Recently, UBS analysts attended an OLED Supply Chain Day in Korea, meeting with equipment suppliers including Duksan Neolux, Viatron, Invenia, Wonik IPS and AP Systems.
From the meeting, the analysts concluded that their previous expectations regarding an Apple integration of OLED displays were founded and "further reinforced."
"The transition to OLED remains one of the key structural shifts in Tech Hardware for the rest of the decade, with quasi-duopoly in favor of Korea," the analysts determined.
10 Key Findings
UBS analysts elaborated upon their conclusions by detailing 10 key findings from the event.
1. Apple Adoption Of OLED In The Second Half Of 2017: "Our latest findings have reinforced our view that Apple (
Apple Inc.AAPL) should roll out its first OLED-based iPhone in 2H17, likely ‘edge type' (with other models continuing to use LCD). We continue to see a broader use by 2018, including potential foldable product."
2. Samsung (SAMSUNG ELECTRONIC KRW5000 SSNLF)'s Ramp Up For Flexible OLED "Looks Steady": "Insofar, equipment oders filed by Korean equipment vendors are we believe equivalent to 30k sheets per month (‘spm') capacity, added to the 15k spm capacity installed in the 3 line."
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3. More LGD (LG Display Co Ltd. (ADR) NYSE: LPL)) Flexible OLED Orders Likely: "For now, LGD gen 6 OLED equipment orders are being confirmed for additional capacity for automotive and China smartphones requirements […] But beyond this, LGD equipment vendors do not see yet incremental orders. Should these occur in 2Q16 […] then this could come in on time to support additional requirements for a large mobile customer such as Apple for 2H17."
4. China Mobile OLED Capacity Is High: "Several of the recent orders seen by OLED equipment suppliers confirm that not only China smartphones vendors are ramping up gen 4.5, 5.5 and gen 6.0 RGB OLED capacity for mobile use, but that some of those projects are also for flexible OLED."
5. Gen 8.5 White OLED Orders Expected "In Earnest": "We expect orders for Phase 2 of the E4-2 fab(gen 8.5 OLED for TV panels) in 2Q16 for 4Q16 deliveries," the analysts explained. "Considering this, we continue to expect LGD to be close to EBITDA break even in 2016, after c. Won650bn of related OP losses for white OLED in 2015. We expect profits by 2018. This remains the biggest swing factor in our LGD earnings forecasts."
6. Samsung, OLED TV Panel Re-Entry Remains Pending: "At this stage, we still have not seen significant equipment orders for Samsung's gen 8. OLED panels capacity […] Still, we remain of the view that moving to White OLED remains the logical decision for Samsung."
7. LGD Contemplating Gen 10.5: "We believe LGD is heading towards a decision for gen 10 backplane by 2H16. If it is decided to be OLED, related equipment deliveries could then start in 2017."
8. China Is Likely To Be A "Late Comer": "d orders worth Won523bn for January '18 deliveries for dry etchers. This being for backplanes, it could be for either OLED or LCD. CSOT is also contemplating OLED capacity for TVs, but so far, we believe R&D activity is very low. Hence – we do not expect to see significant White OLED TV panels output from China before 2020."
9. Equipment Lead Times:
"For etchers, we see lead times of 6 months (on the higher side). For the front end lines, lead times have stretched across the board."
10. OLED Evolving: "For mobile, we mentioned that Apple has specific requirements for OLED materials. Recall that Apple has c. 400 display engineers with c. 10 percent of those we believe focusing on materials. At the same time, we expect Samsung to adopt M8 by 2017 at the latest for Red (for RGB ie smartphones) with deeper red, and lower power consumption."
Ratings
UBS currently rates LG Display at Buy with a price target of Won360000 and Samsung at Buy with a Won1470000 price target.
LG Display is down roughly 6 percent on the day at $11.33.
