Taiwan LCD Panel Makers Face Heightened Competition

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An OLED television manufactured in Korea by LG Display (LGD), the dominant player in the nascent OLED television display market. PHOTO: MATTHEW FULCO

Korea and China are ahead of Taiwan in developing next-generation OLED display technology, which many expect to supplant LCD displays. Domestic companies will be under pressure to increase R&D expenditures to develop innovative new products and explore new applications.

Taiwan’s liquid-crystal display (LCD) panel makers have steadily lost market share to Korean and Chinese competitors in recent years. With their focus on cost control, the Taiwanese have reportedly failed to keep pace with the well-funded Koreans and Chinese, who invest heavily in capacity expansion as well as research and development.

As China ramps up LCD capacity, driving prices down, profitability is falling industrywide. In response, Korean panel makers have moved to develop a technology that is expected to supplant LCD: organic light-emitting diode (OLED) displays.

Compared to LCD panels, OLED displays are more challenging to manufacture, use more complicated materials and chemical processes, and require special attention to yield-rate management, observes David Hsieh, senior director of display research firm IHS Markit.

Yet OLED has numerous advantages over LCD. It offers sharper color contrast, flexibility to make possible the production of curved screens, and is thinner and more energy-efficient. For those reasons, OLED “is an increasingly attractive technology for smartphone brands,” Hsieh says.

Samsung, currently the only manufacturer capable of mass-producing OLED panels, controls 95% of the global market for those panels for handsets. Several of its Galaxy Note and Galaxy smartphone displays use OLED technology. There is also increasing demand for Samsung panels from Chinese handset brands like Oppo and Vivo.

In what would be a game changer for smartphone displays, Apple is expected to use flexible OLED displays made from thin, lightweight plastic in at least one of its new iPhone models this year. Tai Jeng-wu, chief executive officer of Japanese electronics maker Sharp, a long-time supplier of LCD panels to Apple, seemed to confirm the tech giant’s plans during a speech at Tatung University last October. “The iPhone has been evolving and now it is switching from LTPS (low-temperature poly-silicon) to OLED panels,” Tai said. “We don’t know whether Apple’s OLED iPhones will be a hit, but if Apple doesn’t walk down this path and transform itself, there will be no innovation.”

As it is the world’s leading smartphone brand, “Apple’s upcoming adoption of OLED displays will be a milestone for OLED in the display industry,” David Hsieh says. With Apple switching to OLED, IHS Markit forecasts that OLED panel shipments will rise to 630 million units in 2019 from 250 million in 2015. LCD shipments will be relatively flat during that same period, increasing to 1.34 billion units from 1.29 billion.

IHS reckons that revenue from OLED panels for mobile devices will surge along with shipments – to US$19.5 billion in 2019 from $10.6 billion in 2015, comprising more than half of the handset panel market. Meanwhile, LCD revenue is forecast to fall from US$20.8 billion to $19 billion.

Missed opportunities?

Taiwan has taken a decidedly conservative approach to the development of OLED technology in comparison to Korea, China, or even Japan, observes Yang Chung-yu, an industry analyst at the state-backed Market Intelligence & Consulting Institute (MIC).  Taiwanese panel makers haven’t invested substantially in OLED capacity the way the Chinese have, nor do they have the comprehensive patent portfolios of the Koreans and Japanese, which have been built over the past 10 years, she says.

Further, Taiwanese panel makers do not have large domestic smartphone and television industries as do the Chinese and Koreans. “The Taiwanese don’t have enough domestic demand to clear their inventories,” Yang says. All of these factors make it difficult for Taiwan companies to compete in the OLED panel market, she adds.

Paul Peng, chairman of AUO Optronics, Taiwan’s largest panel maker, has expressed skepticism about OLED’s viability. In a September 2013 interview with the Chinese-language DigiTimes, he said OLED may end up like other once-promising panel technologies that never became the industry standard, such as field emission display (FED), plasma display panels (PDP), and surface-conduction electron-emitter displays (SED).

Wang Jyh-chao, chairman of Taiwan’s No. 2 panel maker Innolux, has expressed similar sentiments about OLED technology. Last August, he told DigiTimes that OLED’s cost-performance ratio and reliability remain inferior to that of LCD. OLED is not certain to become the industry standard, given that new display technologies – notably micro-LED – are still being developed, he said.

