Firms in the OLED market and the industrial structure

Firms in the OLED market and the industrial structure

OLED-related companies
Figures 28 and 29 show the companies that are the main players in the OLED
market. A feature is the strong presence of South Korean companies, centering on
market leader Samsung.

South Korean companies lead the market, with Samsung
at the forefront
Samsung Electronics is building an OLED business on a number of fronts, with
subsidiary Samsung Mobile Display (SMD) mass producing OLED panels and
Samsung making OLED smartphones and tablets and ultrathin OLED TVs. Group
chemicals company Cheil Industries is developing OLED materials, giving the
Samsung Group a presence in upstream and downstream operations.

LG has announced that LG Display will invest in large OLED panels and LG
Electronics in OLED TVs. Plans call for business development to center on large
OLED panels. LG Chemicals is developing OLED materials and, like Samsung, the
LG Group is building a foundation in both upstream and downstream OLED
operations.

South Korean companies are well positioned in OLED materials and manufacturing
equipment. In the materials space, the main South Korean players are Cheil
Industries, LG Chemical, Duksan Hi-Metal, and Daejoo; in the manufacturing
equipment space they are SNU Precision, SFA Engineering, Sunic System, and AP
Systems.

Japan companies focus on materials, equipment, lighting
A number of Japanese companies have entered the OLED materials and
manufacturing equipment business. The main materials makers are Hodogaya
Chemical, Idemitsu Kosan, Toray, Nippon Steel Chemical Group, and Sumitomo
Chemical, and the main equipment makers are Tokki, Ulvac, Hitachi, Tokyo
Electron, and Dainippon Screen.

In the field of lighting, Lumiotec (JV between MHI, Rohm, Toppan Printing, and
Mitsui & Co.,) and Panasonic Idemitsu OLED Lighting (JV between Panasonic and
Idemitsu) led the industry with the shipment of lighting-use OLED panels in 2011.
Toshiba, NEC, Kaneka, Showa Denko, and Konica Minolta Holdings are among
other Japanese companies who are conducting OLED-related R&D.

Sony makes OLED panels using the white filter method on a small scale, but apart
from that no other Japanese company has started mass production of OLEDs.
Panasonic says it plans to install OLED production facilities at its Himeji plant in
2012, but they will be for R&D purposes and it is still unclear whether Panasonic will
invest in mass production. Japan Display, which will be created by the integration of
the small LCD businesses of Hitachi, Toshiba, and Sony, says it is planning mass
production of small OLED panels, although details have not been disclosed.

European/US companies such as UDC have a presence
Only a few European/US companies have entered the OLED market, although they
are big names. In Europe, Philips and Osram (a Siemens subsidiary) are
conducting research on OLED lighting. Merck, Novaled, and other materials makers
have built a presence in OLEDs. In the US, Universal Display (UDC), a company
that has advanced phosphorescent materials technologies as well as patents, is
active in OLEDs.

Chinese and Taiwanese companies looking for
opportunities in OLED panels
Taiwanese LCD panel makers AUO and Chimei Innolux are conducting R&D on
OLED panels. Notably, AUO says it plans to start volume production of small OLED
panels for smartphones in 2012 and aims to expand its OLED business in the future.
We understand Chinese companies Truly, IRICO, and CCO are investing in OLEDs.
Also, major LCD panel maker BOE has announced plans to start mass production
of OLED panels from 2013, showing that Chinese companies are looking for
opportunities in OLEDs.

Trends at OLED display makers
Figure 29 outlines production bases and investment trends for OLED display
makers. South Korean companies SMD and LG Display are investing aggressively
in OLEDs. Some Chinese and Taiwanese companies (AUO, etc.) plan to start mass
production of OLEDs from 2012. Japanese companies are yet to make any real
progress developing OLED businesses.

SMD increasing production capacity aggressively to meet
in-house demand
SMD is the Samsung group company responsible for mass production of OLEDs. It
was founded in January 2009 to take over Samsung Electronics’ small LCD panel
business and Samsung SDI’s OLED business. SMD is investing aggressively in
OLED production capacity to meet demand for Samsung’s consumer electronics
products.

SMD is using 4G (A1) and 5.5G (A2 Phase 1 and Phase 2) production lines for
small OLED production and plans to open another 5.5G line (A2 Phase 3) at the
start of 2012. Further ahead, there are plans to increase 5.5G line capacity (A3) to
meet expected growth in small OLED demand. We think SMD will invest in flexible
displays for the A3 production line.

