1. Telecoms, Media & Technology
Equity – Asia
April 2013
Flexible Display
Fantastic plastic – a shape-shifting game changer
The smartphone and tablet industries are on the verge of another revolution – look out for a
new wave of innovation starting in 2H13
Curved handsets and bendable, stronger tablets will be the next big thing, thanks to new
plastic materials
Korean companies Samsung Electronics (OW) and LG Electronics (OW) stand to gain the most
from flexible display, but the whole supply chain will benefit; we upgrade Cheil Industries and
SFA to OW and Duksan Himetal to N(V)
By Brian Sohn, Ricky Seo and Jerry Tsai
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
2. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Impact from flexible display
Positive Neutral Negative Reason Impact
Handset SEC Differentiation among smartphone makers Flexible display could help to sustain its dominance in the
makers high-end smartphone segment
LGE Flexible display could be a key differentiating factor in high-end
smartphones, and help to improve ASP and margin. Revise up
2013 handset margin assumption from 0.9% to 3.7%
Materials Cheil New business in plastic substrate and OLED materials to OLED business drives ECM division growth as it expects to
Industries kick in take 23% of ECM revenue in 4Q15 from nothing in 4Q12
LG Chem Contribution from plastic substrate, which accounts for only Although the company is a key player in making flexible
a small portion of overall earnings display feasible, the contribution to earnings is limited
Duksan Already a major supplier of OLED materials to Samsung Already a main OLED material supplier for Samsung
Himetal Display Display, limited upside from flexible display transition
Glass Glass substrate to be replaced by plastic in the longer term
makers*
Panels Samsung Limited to small-sized displays, insignificant to overall Substantial potential to become major flexible display
Display earnings makers as its AMOLED line could be converted to flexible
display when materials are ready for mass production
LG Although the company should play an important role in
Display commercialising flexible display, expect an insignificant
contribution to earnings
Component LG Indirect beneficiary if LGE’s smartphone business can turn Once LGE smartphone business turns round, it is likely to
Innotek around benefit from the mobile component business with LGE
SEMCO Already a major beneficiary of Samsung’s smartphone Handset accounts for 23% of estimated 2013 total revenue
success
LED No BLU is required in flexible display (e.g., Seoul Semi)
makers*
(Battery) Samsung Product mix improvement through irregular shaped battery IT battery accounts for 64% of estimated 2013 total revenue
SDI
LG Chem Although the company is a key player in making flexible
display feasible, the contribution to earnings is limited
Equipment SFA Line conversion to LTPS OLED Additional small panel equipment orders from Samsung
Display during 2-3Q13e, given that it has to switch or extend
capacity for flexible AMOLED. Galaxy Note 3 likely to adopt
flexible OLED (unbreakable).
LTPS Line conversion to LTPS OLED from traditional LCD
equipment*
Source: HSBC estimates
*Note: Refer to the table on page 9 for the food chain
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3. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Roadmap for flexible display
Phase Available solution Time frame Product Key benefit Prototype
Plastic substrate LTPS, RGB OLED, 2Q13e Unbreakable Lighter, slimmer, given no substrate glass
Polyimde (not fully smartphone required, but no change in form factor
transparent)
Plastic substrate + LTPS, RGB OLED, 3Q13e Curved screen Lighter, slimmer and curved screen design
ultra-thin glass Polyimde, irregular type smartphone
Li-Polymer battery
Plastic substrate + LTPS, OLED, 2014e Bendable tablet, Lighter, expandable screen size
plastic front glass transparent Polyimde notebook
substrate, irregular type
Li-Polymer battery, new
plastic material
Transparent LTPS, OLED, 2015e Transparent, Transparent, rollable tablet
transparent Polyimde smartphone,
substrate, transparent tablet, monitor
battery, new plastic
material
Source: HSBC estimates
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4. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Summary
The concept of a digital device that can be rolled up like a piece of
paper is no longer science fiction. We believe flexible display
technology will be a game changer for smartphones and tablets and
the first prototype products should be available in a few months. LG
Electronics and Samsung Electronics stand to gain the most, but the
whole vertically integrated Korean supply chain will benefit. We
upgrade Cheil Industries and SFA to OW from N and Duksan Himetal
to N(V) from UW(V). We remain OW on Samsung Electronics (an
Asia Super 10 and GEMs Super 15 portfolio stock) and OW (remove
the volatility indicator (V)) on LG Electronics and LG Innotek.
