OLEDs The next generation of displays

OLEDs The next generation of displays

 The ultimate high-end display? — Organic electroluminescent displays (OLEDs) are widely
regarded as the favorite candidate for the next-generation of displays. Their attraction lies in
their high performance as displays. They feature impressive viewing angles, contrast,
response times, and color reproduction ranges, rendering it possible to create images that
make viewers feel like they have ringside seats. They possess simple structures, in which
organic materials are layered on top of the substrate, and are hence well suited to thin screens
and feature excellent shock resistance.
 Why is OLED interesting? — We focus on the OLED market because 1) demand for mobile
devices is growing, 2) the spread of OLED TVs is becoming more realistic, 3) South Korea
leads the market, and 4) technical innovation has a major impact on the display industry.
 Main applications for OLED — Improvements to display performance result in enhanced
product competitiveness, so we think demand for smaller OLEDs for mobile devices,
especially smartphones, will continue to grow. On the large display market, we look for
demand for OLED displays used in flat-screen TVs to pick up from 2012 as South Korean
firms roll out OLED TVs. However, we see there are issues regarding the refinement of mass
production technology for large OLED panels.
 Market size and growth rate — Inside, we estimate the size of OLED markets by application.
Our bearish-case scenario is that the market grows to $16.3bn in 2015 and $28.4bn in 2020,
while in our bullish scenario the market grows to $28.7n in 2015 and $57.5bn in 2020. Longterm
focal points include expansion of supply capacity, including increases in the number of
supplier companies, and progress with manufacturing technologies, including the
commercialization of oxide semiconductors.
 Samsung has first mover advantage — South Korea leads the OLED market: in smaller
OLEDs, Samsung Mobile Display (SMD) is the only supplier, in OLED TVs, Samsung
Electronics and LG Electronics are in the development lead, and in materials and
manufacturing equipment, too, South Korean firms are building a presence. Japanese firms
are not turning OLEDs into businesses but there are some leading Japanese companies in
materials and production equipment.
 Japanese and Korean material companies also attractive — The core OLED name is
Samsung Electronics, which has SMD as a subsidiary and is pushing the use of OLEDs in its
own products. In manufacturing equipment and materials, Ulvac, Hodogaya Chemical, Ube
Industries, Sumitomo Chemical, SFA engineering, SNU Precision, AP Systems, Cheil
Industries, Duksan Hi-Metal, and UDC are companies with commanding market shares or
distinctive technologies and/or products. At the same time, we think that demand could decline
i n LCD components and materials and touchscreens

In this report we examine the current status and future shape of the OLED industry.
1) Developments at OLED-related firms and investment implications
2) OLED properties, device structure, major materials, manufacturing
methods, and other technology trends
3) Projections of OLED market trends and the size of markets by application
over the next decade
4) Overview of the companies in the OLED market and the industrial structure,
including supply chains

Organic electroluminescent displays (OLEDs) are widely regarded as the favorite
candidate for the next-generation of displays. They display using their own light, so
they feature impressive viewing angles, contrast, response times, and color
reproduction ranges, rendering it possible to create images that make viewers feel
like they have ringside seats. Also, they use relatively little electricity. They possess
simple structures, in which organic materials are layered on top of the substrate,
and are hence well suited to thin screens and feature excellent shock resistance.

Organic electroluminescent displays (OLEDs) are widely regarded as the favorite
candidate for the next-generation of displays. They display using their own light, so
they feature impressive viewing angles, contrast, response times, and color
reproduction ranges, rendering it possible to create images that make viewers feel
like they have ringside seats. Also, they use relatively little electricity. They possess
simple structures, in which organic materials are layered on top of the substrate,
and are hence well suited to thin screens and feature excellent shock resistance.
Our focus is on the OLED market for four reasons in the demand, supply, and
technology spaces. On the demand front, demand is growing for mobile devices
and the spread of OLED TVs is gradually looking like a realistic prospect. On the
supply front, South Korean firms lead the market everywhere from completed
products to materials and components and production processes. On the
technology front, OLEDs are at the technology development stage, and technical
innovation has a major impact on the display industry.

