink-jet printing capacity that could be fit into the existing fab structure.  While there is considerable conjecture here, the risk of such an incremental expansion is far less than a greenfield project, even if it were done in an idle fab shell.  We expect SDC to say little until such a capacity increase is up and running smoothly, but both the timing and the level of risk fit the parameters necessary to keep the QD/OLED display product line active and growing for SDC.