In the large OLED space, we expect SMD to start up an 8.5G pilot line (V1) in 2012
and to commence mass production from 2013. However, there are still many
uncertainties, such as whether low deposition method production yields, TFT, and
other technical problems can be resolved. Developing and improving mass
production technologies has been a slow process and we thus think investment in
and the start-up of large OLED mass production lines is likely to be delayed.

LG Display aims to start mass production of large OLEDs
from 2014
LG Display aims to start an 8.5G production line for large OLEDs in 2012. The initial
pilot line will have production capacity of around 10,000 units/year. Investment in
mass production lines is expected to start in earnest from 2014. We understand LG
Display will use the white filter method and oxide semiconductors for TFT
backplanes to achieve full color. However, deteriorating LCD business panel
earnings mean that its room for investment is limited and we believe mass
production of oxide semiconductors remains a hurdle to the commercialization of
OLEDs.

LG Display has 4G production lines (called E1 and E2) but no plans to aggressively
invest in small OLED production. This is because it has high-level technological
capabilities for small LCD panels and believes in-plane switching (IPS) LCDs are
superior to OLEDs in terms of electricity consumption and high definition
performance. LG Display appears likely to retain a business focus on LCD.

Japanese companies not making headway in OLED
commercialization
Japanese companies invested aggressively in OLED R&D in the first half of the
1990s. Sony, Panasonic, Sharp, Sanyo Electric, Pioneer, Casio Computer, NEC,
Hitachi, Toshiba, TDK, Kyocera, Seiko Epson and others conducted R&D, mass
production lines were tested and products were developed (digital cameras by
Sanyo, OLED TVs by Sony).

Apart from the small-scale production of film-type white OLED panels by Sony,
Japanese companies have no OLED mass production operations. Also, Japanese
companies continue to retreat from the OLED field (Sanyo Electric, Kyocera, and
Pioneer have withdrawn, NEC sold its OLED business to Samsung SDI, TDK sold
its OLED business to Futaba Corp., and Casio Computer sold its small LCD panel
business).

We believe reasons Japanese companies have not developed OLED businesses
include: 1) the absence of products capable of driving OLED demand; 2) a multitude
of issues surrounding OLED technology; and 3) insufficient investment in OLEDs.
On the demand front, up until the mid-2000s, when Japanese companies were
investing aggressively in OLEDs, products like smartphones that were capable of
driving OLED demand were thin on the ground. Feature phones mainly used 2-inch
and smaller displays and were not capable of driving demand. Consequently,
Japanese companies focused on large OLED for TVs, but the development of mass
production technologies proved difficult and commercialization was not achieved.
Also, with little scope for investment, Japanese companies focused management
resources on LCD technologies, and we believe this is another reason OLED
business development stalled.

We see little prospect of Japanese companies to make headway moving forward.
Sony is restructuring its TV business and seems unlikely to commit to the large
investment necessary for OLED mass production. Japan Display, which will be
created through the merger of the small panel businesses of Sony, Hitachi, and
Toshiba, plans mass production of small OLEDs, but there must be doubts as to
whether it can bridge the technical gap to early mover SMD.
We see Panasonic and Sharp as the Japanese companies most likely to develop
OLED businesses, but there are numerous uncertainties.

Panasonic has plans to advance R&D on OLED and this includes installing OLED
manufacturing equipment at its Himeji plant in 2012. At the 2012 CES, Panasonic
announced plans to enter the OLED TV market from 2013. However, business plan
details remain unclear: product launch timing, business model, business scale,
OLED display procurement, etc. If Panasonic makes OLED displays in-house, we
note that 1) investment in mass production lines would likely be a heavy burden as
TV business earnings deterioration has left little scope for investment, and 2) the
perfection of mass production technologies (TFT technologies, deposition
technologies, etc) will be a hurdle to OLED TV commercialization.

Given that TFT and LCD technologies can be adapted for OLEDs and that Sharp
has impressive LCD expertise, we believe Sharp could enter the OLED market in
the future. However, given its history of focusing resources on LCDs it would
probably take a management policy shift for Sharp to branch into OLEDs. Again,
there must be doubts as to whether it can bridge the technical gaps between it and
early mover SMD.

