Demand for OLEDs to Rise on Wider Adoption of New Form Factors
The authors are analysts of NH Investment & Securities. They can be reached at kyuha.lee@nhqv.com, hwdoh@nhqv.com and j.ko@nhqv.com, respectively. – Ed.
We maintain our Neutral stance towards the display industry. With the penetration of China-made LCD panels to continue increasing across all applications, Chinese companies should see their position in the global LCD market strengthen going forward. It appears the market is turning into an oligopoly, led by Chinese plays. Looking at the OLED market, even in the face of a competitive onslaught from LCD and Micro LED makers, demand for OLED technology should pick up further amid growing need for differentiated form factors in downstream sectors. Against this backdrop, Korean firms are to cement their positions as OLED technology leaders. That said, we keep our investment rating for the display industry unchanged at Neutral, given that the OLED market is estimated at US$29.1bn in 2020, far lagging behind the LCD market’s US$76.8bn in market size.
Outlook dim for domestic LCD industry, as global LCD market is becoming oligopoly, led by Chinese firms
We hold a dim outlook on the domestic LCD industry, as the global LCD market is becoming an oligopoly, led by Chinese companies. The number of LCD players is shrinking, and Samsung Display and LGD are downsizing their LCD businesses. In addition, set makers SEC and LGD are raising their purchases of Chinese LCD TV panels. The Chinese portion of LCD TV panel demand at Korean set makers already exceeded 50% as of 2Q20. We also note that Chinese companies have been accelerating their development of 8K LCD panels, and in July, China Star became the world’s largest company in terms of 8K LCD shipments. In the LCD market, we foresee that China will continue to widen its gap with Korea in terms of growth.
Outlook bright for domestic OLED industry
On the other hand, the outlook for the domestic OLED industry is bright, as OLED panels are essential to meet the need for differentiated form factors in downstream sectors. Set makers should increase their use of OLED panels for smartphones, TVs, and laptops. SEC has rolled out foldable smartphones, LGE plans to launch rollable TVs, and RENOVA is expected to sell foldable laptops. The appearance of new products bodes well for OLED makers, especially domestic companies with leading-edge technologies, such as Samsung Display and LGD. That said, LCD and Micro LED makers’ efforts to increase penetration could negatively affect OLED uptake.
LCD market to be dominated by Chinese firms
We expect Chinese panel makers’ portion out of the global LCD market to further expand, backed by an increase in TV set makers’ use of Chinese LCD panels.
Chinese LCD panel makers have constructed three additional production facilities (8G-and-above) in 2020 alone—BOE’s B17 line (10.5G) and HKC’s H4 line (8.6G) have started operations, and China Star’s T7 line (10.5G) is to begin operations in 4Q20.
With Korean firms increasingly withdrawing from the LCD arena, the number of 8G-and-above LCD production facilities across the world is estimated to decrease from 32 in 2020 to 31 in 2021 to 30 in 2022. But, as Chinese panel firms are expected to continue investing in LCD facilities in order to solidify their market leadership, China’s portion out of global 8G-and-above LCD production facilities is likely to increase from 55% in 2019 to 63% in 2020 to 68% in 2021 to 73% in 2022.
With global TV set makers’ use of Chinese LCD panels expanding, Chinese firm’s portion out of the global LCD TV market is rising. We note that Chinese LCD panels have been increasingly used by domestic LCD TV set manufacturers, accounting for 52% of SEC’s TV panel sourcing and 50% of LGE’s panel sourcing in 1H20. In addition, as Chinese panel makers have been putting great effort into 8K LCD panel development/production, such manufacturers are expected to spearhead 8K LCD panel market growth moving ahead. Of note, the size of the global 8K LCD panel market is expected to increase from 310,000 units in 2019 to 860,000 units in 2020, with the portion of Chinese players (BOE+China Star) to jump from 0.4% to 33.1% during the same timeframe, according to one market research agency.
OLED outlook: Positive, considering rising downstream demand for new form factors
We predict that the OLED market will enjoy solid growth moving ahead, as demand has been growing in downstream industries for new display form factors, and OLED technology is the key to meeting such demand.
Today, smartphone, TV, and notebook makers are unveiling a variety of products with new form factors, and with this trend set to sustain, we believe that OLED application at such manufacturers will continue to rise. For example, SEC is expanding its foldable smartphone lineup; LGE is planning the roll-out of a rollable TV; and Lenovo has announced its plans to launch of foldable notebook.
That said, given that: 1) OLED display products with new form factors are all targeting premium segments; and 2) the markets for some products have just begun growing, we believe that strong volume growth is unlikely for the time being. In addition, we note that LCD technology is still the most commonly-used tech for most downstream products, with Micro LED technology being applied in some instances. The widespread use of other display technologies could somewhat hinder the penetration of OLED, in our view.
Over the long term, we believe that demand for OLEDs will rise in line with wider adoption of new form factors at downstream industries. And, standing to benefit the most over the long term are domestic display companies such as Samsung Display and LGD who boast strong technological competitiveness and are concentrating their resources on the development of OLED technologies.