On the demand front, we expect demand for smaller OLEDs for mobile devices,
especially smartphones, to grow. We are upbeat about the prospects for OLEDs to
spread, as in mobile devices, enhanced display performance leads to strengthened
product competitiveness. On the other hand, we expect the market for large OLEDs
to only ramp up from 2012, as South Korean firms debut OLED TVs. However, we
see there are issues regarding the refinement of mass production technology for
large OLED panels. OLED lighting is beginning to take off but we see issues with
performance standing in the way.

On the supply front, the OLED industry is led by South Korean firms. In smaller
OLEDs, Samsung Mobile Display (SMD) is effectively the only supplier. In OLED
TVs, Samsung Electronics and LG Electronics are in the development lead. In
materials and manufacturing equipment, too, South Korean firms are making
progress with the construction of a supply chain. However, Taiwanese and Chinese
firms are also looking for opportunities to enter the OLED market and we expect
intensifying international competition in the future. Meanwhile, Japanese firms have
been carrying out R&D in OLEDs but currently are not making any progress with
OLED commercialization. However, companies with impressive market presences,
thanks to their technology prowess, do exist in materials and manufacturing
equipment.

Technologically, OLEDs are at the development stage, and we highlight the
possibility that progress with technical innovation will have a major impact on
market trends. We expect focal points to be lengthening the lifespan of blue lightemitting
materials and on progress with manufacturing technologies, including the
commercialization of next-generation technologies, including the laser transfer
method, the print method, and compound semiconductors. We also focus on the
commercialization of flexible displays that use OLEDs.

We estimate the size of OLED markets by application. Our bearish-case scenario is
that the market grows to $3.9bn in 2011, $7.0bn in 2012, $10.8bn in 2013, $16.3bn
in 2015 and $28.4bn in 2020, while in our bullish scenario the market grows to
$3.9bn in 2011, $7.5bn in 2012, $14.7bn in 2013, $28.7bn in 2015 and $57.5bn in
2020.

In our bearish-case scenario, we see demand growth in mobile phone applications
but only sluggish growth in tablet PCs, FPD TVs, and lighting because of issues
with supply capacity and production technology. In our bullish scenario, we
envisage high rates of uptake for OLEDs in mobile phones on expansion in supply
capacity and also headway being made with the uptake of OLEDs for tablet PCs,
FPD TVs, and lighting, thanks to technology innovations.

The core OLED name is Samsung Electronics, which has SMD as a subsidiary and
is pushing the use of OLEDs in its own products. In manufacturing equipment and
materials, Ulvac, Hodogaya Chemical, Ube Industries, Sumitomo Chemical, SFA
engineering, SNU Precision, AP Systems, Cheil Industries, Duksan Hi-Metal, and
UDC are companies with commanding market shares or distinctive technologies
and/or products. At the same time, we think that demand could decline in LCD
components and materials and touchscreens because of the expansion of the
OLED market.

OLED investment implications

Samsung Electronics is at the core of the OLED sector, as it has SMD as a
subsidiary and is promoting the usage of OLEDs in its own products. In production
equipment and materials, companies that have a strong market presence as well as
distinctive products and technologies include Ulvac, Hodogaya Chemical, Ube
Industries, Sumitomo Chemical, SFA engineering, SNU Precision, AP Systems,
Cheil Industries, Duksan Hi-Metal, and UDC. At the same time, we note that
expansion for the OLED market could mean lower demand for firms in the LCD
material and touch panel spaces.

Samsung Electronics the core of the OLED sector
In our view, the core stock in the OLED sector is Samsung Electronics. Not only
does Samsung Electronics boast SMD, which has a strong presence in the smaller
OLED display market, as a subsidiary, but it also continues to expand its
smartphone business by giving them OLED displays. Moving forward, we have high
expectations for commercialization of large OLED displays and OLED TVs.

SMD boasts three key strengths, in our view. First of all, Samsung’s smartphones
and flat-screen TVs are highly competitive and have strong market shares, and it is
easy for SMD to tap in-group demand. In addition, persistent R&D efforts have
allowed SMD to amass technological capabilities. Finally, SMD has built strong
relationships with material and device makers thanks to its high market share and
development capabilities.