Taiwanese and Chinese companies aims to start mass
production around 2012
Taiwanese company AUO plans to start mass production of small OLED panels
from 2012 Q2. We expect AUO to use 3.5G lines at the Hsinchu Science Park and
LTPS and vacuum deposition production methods to make 250-300ppi 4-inch
OLEDs suitable for smartphones. AUO also has plans to start mass production on a
4.5G line in Singapore from 2013. But as AUO has no OLED mass production
experience, there must be question marks about how quickly it will be able to start
and on what scale. AUO is also conducting R&D into large OLED displays and has
developed a 32-inch OLED TV that uses oxide TFT technology (IGZO). Chimei
Innolux has developed a small film-type white OLED panel demo, although specific
plans for mass production are unclear.

The Chinese government is promoting the commercialization of OLEDs and privatesector
companies and universities are collaborating on related R&D. Truly, IRICO,
Visionox, and Changhong are companies investing in OLEDs. Large LCD panel
maker BOE has announced plans to start volume production of OLEDs from 2013.
Also, in June 2011, BOE, TCL, IRICO, and other companies established a Chinese
OLED industry federation to promote the development of OLED technologies
through industry cooperation.

Main production bases capacity of OLED makers

OLED supply chain
The OLED industry is notable for having a much narrower scope than LCDs. LCDs
incorporate a wide array of components, like optical film, backlight units, and liquid
crystal materials, and accordingly the supply chain is diverse. The LCD industry
really is a big business. OLEDs, on the other hand, have a simple device structure
and thus use far fewer components. The supply chain is narrower and it cannot
really be described as a big business.

Another feature of the OLED industry is the progress Korean companies have made
in building supply chains. The Korean government has stated that it wants to
increase the domestic production ratio for manufacturing equipment and materials
for which Korea currently relies on Japanese and other overseas companies from
50% to 70% by 2015. To this end, it is supporting the development of OLED
materials technologies and manufacturing equipment. SMD is building a domestic
supply chain through acquisitions and technology licensing.

OLED equipment makers
Figure 31 shows the main OLED manufacturing equipment makers. Tokki, Ulvac,
Hitachi, and other Japanese companies have a strong market share for equipment
used in deposition, sealing, and other main manufacturing processes, but South
Korean companies like SFA Engineering and SNU Precision are strengthening their
presence. Japan Steel Works and Sumitomo Heavy Industries are among several
Japanese companies that make excimer laser annealing (ELA) equipment for low
temperature polysilicon (LTPS) production, but here, also, Korean company AP
System looks to be strengthening is presence through supply to SMD. We
understand AP System is developing laser irradiation equipment for laser transfer
production.

SMD is fostering a supply chain through technical alliances with a number of
manufacturing equipment makers including SNU Precision, AP System, SFA, and
Terasemicon. It also has established capital ties with these companies in an effort to
stem technology outflow. We believe the outflow of technology to later market
entrants through manufacturing equipment is weakening the presence of Japanese
semiconductor and LCD makers.

OLED material makers
There are about 20 large OLED material makers (Figure 32). In the key materials
categories of luminescent materials, HIL/HTL, and EIL/ETL, the main Japanese
players are Hodogaya Chemical, Idemitsu Kosan, Toray, Nippon Steel Chemical
Group, and Sumitomo Chemical. The main South Korean companies are Cheil
Industries, LG Chemical, Duksan Hi-Metal, and major European/US companies are
UDC, DuPont, Merck, and Novaled. OLED-use planarized membrane materials
makers include Zeon, and Toray, and pixel defining layer (PDL) makers include
Toray and Cheil Industries.

We believe trends at companies that make a diverse range of OLED materials
should be followed closely. OLED performance is largely impacted by how well
materials combine, making development easier for companies that have a number
of materials in their product lineup. Hodogaya Chemical, Toray, Merck, Idemitsu
Kosan, and Nippon Steel Chemical Group are among companies that have diverse
OLED materials lineups.

In terms of niche materials, we highlight UCD and Sumitomo Chemical. UDC has
become a leader in phosphorescent materials. It possesses a wide range of related
intellectual property and has concluded licenses with many OLED makers.
Sumitomo Chemical is a leader in the development of polymer OLED materials,
which are crucial to the commercialization of printing method production.

In August 2011, SMD expanded its patent and technology alliance with UDC and in
the same month it reached an agreement with Hodogaya Chemical for the joint
development of OLED. In September, Samsung Venture Investment Corporation
became a shareholder in Novaled (Germany), strengthening Samsung’s ties with
overseas materials makers. OLED materials determine OLED performance in many
respects and we believe these alliances are being formed with the aim of gaining
access to important technologies, including patents.