LG Display to Expand OLED TV Production in China
LG Display (LPL) is the de facto leader in the production of OLED TV displays and has been so since Samsun Display decided to opt out of large panel OLED display production in 2015. LGD has large panel OLED production fabs in Paju, Korea and more recently in Guangzhou, China and has continued to add production capacity as it increases it OLED TV panel targets each year. While parent LG Electronics (066570.KS) is their biggest customer, LGD has expanded its customer base to include over a dozen TV brands, with more added each quarter. LG Display is expect to ship between 7m and 8m OLED TV display units this year, up from over 4m last year as the Guangzhou fab reaches full capacity and increases yields.
That said, we have noted that as LGD adds customers their existing capacity continues to tighten with sales more likely limited by capacity than demand. To that end, when LG Display built the large panel OLED fab in Guangzhou, while it built two 30,000 sheet/month lines, it not only left physical room for expansion but also installed equipment for oxide back plane capacity in excess of what was them current production levels. That equipment is installed, and along with a shorted tact time on key deposition tools will allow the fab to increase production capacity from 60,000 sheets/month to 90,000 sheets/month, increasing the company’s ability to meet expanding customer demand.
What makes this expansion unique is that the cost will be minimal as new deposition tools are not expected to be required and much of the TFT line is in place, albeit not operational. We question when depreciation on the TFT line might begin based on Korean tax law, but the important fact is that LGD will incur little expense and considerable revenue from the capacity expansion, which is said to be starting in July. The original plan for the fab was for the expansion to begin last July, but a delay in the plant’s original start-up and the effects of COVID-19 have pushed the expansion out by one year. As LGD has been producing at the Guangzhou fab for a bit under two year, we expect the new line to come up quickly, especially as much of the equipment is either already in production or has been fully integrated to the fab, so we have little change to our LGD capacity timeline, which assumed a June capacity expansion, and while size mix will still be a factor in total unit volume this year, we expect the new capacity will help LGD to meet its unit volume goals this year, and will benefit key suppliers, particularly Universal Display (OLED) who both sells OLED materials to LGD but also receives a royalty based on the unit price of displays leaving the LGD fab.
That said, we have noted that as LGD adds customers their existing capacity continues to tighten with sales more likely limited by capacity than demand. To that end, when LG Display built the large panel OLED fab in Guangzhou, while it built two 30,000 sheet/month lines, it not only left physical room for expansion but also installed equipment for oxide back plane capacity in excess of what was them current production levels. That equipment is installed, and along with a shorted tact time on key deposition tools will allow the fab to increase production capacity from 60,000 sheets/month to 90,000 sheets/month, increasing the company’s ability to meet expanding customer demand.
What makes this expansion unique is that the cost will be minimal as new deposition tools are not expected to be required and much of the TFT line is in place, albeit not operational. We question when depreciation on the TFT line might begin based on Korean tax law, but the important fact is that LGD will incur little expense and considerable revenue from the capacity expansion, which is said to be starting in July. The original plan for the fab was for the expansion to begin last July, but a delay in the plant’s original start-up and the effects of COVID-19 have pushed the expansion out by one year. As LGD has been producing at the Guangzhou fab for a bit under two year, we expect the new line to come up quickly, especially as much of the equipment is either already in production or has been fully integrated to the fab, so we have little change to our LGD capacity timeline, which assumed a June capacity expansion, and while size mix will still be a factor in total unit volume this year, we expect the new capacity will help LGD to meet its unit volume goals this year, and will benefit key suppliers, particularly Universal Display (OLED) who both sells OLED materials to LGD but also receives a royalty based on the unit price of displays leaving the LGD fab.
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