We think SMD will continue to have a competitive advantage in smaller OLEDs
moving forward. Given that 1) OLEDs require a fair amount of adjustment and finetuning,
making know-how in terms of materials and production technology
necessary; 2) it is easy to benefit from economies of scale in the OLED market; and
3) OLED technology is concentrated in South Korea, we think it will be easy for
SMD to profit from being the first mover. Firms in Japan, Taiwan, and China plan to
get in to the smaller OLED market, but we do not think it will be easy to catch up
with SMD technologically.

As noted above, we have expectations for commercialization of large OLED
displays and OLED TVs moving forward. We get the impression that a number of
issues need to be overcome before OLED TVs are commercialized, including how
to establish mass production technology for large OLED displays. However with
continuing price declines for LCD panels and the TV industry as a whole as well as
the rise by China’s LCD industry, we think SMD is looking to build a technological
advantage in OLEDs.

Companies with a strong market presence and distinctive
products and technologies

Among the large number of companies involved in production equipment and
materials are Ulvac, SFA engineering, SNU Precision, AP Systems, Cheil Industries,
Duksan Hi-Metal, Hodogaya Chemical, Ube Industries, Sumitomo Chemical, and
UDC, all of which have a strong market presence and distinctive products and
technologies.

Leading Japanese suppliers: Ulvac and Hodogaya
Chemicals

Ulvac and Hodogaya Chemical are leading suppliers among Japanese companies.
Ulvac is a manufacturing equipment maker that mainly supplies vacuum equipment
and materials for use in the production of FPDs, semiconductors, and solar cells.
OLED-related products include vacuum vaporization systems used in deposition
processes, chemical vapor depositon (CVD) equipment used in low-temperature
polysilicon (LTPS) processes, and sputtering equipment. Ulvac has high-level
technologies, centering on vacuum deposition technology. In the field of vacuum
vaporization equipment, Ulvac is one of the few external equipment companies that
can make equipment capable of integrating production from deposition through to
sealing and it has a strong market presence. Strong technical capabilities also
support a high market share for CVD equipment.

Ulvac supplies vacuum vaporization equipment to SMD, a very major customer. It is
also strengthening sales to Taiwanese and Chinese display makers waiting for the
right time to enter the OLED market and to makers of OLED lighting, the market for
which is steadily ramping up. The company is focusing on sputtering equipment and
IGZO (indium gallium zinc oxide) materials for oxide semiconductor TFTs and also
developing products suitable for next-generation technologies, such as print method
and TFE method production.

FPD manufacturing equipment sales came to ￥93.7bn in FY6/11 (40% of
companywide sales) and company guidance calls for sales of ￥94.2bn in FY6/12
(40%). The ratio of FPD equipment used in the production of next-generation
displays was around 25% in FY6/11 and the company plans to increase this to
around 50% in FY6/12, with the majority of those being OLED displays.

Hodogaya Chemical is a leading maker of OLED materials. The company entered
the OLED materials business by applying the electron/electron hole carrier qualities
of its mainstay copier-use organic photoreceptor materials in the field of OLEDs. In
2001 it began making hole transport layer (HTL) materials, in 2010 it invested in
SFC (South Korea), a maker of blue luminescent materials, and in 2011 it formed an
alliance with SMD.

Hodogaya’s strengths include its knowledge of OLED materials and a broad
materials lineup (HTL/HIL, electron transfer layer/electron injection layer,
luminescent materials, etc.) Having a wide range of materials means that Hodogaya
is able to supply materials as packages. Also, as OLED performance is determined
by the combination of materials it should be easy for Hodogaya to accumulate
technical expertise given the range of materials it handles.

Hodogaya announced a business alliance with SMD in the field of OLEDs in August
2011. The companies agreed to the joint development of OLED materials and to an
investment by Hodogaya in SFC, a consolidated subsidiary of Samsung Venture
Investment Corporation (SVIC). We expect the tie-up with SCF to increase sales of
OLED materials, centering on colored luminenscent materials to SMD.

In the functional colorants business, which handles OLED materials, Hodogaya
reported FY3/11 sales of ￥9.1bn and OP of ￥0.6bn forecasts FY3/12 sales of
￥11.5bn and OP of just under ￥0.9bn. Under its medium-term management plan,
Hodogaya aims to increase functional colorant sales to ￥20.5bn in FY3/14, including
through expanding OLED materials business.