Citing capital expenditure constraints, Wang said that Innolux currently has no plans to begin mass production of OLED panels. “No specific plan has been made at the moment,” he was quoted as saying in a November 2016 report in the English-language Taipei Times.

At a July investors’ conference, Peng said that government support would be essential if Taiwanese panel makers intend to mass-produce large-size AMOLED panels (AMOLED, which stands for Active Matrix OLED, is a hybrid display technology that pairs the active matrix backplane from a traditional TFT display with an OLED display). For an individual company, Peng estimated the cost of developing AMOLED technology at NT$10 billion (about US$312 million).

One source close to Taiwan’s panel-making industry, who spoke with Taiwan Business TOPICS on condition of anonymity, said AUO worked on OLED technology early on, but failed to go forward with it. “They had this technology in the lab at a very early stage, before the Koreans,” the source says. “But after the global financial crisis, they didn’t feel confident about investing in it, and the Koreans caught up.”

There is another type of OLED technology which the Taiwan panel maker Ritdisplay first mass-produced in small-size monochrome panels 15 years ago, well before Samsung deployed full-color AMOLED panels. Known as PMOLED (for passive-matrix), this technology is easy and inexpensive to manufacture but otherwise is widely considered inferior to AMOLED. AMOLED benefits from having a storage capacitor that maintains the accuracy of pixel lines, enabling high-resolution, large-sized displays. AMOLED is also power-efficient.

By contrast, PMOLED electronics lack a storage capacitor, causing frequent inaccuracy in the pixels in each line. To compensate, it is necessary to increase voltage for added brightness. Over time, the frequent use of high voltage reduces the lifetime of a PMOLED display.

PMOLED displays are usually small (up to three inches) and are used to display character data or small icons. They remain common in MP3 players and mobile phone sub-displays, and are increasingly found in wearable devices.

In the first half of 2016, Ritdisplay’s revenue reached NT$996.71 million (US$31.2 million), up 40% year-on-year, on the back of strong demand for wearables. At an August press conference, company president and chief executive officer D.C. Wang said the companies’ factories are running at full utilization and predicted revenue would climb more than 20% in the second half of the year. To meet surging demand for PMOLED products, Ritdisplay intends to boost capacity by 20-40% in 2017, he added.

Still, PMOLED remains a niche technology. “Considering price to performance, PMOLED is good enough to display the needed information in wearables and other devices that do not require high picture quality,” says Claire Wen, a principal research analyst at Gartner in Taipei. But overall, “PMOLED is widely considered an out-of-date display technology,” she says. “For applications that require good picture quality, such as smartphones, virtual reality, or television, AMOLED will be the better choice.”

Foxconn’s gambit

Among Taiwanese firms, only Hon Hai Precision Industry (Foxconn) is moving aggressively to tap the ascendant AMOLED market. According to market analysts, one of the reasons Foxconn paid US$3.5 billion to acquire Sharp last year is that the Japanese electronics maker has outstanding display technologies. Sharp has been a pioneer in the panel industry for years and owns nearly 23,000 patents granted by the U.S. Patent and Trademark Office. Following its acquisition of Sharp, Foxconn pledged to invest 200 billion yen (US$1.9 billion) to develop OLED technology.

“It was fairly expensive for Foxconn to acquire Sharp, but you can’t be an ODM forever,” says IHS Markit’s Hsieh, in reference to the razor-thin margins of contract manufacturers.

To strengthen its vertical integration in the panel industry, Foxconn has invested in panel maker Innolux and LCM (LCD Module) vendor Yeh Xin Technology, as well as touch-panel vendor GIS Ltd., notes MIC’s Yang. “By going deeper into the upstream of the LCD panel supply chain, Foxconn can secure a reliable supply of LCD panels and improve its capabilities to design system products, which will help it move from contract manufacturing to product design,” she says.

Yang notes that display panels typically account for a large share of the cost of consumer electronics products. For wearables and smartphones, the proportion is often 20-30% of the cost; for large-screen TVs, the share could reach as high as 60%. For this reason, gaining control over panel supply will be an advantage for Foxconn in managing its cost structure, she says.

