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OLED Driver ICs Under Cost Pressure
With 90% of the world’s OLED driver chips made in South Korea, 70% by Samsung and 20% by MagnaChip. Taiwan Semiconductor Manufacturing Company (TSMC) accounts for the remaining share. A shortage of these products has intensified as demand reached a record this year, with sales by volume reaching 100bn chips in April. Capacity at Samsung and TSMC remains strained, with the latter in a drive to increase automotive chip production by 60%. “The shortage is not just about high-end chips anymore,” said CW Chung, head of research at Nomura in Seoul. “The shortfall now affects chips of all sizes and levels of sophistication, including DDICs for OLED display production.” The manufacturing process for DDICs is complicated, although way below the complexity of SOCs and processors with just a handful of companies able to produce them, but it is not advanced enough to support high margins. Operating margins on DDICs are less than a third of those for more advanced chipsets, which run well over 30 per cent. DDICs must be customized for each company and model, which use unique screen configurations.
Prices of chip-related components have risen 15 per cent this year. That growing input cost has already started shifting to the consumer. In 2020, a 6.67” flexible OLED panel with 2785x1293 resolution has a price of ~$90, a fully loaded cost of ~$75, of with ~8% or $6 went for ICs. A 15% increase in chip costs would add <$1 to the total cost.
Chipmaker capacity allocation is likely to become ever more dominated by industries that order large volumes of pricey chips. Display makers are not one of them. Samsung and Apple are protected from this condition, but the other OEMs could face shortages. For smartphone makers, there is little room for maneuver. OLED screens are already one of the most expensive components of a smartphone. The display of the iPhone 12 Pro cost about $70 per unit, more than the $57 required for a main processing chip and the $60 for its camera. Hardware profit margin declines at Apple in 2018 have coincided with the adoption of OLED screens for some of its models.
Tell-tale signs of a looming shortage of OLED chips, similar to the one experienced by the broader chip market last year ahead of a global shortage, are already starting to show. Prices rose by a fifth in the second quarter, adding to a similar increase in the previous quarter. Companies are stockpiling. The incentive for Samsung and TSMC to allocate capacity to these lower-margin display chips continues to fall. Pricier displays are set to further accelerate price inflation in consumer electronics. They are just the latest example of what happens when the delicate balance that holds together the chip industry is upset. Samsung began a series of price reductions within a week of the release and has continued that trend, at least until now.
As we reported last week, analysts tracking the smartphone industry like Mizuho Securities see only a small reduction in their 2021 forecasts, which suggests an overreaction to the chip shortage as it relates to displays.
With 90% of the world’s OLED driver chips made in South Korea, 70% by Samsung and 20% by MagnaChip. Taiwan Semiconductor Manufacturing Company (TSMC) accounts for the remaining share. A shortage of these products has intensified as demand reached a record this year, with sales by volume reaching 100bn chips in April. Capacity at Samsung and TSMC remains strained, with the latter in a drive to increase automotive chip production by 60%. “The shortage is not just about high-end chips anymore,” said CW Chung, head of research at Nomura in Seoul. “The shortfall now affects chips of all sizes and levels of sophistication, including DDICs for OLED display production.” The manufacturing process for DDICs is complicated, although way below the complexity of SOCs and processors with just a handful of companies able to produce them, but it is not advanced enough to support high margins. Operating margins on DDICs are less than a third of those for more advanced chipsets, which run well over 30 per cent. DDICs must be customized for each company and model, which use unique screen configurations.
Prices of chip-related components have risen 15 per cent this year. That growing input cost has already started shifting to the consumer. In 2020, a 6.67” flexible OLED panel with 2785x1293 resolution has a price of ~$90, a fully loaded cost of ~$75, of with ~8% or $6 went for ICs. A 15% increase in chip costs would add <$1 to the total cost.
Chipmaker capacity allocation is likely to become ever more dominated by industries that order large volumes of pricey chips. Display makers are not one of them. Samsung and Apple are protected from this condition, but the other OEMs could face shortages. For smartphone makers, there is little room for maneuver. OLED screens are already one of the most expensive components of a smartphone. The display of the iPhone 12 Pro cost about $70 per unit, more than the $57 required for a main processing chip and the $60 for its camera. Hardware profit margin declines at Apple in 2018 have coincided with the adoption of OLED screens for some of its models.
Tell-tale signs of a looming shortage of OLED chips, similar to the one experienced by the broader chip market last year ahead of a global shortage, are already starting to show. Prices rose by a fifth in the second quarter, adding to a similar increase in the previous quarter. Companies are stockpiling. The incentive for Samsung and TSMC to allocate capacity to these lower-margin display chips continues to fall. Pricier displays are set to further accelerate price inflation in consumer electronics. They are just the latest example of what happens when the delicate balance that holds together the chip industry is upset. Samsung began a series of price reductions within a week of the release and has continued that trend, at least until now.
As we reported last week, analysts tracking the smartphone industry like Mizuho Securities see only a small reduction in their 2021 forecasts, which suggests an overreaction to the chip shortage as it relates to displays.
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