Leading Korean suppliers: Cheil Industries, Duksan, SFA
Cheil industries, Duksan Hi Metal and SFA engineering are leading suppliers
among Korean companies. Cheil Industries develops OLED materials as the main
materials maker in the Samsung group, and we expect it to ship EIL/ETL and PDL
materials to SMD in the future.

Duksan Hi Metal is a top maker of HIL/HTL materials. Dukusan entered the OLED
materials business in September 2009 when it acquiring organic materials maker
Ludis. Duksan Hi Metal has a high market share in HIL/HTL materials, its main
business. OLED materials sales increased from KRW18.1bn (including KRW6.5bn
after Ludis was acquired by Dukusan) in 2009 to KRW33.9bn in 2010 and totaled
KRW48.6bn in 2011 Q1-Q3. Earnings continue to grow with OLED market
expansion.

SFA Engineering is a leading manufacturing equipment maker. The company’s main
lines are LCD and OLED manufacturing equipment and it has high market share for
OLED-use vacuum evaporation equipment and sealing equipment. SFA
Engineering has developed OLED equipment jointly with SMD against the backdrop
of a Korean government policy of turning display manufacturing equipment into a
national industry. Samsung Electronics has a 10% stake in SFA Engineering and
this has contributed to the building of strong ties with SMD. SFA Engineering’s
overall sales increased from KRW307bn in 2009 to KRW422.9bn in 2010 and
totaled KRW361.2bn in 2011 Q1-Q3. Sales have continued to grow with OLED
market expansion. Earnings continue to grow with OLED market expansion.

Flexible displays: Ube Industries, SNU Precision
Ube Industries and SNU Precision are companies in the flexible display space.
In May of 2011, Ube Industries and SMD established a joint venture to produce
OLED display substrate materials, with the joint venture expected to manufacture
polyimide plastic. SMD expects to mass produce flexible displays by using this
plastic for substrates. We think flexible displays will become thinner and more
impact-resistant, so they are likely to be increasingly popular for mobile devices in
the future. Ube Industries has secured SMD as both a business and trading partner,
so if the flexible display market expands we think it could have a major impact on
Ube Industries profits.

SNU Precision is a supplier of deposition and encapsulation equipment, and it has
also developed encapsulation equipment that uses the thin film encapsulation (TFE)
method. The TFE method cuts costs and improves productivity, and using thin film
results in flexible displays. If SMD were to move forward with full-scale
implementation of the TFE method, we think SNU Precision could benefit. In
addition, we note that SNU Precision is in a capital tie-up with SMD, so the two
firms have a strong relationship.

Laser transfer: AP Systems
AP Systems is a supplier of encapsulation equipment and ELA devices for LTPS,
and it has also developed laser transfer equipment. We think the laser transfer
method is an effective technology for giving OLED displays higher resolutions. If
SMD were to move forward with full-scale implementation of the laser transfer
method, AP Systems could benefit. We note that AP Systems has also developed
laser lift-off (LLO) equipment that uses thin metal film for encapsulation, and we
expect commercialization in the future. AP Systems is also in a capital tie-up with
SMD, so the two firms have a strong relationship.

Superior technologies: Sumitomo Chemical for polymer
materials and UDC for phosphorescent materials
Two other distinctive OLED material firms are Sumitomo Chemical and Universal
Display Corporation (UDC). Sumitomo Chemical has a wide range of patents in
polymer materials, while UDC has a wide range of patents in phosphorescent
materials, and expansion for the OLED market could have a significant impact on
earnings at both firms.

Sumitomo Chemical is the top maker of polymer OLED materials. It is the market
leader in development of polymer materials and holds a wide range of patents in
this area. It began developing polymer materials in the 1980 and has focused on
this area ever since. In 2005 it acquired Dow Chemical’s polymer materials
business, followed by an acquisition of the UK firm CDT in 2007.

One reason we highlight Sumitomo Chemical’s polymer materials business is the
possibility that the printing method will become more widespread. The benefits of
printing using polymer materials are 1) it enables production of OLEDs with simple
structures, 2) it offers better solubility in organic solvents (there are many issues
with the solubility of small-molecule materials), and 3) it enables production of large
OLED displays. Accordingly, the printing method could result in mass production of
OLEDs at low cost.