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Foxconn hopes that its investment in Sharp will enable it to further develop OLED technology for flexible panels. PHOTO: CNA

Foxconn chairman Terry Gou has also hailed a technology in which Sharp excels. Known as IGZO (indium gallium zinc oxide), it is used to produce high-definition, energy-efficient displays. At an April 2016 press conference following finalization of the Foxconn-Sharp takeover deal, Gou said: “I know a lot of people are interested in our OLED strategy. But don’t forget IGZO as well.”

IGZO has higher electron mobility than the standard amorphous silicon that forms the active layer of an LCD screen. That translates into power consumption savings of 30-40%, better touch sensitivity, and higher pixel density.

In 2012, Sharp was the first manufacturer to roll out handsets equipped with IGZO-based LCD panels. IGZO technology is used in tablets as well, such as Apple’s iPad Pro. Sharp is now preparing to apply IGZO in OLED panels. In April, the Japanese electronics maker unveiled a 3.4-inch, IGZO-enabled, flexible OLED display prototype.

Last September Sharp announced it would spend 57.4 billion yen (US$566 million) to develop OLED production facilities. In a statement, Sharp said those funds would be used to for equipment in its Mie and Osaka factories, and to provide customers with sample products. The Japanese electronics maker says it wants to begin OLED panel production by June 2018.

In January, Japan’s Nikkei Asian Review reported that Foxconn and Sharp might build a factory in Zhengzhou in Henan Province, where Foxconn already operates a massive manufacturing facility. Given its long-established ties with local officials, “it is likely Foxconn received subsidies from the local government to build an OLED plant in Zhengzhou,” says MIC’s Yang, adding that locating the plant in China puts Foxconn close to its customers among Chinese smartphone brands. Those handset vendors “are the most eager to adopt AMOLED displays,” she says.

Analysts say the plant is unlikely to be ready in time to capitalize on the next-generation iPhone slated for release later this year. Meanwhile, given a likely shortage of OLED displays, Apple is likely to ship only one iPhone with an OLED screen.

Initially, analysts expected Samsung to be the lone supplier of OLED displays, but the South Korean electronics giant may be unable to produce enough of the panels to meet Apple’s order of 100 million units. That would present an opportunity for Korea’s LG Display and for Japan Display, according to TrendForce, the global market intelligence firm. “LG Display (LGD) and Japan Display (JDI) will try to catch up with SDC by accelerating their timetables for the development and mass production of AMOLED panels,” wrote senior research manager Boyce Fan in a July 2016 research note. “LGD and JDI’s efforts will eventually allow Apple to spread its orders out among multiple suppliers.”

In December, JDI announced the acquisition of Joled, an OLED panel maker formed when Panasonic and Sony merged their operations. By the end of 2017, JDI will increase its stake in Joled from 15% to over 50% with assistance from the state-backed Innovation Network Corp. of Japan (INCJ), which is the majority shareholder in JDI. The deal’s value is expected to top US$100 million. INCJ will also provide JDI with 75 billion yen (US$650 million) to develop its OLED and LCD businesses.

The decline of the panel industry is a serious problem for Taiwan given the sector’s crucial contribution to the island’s manufacturing base. The panel industry has an annual output of NT$950 billion (US$30.05 billion), accounting for 7.4% of Taiwan’s total manufacturing output, and employs 100,000 people, according to data from the Ministry of Economic Affairs (MOEA). 

Industry cluster planned

In response to the problem, MOEA announced last August that it would invest NT$100 billion (US$3.21 billion) to develop an AMOLED industry cluster in Taiwan. “Government and private funds will be gathered in the effort to integrate local factories producing materials, equipment, panel modules and system solutions into a fully tailored industry chain,” Economics Minister Lee Chih-kung said in a statement.

Under the scheme, the Department of Information and Technology (DOIT) and the Industrial Technology Research Institute (ITRI) will lead the construction of a domestic OLED supply chain. Display technology developed by DOIT and ITRI will be transferred to local display manufacturers. Yet the government has not taken any concrete steps since that announcement six months ago.

