LGD Adds US$7b in Capex for OLEDS as Apple to Finance the Next 6th Gen Flexible OLED Fab
July 31, 2017
LG Display (LGD) has announced plans to invest KRW 7.8 trillion (US$6.95 billion) to build two OLED lines in South Korea. Under the plans, it will make an up-front investment of KRW 2.8 trillion in a 10.5G (2,940mm x 3,370mm) large-size OLED production line at its P10 plant in Paju, Korea, where LGD's display cluster is located. The company will also invest KRW 5 trillion in a new 6G (1,500mm x 1,850mm) plastic OLED (POLED) production line in Paju. Adding these new investments of KRW7.8 trillion onto its ongoing investment in OLED, LG Display will invest a total of KRW15 trillion into OLED production lines through 2020, thereby making its Paju display cluster the company's hub of OLED production, according to a company press release. It said its decision on these large-scale investments came at a time when the company's newly launched large-size OLED panels for TVs such as Wallpaper OLED and Crystal Sound OLED (CSO) are earning popularity in global markets. It said it is responding to a growing customer base for OLED TVs and public signage, and rapidly increasing OLED demand from the mobile and automotive markets. LGD said it would also invest in a new 8.5G (2,200mm X 2,500mm) large-size OLED production line in Guangzhou, China, where the company is already running an LCD panel production plant. The company decided to establish a joint venture with total capital of KRW 2.6 trillion and will take a 70% share, worth KRW 1.8 trillion, in the joint venture. With the smartphone display market continually shifting toward flexible OLEDs, the market size for smartphones is expected to reach 120 million units in 2017, increasing to 370 million units in 2020, LGD said. The flexible OLED market will also show CAGR of 63.2%, reaching 389 million units in 2020. "We're clearly seeing the possibilities the OLED business offers, not only in the global TV segment, but also in the smartphone and automotive markets," said Sang-Beom Han, CEO and vice chairman of LGD, as cited in the company press release. "We plan to actively respond to customers' demands by expanding OLED capacity in a timely manner and developing diversified flexible displays that are fit for various applications." LGD has reported quarterly operating profit of KRW804 billion for second-quarter 2017 despite the drastic decline in the exchange rate and the year's off-season, which caused reduced shipments of mid- and small-size panels, according to the company. The achievement was backed by the company's differentiated technologies and its focus on profitability based on the product mix for large-size Ultra HD TV panels and high-end IT panels.
LGD recorded KRW6, 629 billion in revenues in the second quarter of 2017, a Y/Y increase of 13% from KRW5, 855 billion. TV panels accounted for 46% of the revenues, mobile devices 22%, desktop monitors 17%, and tablets and notebook PCs 15%. Net income increased 8% to KRW737 billion, compared with net income of KRW 679 billion in first-quarter 2017, and a Y/Y turnaround from a net loss of KRW84 billion in second-quarter 2016. The company gave modest guidance for the 3rd quarter and 2nd half:
The company has decided to focus all of its resources on OLED, both with small panel and large panel production, and to that end will spend ~20t KRW, or $17.86b US over the next 4 years to enhance their OLED capabilities, which will increase their capex to almost 7t KRW each year through 2019, with a smaller amount in 2020. Out of that 20t KRW, 15t KRW will be spent domestically and 5t KRW in China. LGD’s OLED strategy, particularly their large panel (TV) effort will be focused on the construction and development of a new Gen 10.5 OLED plant, which will be the 1st of its kind. The largest OLED fabs in commercial production today are Gen 8.5 (LG Display), which produce OLED TVs of 55”, 65” and 75”. LGD will not be focusing on LCD, but will be building a Gen 10.5 plant for the production of OLED TVs. The ultimate goal for the fab is to produce OLED displays, for which they indicated demand for OLED TVs would rise from 2.5m units next year to 6m units in 2020. The fab itself is already under construction and will likely take between 15 and 18 months to complete and install equipment. In addition to the Gen 10.5 OLED fab, the company will also be building out its facilities in Guangzhou, China, where it already has oxide backplane production. While this will be a new Gen 8.5 OLED large panel fab, they expect to share some of the infrastructure resources already established at the site for the new fab. This fab will be designed to produce 60,000 sheets/month, likely in two phases, and the company expects mass production to start in 1H 2019. In addition to the fabs mentioned above, LGD is also developing two Gen 6 OLED fabs, E5 and E6, which will have production capacity of 30,000 sheets each. It should be noted that LGD’s massive commitment to OLED carries significant risk, both financially and from a technology standpoint. The company has indicated that it will finance much of the capex through internal cash flow, although they are also considering debt financing in order to accelerate the build out, and they noted that the development and evaluation of these projects has been under discussion for years. They have discussed some of the details, particularly the higher risk Gen 10.5 fab, with customers to both gauge their feedback and see their level of commitment, with the potential for supply agreements or possible pre-production funding also being considered, with the China OLED fab seeing 30% ownership by the local government, typical in that region. The company also indicated that if more OLED capacity is needed than can be provided by these particular projects, as they would consider converting some LCD capacity to OLED in the future.
In its attempt to lead the OLED industry, LCD is apparently exhausting its financial resources by building both large area and small/medium OLED fabs. By comparison, Samsung’s strategy is to concentrate on the small/medium size (6th Gen) and construct what appears to be enough capacity to meet the entire industries demand for OLED panels. In the large area segment, Samsung, at least for the next 3-5 years will depend on the Chinese, where there will be a surplus of supply, given all the Gen 8.5 and Gen 10.5 fabs under construction or being planned. Aside from the financial risk, LG’s Gen 10.5 strategy will be dependent on one of two solutions for the deposition of OLED material:
Clearly, there are other challenges for LGD as the availability of Gen 10.5 coater/developer tools is limited to only Nikon. There is also likely to be a limit in other Gen 10.5 tools including CVD, Sputter, Cleaning and all the other tools, which are just being developed for what appears to be 7 Gen 10.5 Fabs, now that Foxconn has announced their plan to build in Wisconsin.