The next big thing – flexible display. Imagine a screen that is bent around the side of the phone, so you
can see data updates or messages. Then go a stage further and imagine a range of bendable, rollable and
foldable digital devices. Welcome to flexible display, the technology that is about to become commercial
reality. Flexible displays can be bent without being damaged, making it possible to create products that
are ultra-thin, almost unbreakable and flexible. The potential for this technology is substantial as the
ultimate goal is to produce cheap mass-produced digital devices that can be rolled up like paper.
We believe the introduction of flexible display will change the industry landscape. Starting with another
wave of innovation in 2H13, flexible display based on new plastic materials will evolve into bendable and
then transparent products.
This report focuses on Korean companies as they appear better placed to benefit from flexible display
than their global competitors, at least to begin with. They are at an advanced stage of development in
most of the processes needed to make this technology a reality and should also be the first to enjoy the
advantages of a vertically integrated supply chain.
Korean giants LG Electronics (LGE) and Samsung Electronics (SEC) are likely be the main beneficiaries.
The two companies are leading the way in developing this new technology (Samsung gave a sneak
preview at a recent trade show in Las Vegas) and have the capability to manufacture and release
differentiated products that will change the market.
Importantly, both have already commercialised organic light-emitting diode (OLED) technology, the base
technology for flexible display, and have established vertically integrated panel, chemical, and handset
production. LGE and SEC should lead the way in the initial stage when the flexible display technology is
first used in handsets for smartphones. LG Innotek (LGI) should benefit as a component supplier, as
should Cheil Industries and SFA as materials and equipment providers.
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5. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Curved design smartphone concept Curved design smartphone concept
Source: HSBC Source: HSBC
All this is good news for the digital supply chain. For example, the smartphone market, which has grown
at a significant rate since the second half of 2009, is starting to mature. Aggressive new players are trying
to catch up with market leaders. Currently, all smartphones use rectangular touch screens, making it
harder to differentiate between products (see The new three “Cs” – commoditisation, concentration and
cost, 6 December 2012, and Lots of new products, little differentiation. Commoditisation accelerating,
14 January 2013). And with lower entry barriers leading to fierce price competition, sentiment has turned
gloomy as fears about lower profitability grow. Flexible display should help change that.
OLED gives established players an edge. Other than larger screen size and better resolution, there is
little room for improvement in flat display panel, which is based on light-emitting diode (LED)
technology. Top Korean LCD makers have been trying to breathe life into the industry but penetration
levels for LCD TVs are already high. LCD can’t be used in flexible display, which needs self-light
emitting material, such as OLED. Korean companies have led the development of OLED, which is
already being used in some smartphones and TVs. OLED’s faster response time and outstanding colour
definition have given the early entrants an edge as its use in high-end products also generates a margin
premium. OLED is the first step to making the commercialisation of flexible display a reality.
The challenges: 1) Customer satisfaction and good profit margins are the incentives driving the
commercialisation of flexible display. Heavy investments have already been made in LCD facilities,
which will have to be converted to produce flexible display. 2) A substitute for glass: most displays use
glass as it offers better resistance to heat, gas and moisture, and is more transparent than other materials;
but it is not flexible, so new plastic materials are needed. 3) Flexible display products need to show that
they can offer consumers added value. It remains to be seen how much of a premium companies will be
able to charge for these products. The consumer will be the judge of that.
What can we expect? We think flexible display will be fully commercialised in 2014, but some products
based on existing technology may be available much earlier. The first thin smartphones and tablet PCs
using plastic substrates could be in stores in just a couple of months, but how much added value these
prototypes will offer consumers remains to be seen. We expect competition to start to hot up in 3Q13
after the release of smartphones with curved screens made of both plastic substrate and thin glass.