Daniel Tseng, president of Corning Display Taiwan, which supplies glass substrate to the panel industry, notes that for Taiwan’s panel makers “there is a sense of urgency about the future.” For that reason, both AUO and Innolux are developing innovative new products, he observes. “I am very positive on Taiwan’s panel makers,” says Tseng. “I believe they will continue to invest in innovation.”

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Daniel Tseng, president of Corning Display Technologies Taiwan, says that Taiwan panel makers will continue to invest in innovation. PHOTO: MATTHEW FULCO

In June 2016, AUO President Michael Tsai told investors at the company’s annual shareholders’ meeting that AUO would shift its focus from TV and mobile-phone displays to niche products such as panels for medical, automotive, gaming, and virtual reality applications. The company forecast that those products would account for 30% of total sales in 2016, up from roughly 20% the previous year.

It is unclear how many of those products will be equipped with OLED displays. Currently, AUO operates a 3.5-generation AMOLED plant in Linkou in New Taipei City and a 4.5-generation plant in Singapore. Together, they can churn out 45,000 units per month – the most of any Taiwanese AMOLED maker – but a small number by industry standards.

Says MIC’s Yang: “AUO’s AMOLED panels are only shipped in a limited quantity due mainly to the yield problem. Since AMOLED panels only account for a relatively small share in AUO’s total production and AUO hasn’t announced any plans for capacity expansion, we don’t think AMOLED will be a big revenue source for AUO in the near future.”

Innolux has yet to announce any major plans for OLED production. The company does expect to begin shipping OLED displays for small-sized wearable devices from 2018 and for automotive applications around 2020. Sooner would be better. According to UBI Research, automakers will begin widespread installation of OLED-enabled instrument cluster and infotainment displays in 2018. By 2022, the automotive display market will be worth an estimated US$25 billion, with OLED displays accounting for about US$5 billion of that total.

MIC’s Yang notes that Innolux has expressed strong interest in micro-LED displays. However, it is too early to tell whether this segment will become a main source of revenue for the company, as the technology remains in the trial phase, she says.

Some market observers have speculated that Innolux will team up with Sharp to produce OLED panels now that Foxconn owns the Japanese electronics maker. Gartner’s Wen says such cooperation is unlikely. Innolux lacks Sharp’s experience in OLED development and manufacturing, and Foxconn does not currently plan to send anyone from Sharp to train Innolux in those areas, she says. Sharp and Innolux also focus on different customers. It is more likely that Innolux and Sharp will work together to boost production volume of certain LCD TV displays, she adds.

The Chinese, meanwhile, are aggressively stepping up their presence in the OLED market. In the quarter that ended September 2016, Chinese panel manufacturers shipped more than one million AMOLED smartphone displays for the first time, up from 590,000 units in the April-June period.

To be sure, the Chinese still account for only 2% of the AMOLED smartphone display market. Samsung was responsible for 99.7 million of the 101 million units shipped worldwide in the third quarter of 2016. Yet reaching the 1 million-shipment milestone shows that Chinese panel makers are making significant improvements in their OLED manufacturing technology, IHS Markit’s Hsieh says.

DigiTimes Research expects Chinese manufacturers to steadily increase OLED panel shipments, reaching 2.6 million units in 2017, 3.5 million in 2018, and 4.8 million in 2019. Chinese manufacturers including Tianma Micro-electronics Visionox, EverDisplay, Royole, and Truly Opto-Electronics are also moving to boost their market share in the OLED market, DigiTimes notes.

BOE Technology, China’s largest panel maker, is building a US$4.85 billion OLED plant in the southwestern Chinese city of Chengdu that is expected to have a monthly output of 10,000 smartphone displays. Analysts say the plant could be running at full capacity as early as 2019.

At the same time, Samsung will remain the dominant AMOLED smartphone display maker for the next few years, benefiting from having Samsung Electronics and Apple as its customers, DigiTimes says. The Taipei-based research firm forecasts that Samsung’s AMOLED shipments will reach 560 million units in 2019, up 114% from 2015.

Facing pressure from both the Koreans and Chinese, “Taiwan panel makers have no choice but to accelerate R&D spending for high-end or customized panels, while exploring demand in new application markets such as automotive and digital signage displays,” says MIC’s Yang. “The key is to create product differentiation.”

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