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AMOLED tidal wave: technology revolution or investment bubble?
Until about a year ago, active-matrix organic light-emitting diode (AMOLED)-based smartphones remained Samsung's niche. Almost all the AMOLEDs Samsung was making went into Galaxy products. AMOLED prices were relatively high compared to equivalent liquid crystal displays (LCDs). Samsung's AMOLED fab utilization was low, and it was struggling to ramp up its A3 flexible AMOLED dedicated fab. Its AMOLED business was challenged to raise profits.
What a difference a year makes! Now in June 2016, the outlook for AMOLED smartphones has dramatically shifted in a positive direction. Samsung's AMOLED fab utilization is high, prices for external customers are on par with LCDs, and the company's AMOLED business is profitable. Over the same period, it has become evident that Apple plans to transition the iPhone display from rigid LCDs to flexible AMOLEDs in the next couple of years. Meanwhile, more and more people are talking about the coming flexible or foldable OLED displays that will bring revolutionary change to the form factor of handheld devices.
These shifts in market outlook have created an unprecedented wave of new flexible AMOLED fab investment plans for makers in Korea, China, and Japan. Competitors are trying to replicate Samsung's success, hoping to escape the commoditization and low profitability of LCDs-and chasing after potential Apple business. A large number of new fabs are now being built, and they are the most expensive ever made relative to glass size and input capacity.
Although Samsung's AMOLED process to date has used a simplified p-channel metal-oxide-semiconductor (PMOS) thin-film transistor (TFT) for the back plane, other makers and new lines targeting Apple demand appear to be preparing for processes that use up to 50% more mask steps. Low temperature polysilicon and oxide (LTPO) is one of the candidates. This drives significantly more TFT equipment, automation, and other spending. Furthermore, all the new AMOLED fabs will be designed to produce flexible AMOLEDs or will be hybrid rigid/flexible lines. Flexible capability adds costs to the TFT backplane process by requiring flexible substrate coating, curing, and encapsulation steps. Flexible capability adds cost to the front plane process by requiring thin-film encapsulation (TFE), laser lift-off (LLO), and a variety of other steps necessary to handle flexible panels. As shown below, the new flexible AMOLED fabs for mobile display production have a total costs that is almost 1.4x higher than previous rigid AMOLED lines, according to the IHS Technology Display Supply Demand & Equipment Tracker report.
In other words, pushed by a complex TFT process and flexible display requirements, the new AMOLED fabs are the most expensive flat-panel display (FPD) factories ever built, nearly 1.4x that of previously constructed rigid AMOLED lines.
Capital equipment markets tend to be highly cyclical, but the high cost of flexible AMOLED fabs is pushing the equipment market in 2016 and 2017 to near-historic two-year highs. Some concerns have been raised that equipment supply bottlenecks will restrict panel makers' ability to build fabs according to schedule. Most of these concerns have focused on high-resolution photolithography machines, RGB evaporators, and some high-performance vacuum tools.
However, presented with the best business opportunity since 2010 and 2011, equipment makers are rapidly adding capacity as well as actively managing their suppliers and scheduling in order to meet customer requests. Although any unexpected supply chain disruption could delay some fab plans, it now appears that most of the new fabs will be built out in line with panel makers' target schedules.
According to the IHS Technology Display Supply Demand & Equipment Tracker report, the large number of new flexible AMOLED investments, along with the high costs of these lines, is pushing the FPD equipment market to near-record two-year highs of $12.6 billion in 2016 and $12.3 billion in 2017.
All the new capacity in the pipeline may be creating a fantastic opportunity for equipment makers, but the ever-increasing scope of investments is now starting to raise questions about whether so many new players will actually be able to ramp up their fabs-and even if they do, will there be enough demand to keep those fabs running at high utilization and even moderate profitability?
Forecasting the supply and demand of flexible AMOLEDs in 2018 is a challenging task, not only due to the assumptions that must be made about both capacity and demand, but also the questions about yield rates, how long it will take fabs to ramp and begin commercial production, and the price competitiveness of these new fabs. Building rational forecasts of capacity is possible based on panel maker plans because new factories have lead times of up to two years.
In order to test supply and demand under the more optimistic scenario of faster adoption by Apple, the IHS forecast for total AMOLED smartphones was increased to 503 million units in 2017 and 653 million in 2018. This includes Samsung Galaxy phones, other brands such as Chinese cell phone makers, and a reasonable adoption forecast for Apple. Other mobile applications are also counted in demand. Relatively long ramp-up times and low yield rates for all makers, except Samsung, were assumed. Prices were presumed to be competitive and not directly tested in this analysis.
Analyzing all panel makers' capacity plans and the comparatively aggressive demand forecast, the glut level is projected to increase from 2016 through 2018, suggesting a trend of growing oversupply.
As the graph below implies, Samsung Display alone is expected to add enough capacity to keep up with the accelerated demand forecast and maintain a glut similar to the current level. Samsung Display is presently very busy running its AMOLED fabs near maximum utilization. Supply is tight, but sufficient.
Samsung's strategy likely involves adding enough capacity to enable it to continue-for as long as possible and almost exclusively-to dominate the AMOLED market for mobile applications. Samsung Display has a substantial technology and cost lead over even its closest competitors. It controls much of its own process know-how, and it will be a difficult path for followers to catch up in the near- or even mid-term. According to our analysis, Samsung could potentially maintain its AMOLED monopoly through 2018 or longer, even when taking into consideration the large increase in demand as the iPhone transitions from LCD to AMOLED.
The shift from rigid LCD to flexible AMOLED is the most significant change in FPD process technology since the start of the LCD era almost 20 years ago. All panel makers are now scrambling to avoid being left behind during this technology revolution.
However, as supply/demand analysis suggests, all the capacity being added by new AMOLED players may well get ahead of how much the market can absorb. Demand could grow faster than the accelerated forecast; however, it is not clear by how much. In 2018 and 2019 the market for both rigid and flexible AMOLED may be restricted by prices. It is unlikely that many makers will be able to compete on price and performance with Samsung or even with low-cost, high-end LCDs without incurring financial losses.
In other words, even in a high-demand scenario, the supply glut is forecast to increase through 2018-a time during which Samsung Display alone would be able to fulfill all market demand. This high-glut level is a risk factor for low utilization and low profitability in the short- to mid-term.
In the long run, all the investment in AMOLED capacity will help reduce material prices, strengthen the equipment supply chain, and allow the market to trend towards balance. However, it would also not be surprising for new AMOLED entrants to struggle to ramp up new fabs in 2018 and 2019, and suffer from low utilization and profitability as the industry works through the currently forecast flexible AMOLED supply glut.
David Hsieh is Director of Analysis & Research within the IHS Technology group
Posted on 20 June 2016
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