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8 April 2013
LGE and SEC, which have vied with each other since the launch of OLED TV in January 2012, should
also compete fiercely in the flexible display smartphone market. In 2H13, SEC is likely to start offering
flexible display in its Galaxy Note 3 and LG Electronics in its Optimus G2 models, with possible volumes
of 10-15m and 5-10m, respectively. This would mean that by the end of the year flexible display could
represent 5% of the global smartphone market and 15% of high-end smartphones in 2H13. These models
are all high end, so the impact on earnings will be visible at an early stage. The first models will still use
glass in the outer layer of the curved screen, so won’t be completely flexible. However, by 2014 plastic
film will be available and the new products will represent a revolutionary change in the smartphone,
notebook and tablet industry.
Flexible display market forecasts Samsung’s OLED sales and OPM forecasts
(USDmil) LCD OLED E-ink Others 25,000 25%
10,000
20,000 20%
8,000
15,000 15%
6,000
10,000 10%
4,000
5,000 5%
2,000
0 0%
0 2010 2011 2012 2013e 2014e
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
OLED rev enue (USDmil) OPM (RHS)
Source: Display Search, HSBC estimates Source: HSBC estimates
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7. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Bendable display conceptual picture Bendable display conceptual picture
Source: HSBC Source: HSBC
Market prospects. We expect two important technological steps to be taken next year. First, an
evaporation process on top of plastic substrates will simplify the manufacturing process, leading to mass
production. We also expect transparent plastic to replace the frontal glass of curved screens. This will
broaden the scope of flexible display’s applications from pilot products, such as two-inch watches and
five-inch curved screens, to commercial 5-8 inch tablets and 13-15 inch notebooks. When this happens,
the size of the flexible display market size will increase substantially.
Given the scale and pace at which Samsung Display is converting some of its OLED facilities to flexible
lines, we estimate the market could be worth USD6bn by 2015. Much will depend on how fast new
materials and processes can be developed. While demand for prototype flexible display products, such as
watches and small curved screen is likely to be limited, we expect the market to start taking off when SEC
and LGE launch flexible display Galaxy Note 3 and Optimus G smartphones later this year.
Development of OLED display vs. flexible display
OLED TV Flex ible display
④ Mass production
for OLED TV
③ Penetration of ③Penetration of
② Introduction of
new play ers new play ers
① Technological prototy pe through ② Introduction
improv ement pilot line ①Technological of prototy pe
improv ement
2011 2012 2013 2014 2015 2016
Source: HSBC estimates
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8. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
Impact from flexible display
Food chain Name Impact Description
Handset and Samsung Handsets account for 51% and 64% of Flexible display could help to sustain its dominance in the high-end
panel Electronics sales and operating profit in 2013e, smartphone segment
respectively
Samsung OLED panels account for 6.8% and Substantial potential to become a major flexible display maker as its
Display 9.1% of sales and operating profit in AMOLED line could be converted to flexible display when materials
2013e, respectively are ready for mass production
Handset LG Electronics Handsets account for 23% and 30% of Flexible display could be a key differentiating factor in high-end
makers sales and operating profit in 2013e, smartphones and help to improve ASP and margin. Revise up 2013e
respectively handset margin assumption from 1% to 3%
Materials LG Chem Plastic substrate and Li-Polymer Although the company is a key player in making flexible display
battery take <1% and 6% of total sales feasible, the contribution to earnings is limited
in 2013e
Cheil Industries Electronics Chemical Material (ECM) OLED business drives ECM division growth as it expects to take 24%
business accounts for 29% of 2013e of ECM revenue in 4Q15e, up from nothing in 4Q12
sales
Duksan OLED materials account for 71% of Already a main OLED material supplier for Samsung Display, limited
Himetal 2013e sales upside from flexible display transition
Component LG Innotek Mobile component business accounts Once LGE’s smartphone business turns around, it is likely to benefit
for 60% of 2013e sales from the mobile component business with LGE
SEMCO c50% of sales is from Samsung Already a major component supplier to Samsung Electronics, the
Electronics incremental benefit from flexible display could be limited
Panel LG Display G6 LTPS fab is to be converted to Although the company will likely play an important role in
flexible OLED, it accounts for 6% of commercialising flexible display, expect insignificant contribution to
total output capacity earnings
Equipment SFA 57% of 2013e sales is related to OLED Additional small panel equipment orders from Samsung Display
manufacturing equipment (back-end during 2-3Q13e, given that it has to switch or extend capacity for
and logistics) flexible AMOLED. Galaxy Note 3 will mostly likely adopt flexible OLED
(unbreakable)
Source: HSBC estimates
The winners. We believe vertical integration is essential to fully commercialise flexible display for the
following reasons: 1) Although individual panel and materials companies are capable of solving
technological issues, the supply chain needs to be tested by the rigours of mass production; 2) We think
flexibility on pricing throughout the supply chain is also essential, especially in the early stages. TV set
makers have a “40% premium rule” for TV products but set prices lower when they launched LED and
ultra-high definition TV. They will probably have to adopt the same tactics for flexible display as
customers assess these new products. 3) A whole range of new components will be needed to meet the
requirements of flexible display (for example, a completely new shaped battery will have to be designed).
