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.

The US International Trade Commission has opened an investigation into claims by Samsung Display (pvt) that alleges a number of device repair companies have been importing OLED displays and components into the US that infringe on four SDC patents.  While there is still relatively little documentation, as the case has yet to be made before an administrative law judge, the concept seems to be that some of the OLED displays being used by the repair companies listed below, violate SDC’s patents, and while it is unclear who produces the OLED displays in question, it is thought that the target of the SDC complaint is China’s BOIE (200725.CH), who has been supplying OLD displays for the repair of the iPhone 12 and 12 Pro, along with some that have made it into Samsung’s Galaxy S Series phones when repaired.
The complaint asks for a General Exclusion Order and a Cease & Desist, with the exclusion order being  a more general ban on the companies indicated and any companies that ‘show similar behavior’, to avoid companies bypassing current trade routes that are monitored, and finding other companies that will help them import the affected items.  BOE has been said to sell displays that do not qualify as primary grade to companies that perform display repairs on a number of products, and with the more flexible repair rules that have become available for Apple products, Samsung Display seems to be looking keep repair shops from replacing Samsung Display screens with those from BOE.
While this could have implications for BOE and potentially raise the cost of repairs, the ITC also considers the impact on the general public and even if the alleged violation proves to be true, it is up to the ITC to determine whether an outright ban would be in the interests of the public, as opposed to the financial benefit of SDC.  The defendants will cite consumer’s rights to repair a device any way they choose, but the typical patent infringement suit would normally take 24 to 36 months before a judgement is obtained, while the ITC usually takes a year to 18 months for such decisions.  Once a decision is made by the ALJ, it goes to the President to be approved, at which point an appeal can be filed in the Federal Court of Appeals, but if the President rejects the decision, neither party can appeal.

• Apt-Ability, LLC d/b/a MobileSentrix of Chantilly, VA; 
• Mobile Defenders, LLC of Caledonia, MI; 
• Injured Gadgets, LLC of Norcross, GA; 
• Group Vertical, LLC of Grand Rapids, MI; 
• Electronics Universe, Inc. d/b/a Fixez.com of Las Vegas, NV; 
• Electronics Universe, Inc. d/b/a Repairs Universe, LLC of Las Vegas, NV; 
• LCTech International Inc. d/b/a SEGMobile.com of City of Industry, CA; 
• Sourcely Plus LLC of Tempe, AZ; 
• eTech Parts Plus, LLC of Southlake, TX; 
• Parts4Cells, Inc. of Houston, TX; 
• Wholesale Gadget Parts, Inc. of Bixby, OK; 
• Captain Mobile Parts Inc.of Dallas, TX; 
• DFW Imports LLC d/b/a DFW Cellphone and Parts of Dallas, TX; 
• Phone LCD Parts LLC of Wayne, NJ; 
• Parts4LCDof Wayne of NJ; 
• Mengtor Inc. of El Monte, CA; and
• Gadgetfix Corp. of Irvine, CA.