Sumitomo Chemical has succeeded in increasing the lifespan of blue luminescent
materials, something which had been a problem for some time. In 2012, the firm
plans to build a plant for the mass production of polymer materials used in the
printing method of OLED production. To commercialize this business, it will need to
supply samples to display makers and secure the materials and process technology
necessary to manufacture panels. However, Sumitomo Chemical holds a wide
range of patents in polymer OLEDs, so if polymer OLEDs are adopted for OLED
TVs and OLED lighting, it could have a major impact on Sumitomo Chemical
earnings.

UDC is a leading developer of phosphorescent materials that use iridium
complexes. It boasts a wealth of intellectual property and impressive technological
development capabilities. A key UDC strength is that it holds more than 1,200
individual patents related to phosphorescent materials, which include a large
number of important patents related to materials, processes, and device structures.
As a result, it is difficult to develop OLEDs that use phosphors without infringing on
one of UDC’s patents.

Thanks to its impressive technological capabilities in phosphorescent materials,
UDC has forged strong relationships with OLED display and OLED lighting firms. In
the area of OLED displays, UDC has licensing agreements and purchasing
contracts with SMD, and it also has inked purchasing contracts with LG Display;
moreover, it is involved in technology development contracts with AUO, Chimei
Innolux, and Sony, among others. In OLED lighting, UDC has licensing agreements
with Panasonic and is involved in technology development contracts with LG Chem
and NEC Lighting as well.

UDC’s main businesses are production and sales of phosphorescent materials,
commissioned development, and licensing. UDC has been posting operating losses
for some time due to up front spending on R&D, but it posted an operating profit of
$5.9mn in July-September 2011 thanks to increasing OLED demand.

Concerns for makers of LCD-related products, glass, and
touch panels
As the OLED market grows, we could see a negative impact on firms involved in
LCD-related products, glass substrates, and touch panels. We think demand at
LCD-related and touchscreen-related firms could decline as end products
increasingly turn to OLEDs (Figure 32).

OLEDs generally do not use LCD-related products (although they do use some
when made via the white filter method), so we think increasing usage of OLEDs
would result in lower demand for LCD materials. LCD-related products not used in
OLEDs include LCD materials, backlight-related products (backlight units, LEDs,
CCFLs, light guide plates, etc.), and optical films (TAC film, PVA film, polarizing film,
color filters).

We could see a negative impact on glass substrates as well, depending on what
happens with OLED technology development. OLED panels use two glass plates
for substrates and encapsulation, but if the next-generation TFE method is
successfully commercialized, the cover glass used for encapsulation could become
unnecessary. Also, if flexible displays become more common thanks to OLEDs,
substrates could shift to plastic from glass, leading to lower demand for glass
substrates.

Large displays (flat-screen TVs, etc.) use a lot of LCD-related products, and we
think the key here is how quickly the full-scale shift from LED to OLED goes. Our
basic thinking is that the shift to OLED will occur gradually, so for now there should
be limited impact on LCD-related products. However, as technology changes the
shift to OLEDs could accelerate.

Our main scenario assumes a gradual shift to large OLED displays, primarily at the
high end of the market, as 1) we think it will be difficult to differentiate OLED TVs
from conventional LED TVs and 2) issues remain with mass production technology.
As a result, we look a changeover to OLED TVs from LED TVs of just 2% in 2015
and 7% in 2020 in terms of display area, so for now there is likely to be little impact
on LCD-related product makers.

On the other hand, in an bullish scenario we could expect the establishment of a
mass production technology for large OLED displays to result in a real shift to
OLEDs from around 2015. In this scenario, we would look for a changeover to
OLED TVs from LED TVs of 7% in 2015 and 26% in 2020 in terms of display area.
Nailing down a mass production technology is a bottleneck in the diffusion of largescale
OLED displays, so for now one should keep an eye on advancements in
production technologies, including compound semiconductor TFTs and
commercialization of the printing method.

We also think touch panel-related firms could see a negative impact from the
increasing popularity of OLEDs. This is because touch panel functionality is
possible on OLED displays using on-cell technology. Therefore, as OLED uptake
progresses and touch panel production moves increasingly in-house via on-cell
technology, we could see a decline in demand for touch panels.