Korean handset makers that stand to benefit most at first as they have an opportunity to grow their market
share on the back of these new and highly differentiated flexible display products. It’s certainly a
substantial opportunity for LGE, which is experiencing a slump in its smartphone business. The
company’s market share is only 5%, but we believe this can rise to 7-8% in 2014. Samsung Electronics,
the leader in the smartphone handset market, can use flexible display to further strengthen its position.
We believe these two companies have a head start on their global handset rivals because they already a
vertically integrated supply chain in place. For example, we think flexible display will be difficult to
commercialise for Apple, given the large size of its orders and a lack of capacity in the industry.
Meanwhile, it may take Nokia and HTC some time to introduce flexible display products as organising
the supply chain is likely to be a lengthy process.
We believe LG Innotek (LGI) will be one the biggest indirect beneficiaries of the flexible display trend.
For example, if LGE’s handset business improves, LGI will supply it with most of the handset
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9. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
components – touch screen, PCB, and camera modules. LGI also holds the key to developing the required
flexible components (e.g. flexible PCB) when curved design is introduced. This will strengthen the
relationship between LGI and LGE. What’s more, LGI is developing a transparent electrode, essential for
transparent display in the longer term. We also believe Cheil Industries will have the largest upside risk in
the mid to long term as the company can co-operate with Samsung Display to develop core technologies
required for flexible display. This is Cheil’s differentiating factor and is expected to drive revenue growth
at its electronic material division.
It’s also good news for equipment makers. Starting in 3Q13, Samsung Display and LG Display are
expected to expand capacity by converting existing LCD fabs to plastic OLED to maximise investment
efficiency. As a result, SFA, Samsung Display’s equipment makers, is expected to benefit.
Our preferred stocks among handset makers are Samsung Electronics and LG Electronics, while we
prefer Cheil Industries, LG Innotek, and SFA among component, materials and equipment providers. We
upgrade Cheil Industries and SFA to OW from N and Duksan Himetal to N(V) from UW(V). We remain
OW on Samsung Electronics (an Asia Super 10 and GEMs Super 15 portfolio stock) and OW (remove
the volatility indicator (V)) on LG Electronics and LG Innotek.
