Taking the eLEAP?
LG Display (LPL) opened up a line of speculation when it announced a ~$925m (US) investment in advanced OLED technology. Grist for almost any speculation, a recent theory has been that LG Display is considering using a photolithographic process to produce IT OLED displays, potentially the process sponsored by Japan Display (6740.JP) known as eLEAP. We note that we expect every major panel producer is doing at least basic research on using photolithography to produce small to medium sized displays but LG Display has been in the unusual position of not having the financial wherewithal to commit to the Gen 8.6 OLED fabs that are already being built by Samsung Display (pvt) and BOE (200725.CH) for the purpose of producing IT OLED displays. This has been thought to be a stumbling block for the company in terms of their ability to compete for IT OLED display business, particularly from Apple (AAPL).
The potential multi-billion dollar commitment that is necessary to build such a fab is a serious one and until recently was one that LG Display could not have made, so the question then becomes does LG Display now commit to taking on debt or diluting its equity in order to join the competition, even though it will likely be 12 to 18 months behind its competition, or does it look for alternative avenues in which to compete? We expect the latter for the following reasons:
We will save the positives and negatives of OLED photolithographic production for a later note.
All in, from the standpoint of both risk and the financial health of LG Display, it would make sense to try all three photolithographic processes and build out at least a pilot line if one or more prove out. While there is no guarantee that any of these systems will scale to mass production levels and meet the rigid standards that Apple imposes on its display producers, if one does, it would turn LG Display’s difficulties into what could turn out to be an advantage in the long term in terms of cost and in terms of time to production. It is certainly not a perfect solution to the competitive threat posed by SDC and BOE, but it does leave LG Display with alternatives and that is a major plus.
The potential multi-billion dollar commitment that is necessary to build such a fab is a serious one and until recently was one that LG Display could not have made, so the question then becomes does LG Display now commit to taking on debt or diluting its equity in order to join the competition, even though it will likely be 12 to 18 months behind its competition, or does it look for alternative avenues in which to compete? We expect the latter for the following reasons:
- After paying down debt, using the proceeds from the sale of the company’s Guangzhou LCD fab, and the financial pressure that debt put the company under, we expect the board is looking for alternatives to adding back debt.
- As opposed to SDC and BOE, LG Display has been developing and producing some of the OLED structures that are essential to Apple’s longer-term OLED display development for quite some time, and is producing them on its Gen 6 OLED production line. We expect that eventually SDC and BOE will be able to produce IT OLED products more efficiently on their new Gen 8.6 lines, when they are in mass production, but not only is there a long learning curve with this new OLED format, but there is no guarantee that there will be enough volume to run the lines at a profitable utilization rate or yield.
- We would expect that LG Display is looking for alternatives to such a large and risky commitment, and their recent $925m spending commitment to ‘next generation’ OLED would likely lead to something other than a new large scale commitment to existing mask oriented Gen 8.6technology. Photolithographic OLED deposition is also risky, as it is a process that has yet to be put into mass production, but it also bypasses some of the limitations that continue to make current OLED production expensive and less competitive to LCD technology.
- There are a number of developed OLED photolithographic systems vying for recognition in the display space. Japan Display has eLEAP, Visionox (002387.CH) has VIP (Visionox Intelligent Pixelization), and Applied Materials (AMAT) has MAX™ OLED, and we expect major display producers are all running their own development programs along the same lines. We note also that while the processes do have differences, display manufacturers are quite familiar with photolithography as they produce the TFT backplanes for their displays using similar techniques on lines parallel to their OLED or LCD production lines.
We will save the positives and negatives of OLED photolithographic production for a later note.
All in, from the standpoint of both risk and the financial health of LG Display, it would make sense to try all three photolithographic processes and build out at least a pilot line if one or more prove out. While there is no guarantee that any of these systems will scale to mass production levels and meet the rigid standards that Apple imposes on its display producers, if one does, it would turn LG Display’s difficulties into what could turn out to be an advantage in the long term in terms of cost and in terms of time to production. It is certainly not a perfect solution to the competitive threat posed by SDC and BOE, but it does leave LG Display with alternatives and that is a major plus.
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