Chinese Invest Massively in OLED Manufacturing Yet Fall Further Behind Koreans
July 17, 2017
Chinese panel producers recognize the need for a fast transition to OLED display manufacturing, and continue to add new fabs. However they face significant challenges when compared to Samsung Display and LG Display, who combined hold a 90.9% share of the OLED production market by area this year. Samsung Display is the dominant supplier in small/medium panel OLED and LG Display is the dominant supplier in large panel OLED, but despite their obvious control, other panel producers, particularly those in China, have garnered a bit of recognition and unit volume. China based Everdisplay has been working with Chinese smartphone brand Huawei to develop a high resolution OLED display, although they eventually lost the order to Samsung Display, who could guarantee quality and delivery schedules, and Chinese OLED producer Visionox supplied small panel OLED displays to Chinese smartphone brand ZTE last year and to smaller Chinese brands this year, but more well-known Chinese panel producers, BOE and Tianma, while they have been building capacity, have seen little traction in the commercial market. The issue here is experience. Samsung Display has been producing OLED panels technically since 2007 as has LG Display, while BOE’s 1st OLED fab opened just three years ago, and that was an ‘opening’, not a line ready for commercial production. Tianma has had an OLED line in operation since 2013 but also took a number of years before they were able to supply even small quantities of commercial product. In the case of Chinese panel producers, the issue certainly is not financial, as the Chinese central and regional governments provide very significant incentives to OLED display producers and construction of new OLED fabs continues at a rapid pace, but there is a significant gap, likely 3 to 4 years in our estimation, that lies between the manufacturing experience of Samsung Display in small panel OLED production and Chinese producers, and a similar gap in large panel OLED production with LG Display. Chinese producers are aware that they lack the experience to generate consistent production quality and volume, and some have made changes to their OLED timelines to compensate. Given that flexible OLED manufacturing is an even more challenging subset of OLED manufacturing, the thought that the experience gap between Chinese OLED producers and Samsung Display is short enough in flexible production to level the playing field, has caused some Chinese producers to tilt their timelines toward flexible OLED displays. Unfortunately this shift also has its drawbacks as it slows the overall growth of Chinese OLED producers as they refocus their efforts on flexible OLED, and have to gain new production experience from R&D and pilot lines once again. Concern that these stumbling blocks will serve to continue to allow Samsung’s dominance of the small/medium OLED space and LG Display’s control over large panel OLED production have been expressed as Chinese OLED shipments declined in 1Q 2017 by a precipitous 58.4% from the previous quarter to 1.3m units, but a comparison to 2016’s 1Q, which was ~ 215,000 units, shows very substantial growth, and while there is always some quarterly nuance to shipment numbers, particularly in the smartphone space, 1Q is seasonally the lowest shipment quarter of the year, and we believe concern over the decline from 4Q 2016 to 1Q 2017 is misplaced, even if Samsung was able to increase their small panel OLED volume over the same period. We believe Samsung continues to push small panel OLED displays further down its smartphone product line, and has been adding capacity at a rapid pace, which gives them the ability to expand small panel OLED unit shipments despite seasonal factors, while Chinese small panel OLED producers are still struggling to increase yield. We don’t doubt Samsung’s lead in the OLED space, but we are less concerned over q/q ratios with Chinese OLED producers than y/y growth, which continues. As in the LCD space, there will be a time when Chinese producers, because of their intense focus on small segments of the display space, likely compete directly with Samsung Display, and when looking at the 32” LCD TV panel space, where Chinese producers now dominate production to the point where Samsung no longer produces but buys from Chinese suppliers, it would seem that a longer view might give a better understanding of the potential for Chinese OLED producers, despite the inevitable bumps in the road.