Summary of ratings and target price changes
LG Electronics Cheil Industries LG Innotek SFA Samsung LG Display LG Chem Duksan Himetal
Electronics
Stock Code 066570 KS 001300 KS 011070 KS 056190 KS 005930 KS 034220 KS 051910 KS 077360 KS
Market Cap (KRWbn) 13,042.7 4,415.3 1,567.3 1,086.2 221,980.1 11,181.7 18,257.7 806.8
Rating Reiterate OW Upgrade to OW Reiterate OW Upgrade to OW Reiterate OW Reiterate OW(V) Reiterate OW(V) Upgrade to N(V)
from N from N from UW(V)
Target Price (KRW) 116,000 108,000 108,000 75,000 2,000,000 51,500 365,000 31,700
Previous TP (KRW) 104,000 98,000 108,000 56,000 2,000,000 51,500 365,000 17,500
Current Price (KRW) 80,000 92,500 85,700 62,400 1,521,000 31,150 251,000 26,850
Diff to TP 45.0% 16.8% 26.0% 20.2% 31.5% 65.3% 45.4% 18.1%
PE 2012a 215.7x 22.4x -69.1x 14.9x 9.6x 48.5x 11.8x 16.1x
2013e 11.4x 14.3x 36.8x 11.1x 7.1x 5.4x 9.2x 14.2x
PB 2012a 1.2x 1.4x 1.4x 2.9x 1.9x 1.1x 1.5x 3.7x
2013e 1.1x 1.3x 1.3x 2.4x 1.5x 0.9x 1.3x 2.9x
ROE 2012a 0.5% 6.4% -1.9% 19.6% 22.3% 2.3% 14.1% 26.1%
2013e 9.7% 9.6% 3.6% 23.3% 23.9% 18.8% 15.9% 23.1%
EPS 2012a 371 4,124 -1,240 4,175 158,228 642 21,281 1,665
2013e 7,044 6,458 2,330 5,611 214,645 5,746 27,138 1,891
BVPS 2012a 69,166 64,329 62,895 21,838 806,096 28,619 163,890 7,253
2013e 75,959 70,041 65,226 26,249 1,028,740 34,438 185,941 9,144
Source: Bloomberg, HSBC estimates; Priced as of 3 April 2013
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10. Telecoms, Media & Technology
Asia Technology abc
8 April 2013
OLED/Flexible display food chain
Category Component Name Description Suppliers
TFT Glass Mother glass Base glass to apply TFT circuit NEG (NEG US)
Corning (GLW US)
Plastic substrate Polyimide film Plastic film to apply on TFT glass LG Chem (051910 KS)
Cheil Industries (001300 KS)
Nippon Steel Chemical Corp (5401 JP)
Circuit Surface mount Flexible printed circuit board Flexible plastic board with complex of circuit ACT (unlisted)
device
MLCC Multi-layer ceramic condenser Multiple layer of ceramic condenser to control power SEMCO (009150 KS)
between chip on the circuit board Murata (6981 JP)
OLED Common Layer HIL, HTL, ETL, EIL Layer to transfer electrons UDC (PANL US)
Idemitsu Kosan (5019 JP)
LG Chem (051910 KS)
Cheil Industries (001300 KS)
Doosan Electronics (unlisted)
Emission Materials Fluorescence materials, Self-illuminating material when electric power is UDC (PANL US)
Phosphorescence materials applied Idemitsu Kosan (5019 JP)
Kodak (unlisted)
Evaporation RGB LTPS Equipment to use low temperature laser base Tokki (7751 JP)
evaporation process AP System (054620 KS)
ULVAC (6728 JP)
White OLED Sputtering equipment AVACO (083930 KS)
Encapsulation Sealant Paste to stick upper glass and bottom glass in TFT Three Bond
LG Chem (051910 KS)
Cheil Industries (001300 KS)
Frit seal Glass pounder to be used as adhesive paste Yamato (9064 JP)
Corning (GLW US)
Face seal Apply adhesive seal in order to bind upper and Three Bond (unlisted)
bottom glass AVACO (083930 KS)
LIG ADP (079950 KS)
PECVD chamber Vacuum chamber for face seal process Jusung Eng(036930 KS)
Source: HSBC
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Contents
Introduction to flexible display 11 Company section 39
Why flexible display is important 11 LG Electronics (066570 KS) 40
Flexible display: market prospects 13 Cheil Industries (001300 KS) 43
LG Innotek (011070 KS) 46
Key success factors 16 Samsung Electronics (005930 KS) 48
1: Re-using LCD fabs 16
LG Display (034220 KS) 50
2: A substitute for glass 16
LG Chem (051910 KS) 52
3: Plastic to replace frontal glass 18
SFA (056190 KS) 54
4: Vertical integration 18
Duksan Himetal (077360 KS) 56
What to expect near term 20
Disclosure appendix 69
Who benefits from flexible
display? 24 Disclaimer 72
Implications for non-Korean
players 26
Technology overview 29
Technology overview 30
Introduction 30
Patent trends 36
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12. Telecoms, Media & Technology
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8 April 2013
Introduction to flexible
display
Flexible display will improve the user experience for mobile
devices by increasing design options
Materials, evaporation and encapsulation are the key to mass
production
Korean companies are leading the way in technological advances
Why flexible display is and CDMA combined to form WCDMA or 3G. Brian Sohn*
Analyst
important The market became more operator-driven as The Hongkong and Shanghai
telecom companies used a variety of marketing Banking Corporation Limited,
The era of mobile devices began in the second Seoul Securities Branch
methods, including providing customers with +822 3706 8765
half of the 1990s. As cell phones became widely subsidies and two-year contracts. briansohn@kr.hsbc.com
used, the market for mobile equipment grew at a Ricky Seo*
rapid rate. The main area of competition was in By the second half of 2005, most phones had Analyst
The Hongkong and Shanghai
making devices smaller and improving call similar design and functions (camera, colour Banking Corporation Limited,
display, 3G) and with differentiation becoming Seoul Securities Branch
quality. Once the ideal size and call quality was +822 3706 8777
achieved it became harder to differentiate the more difficult, commoditisation started and rickyjuilseo@kr.hsbc.com
competitors focused on lowering production costs. Jerry Tsai*
products in the early 2000s.
