Visionox to Add OLED Capacity
Chinese OLED display producers have undergone very significant expansion over the last few years and have made shipment and sales gains putting them in contention with the two South Korean OLED leaders, Samsung Display (pvt) and LG Dis-play (LPL). BOE (200725.CH) is the obvious capacity leader with a number of OLED fabs in production while Chinastar (pvt), Tianma (000050.CH), EDO (688538.CH), and Visionox (002387.CH) run less capacity, primarily Gen 6 lines. There is a problem however with Chinese OLED producers, they follow a simple competitive plan, capture OLED share by undercutting Korean OLED producers on price, and while an effective method for gaining share and creating headlines, it does not lend itself to profitability.
BOE is thought to possibly had a profitable quarter for its OLED business, but the company is primarily driven by its LCD display business and does not typically separate out the two in terms of profits. Chinastar has the same issue only with a smaller OLED capacity, leaving a number of Chinese pure OLED producers, all of whom have yet to show a profitable (operating profit) year. This is even more significant in the fact that the Chinese government, state, provincial, and local, subsidize the construction of OLED fabs and in a number of cases also subsidize operations.
As utilization rates for small panel OLED have been reasonably high early this year, as OLED continues to become more pervasive across the smartphone and tablet space, new capacity is being built that is dedicated to producing laptop and monitor (IT) OLED displays on larger (Gen 8.6) format substrates, while little new capacity is being added for Gen 6 OLED capacity, which is primarily used for small panel OLED production. The tight capacity at the Gen 6 level gives Chinese OLED producers a bit of pricing leverage, but for how long? It seems that Visionox is about to order equipment that will add ~25% to its current capacity by the end of 2027, and while adding only 0.3% to overall OLED capacity, the question is does this signify a trend among Chinese OLED producers?
In the LCD space an aggressive Chinese capacity build-out caused LCD panel prices to plummet when demand slowed, although it has since recovered thanks to South Korean panel producers leaving the LCD market. The OLED display market has the same risk. Should other OLED suppliers build new capacity, along with the Gen 8.6 capacity being built by SDC, BOE, and potentially Visionox, and demand for OLED IT products not meet expectations, an oversupply situation could quickly develop. We are not saying it will, but generic Gen 6 OLED capacity has not been added recently until now and if it stimulates another round of Gen 6 OLED capacity increases by others who want to maintain or improve their OLED share, the LCD oversupply cycle will repeat itself in the OLED space.
No longer is the growth of OLED so strong that it supersedes supply/demand, which means we need to pay extra close attention to OLED capacity plans in China over the next 12 to 18 months to get a sense as to whether this capacity addition is a one off or a trend. We believe it is a one-off, and doubt that others feel the necessity to compete for share and Visionox itself is in the process of trying to raise capital to build its own Gen 8.6 OLED for IT fab, so we can rule them out for a while once the new capacity is added. But considering that the smaller Chinese OLED producers need to either grow or merge, it would not be the first time in the display space that an over capacity cycle was initiated with a modest capacity increase by a single player. We hope not.
BOE is thought to possibly had a profitable quarter for its OLED business, but the company is primarily driven by its LCD display business and does not typically separate out the two in terms of profits. Chinastar has the same issue only with a smaller OLED capacity, leaving a number of Chinese pure OLED producers, all of whom have yet to show a profitable (operating profit) year. This is even more significant in the fact that the Chinese government, state, provincial, and local, subsidize the construction of OLED fabs and in a number of cases also subsidize operations.
As utilization rates for small panel OLED have been reasonably high early this year, as OLED continues to become more pervasive across the smartphone and tablet space, new capacity is being built that is dedicated to producing laptop and monitor (IT) OLED displays on larger (Gen 8.6) format substrates, while little new capacity is being added for Gen 6 OLED capacity, which is primarily used for small panel OLED production. The tight capacity at the Gen 6 level gives Chinese OLED producers a bit of pricing leverage, but for how long? It seems that Visionox is about to order equipment that will add ~25% to its current capacity by the end of 2027, and while adding only 0.3% to overall OLED capacity, the question is does this signify a trend among Chinese OLED producers?
In the LCD space an aggressive Chinese capacity build-out caused LCD panel prices to plummet when demand slowed, although it has since recovered thanks to South Korean panel producers leaving the LCD market. The OLED display market has the same risk. Should other OLED suppliers build new capacity, along with the Gen 8.6 capacity being built by SDC, BOE, and potentially Visionox, and demand for OLED IT products not meet expectations, an oversupply situation could quickly develop. We are not saying it will, but generic Gen 6 OLED capacity has not been added recently until now and if it stimulates another round of Gen 6 OLED capacity increases by others who want to maintain or improve their OLED share, the LCD oversupply cycle will repeat itself in the OLED space.
No longer is the growth of OLED so strong that it supersedes supply/demand, which means we need to pay extra close attention to OLED capacity plans in China over the next 12 to 18 months to get a sense as to whether this capacity addition is a one off or a trend. We believe it is a one-off, and doubt that others feel the necessity to compete for share and Visionox itself is in the process of trying to raise capital to build its own Gen 8.6 OLED for IT fab, so we can rule them out for a while once the new capacity is added. But considering that the smaller Chinese OLED producers need to either grow or merge, it would not be the first time in the display space that an over capacity cycle was initiated with a modest capacity increase by a single player. We hope not.
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