Analyst
HSBC Securities (Taiwan)
As a result, companies started competing to Corporation Limited
develop simple wireless telecom devices and +8862 8725 6023
jerrycytsai@hsbc.com.tw
added value for customers by offering colour
*Employed by a non-US
display, MP3 and camera functions. The affiliate of HSBC Securities
landscape of the market changed quickly as GSM (USA) Inc, and is not
registered/ qualified pursuant
to FINRA regulations
The history of the handset industry
Time frame Technology Key application
1990s 2G Voice quality, ring tone, MP3, slimmer form factor
2000 Colour screen, dual display, longer battery life
2002-03 Active matrix colour display, number portability, CDMA
2004-05 3G 3G, operator-driven subsidy programme, data download speed
2005-08 Cost competitiveness in commoditised market, design differentiation
2008-10 Smartphone, application store, eco-system
2010-11 Android smartphone eco-system, multi-core application processor
2012-13 LTE LTE, size and resolution of display
2013e Design differentiation (flexible display)
Source: HSBC estimates
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8 April 2013
After 2005, competitors turned their attention to Differentiation has become even harder with most
making cell phones essential in everyday life. As a companies using full HD panels, a standardised
result, products with differentiated form factors, quad-core application process, touch screen and
such as casing, keypad and slim form factor, were the Android operating system. In a commoditised
designed. The market for high-end phones started market, design is the high-end market’s main
to take off. Consumer interest in design was an differentiating point. We believe flexible display
opportunity for Samsung and LG to strengthen will take this to a new level as the new technology
their positions in a market dominated by cost- will see hand-held digital devices become lighter,
efficient companies, such as Nokia. thinner and more convenient for users.
Then Apple’s iPhone arrived, providing completely Display technology is advancing in four
new experiences, such as entertainment features directions: 1) improving the sense of reality
and a highly distinctive design and customisation through 3D TV, 2) adopting additional functions,
options. The handset market went through rapid such as touch and internet connectivity,
change as Wi-Fi internet revolutionised the data 3) enabling greater mobility via lighter and
side of the business. Apple was the dominant force thinner products, such as in smartphones and
until the advent of Android-based phones. tablet PCs, and 4) expanding adaptability for
displays in homes and industries via thinner,
larger products, such as UHD TV.
Until recently, progress on flexible display
technology has been slow. The main reason is that
companies have already made heavy investments
in LCD, the technology used in flat display
panels. Flexible display requires a completely
Display development
Realism
Multifunction
High Performance
High Performance
Glassless 3-D
Transparent
Lightening & Super-thinning
Lighting
Communication
Projection 3-D
Flexible
Touch Screen Bendable
Thinning & Enlarging
3D Glass
Digital signage
FHD TV, OLED TV
LCD, PDP
LCD
Thin-Large Plastic
Glass Monitor 2003 2008 2013 2020
Glass
Convenience
Source: KEIT, HSBC
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Characteristics of flexible display
Information
Technology Thin and light; change of shape and production possible according to need, and unbreakable
Variety of organic materials, such as semiconductors and insulators.
Low production cost as manufacturing at room temperature and atmospheric pressure is possible
Business Instead of simply substituting existing display industry, it has the potential to create market and new application areas
Future value-oriented technology.
Technology makes low-cost start-up costs possible
Technology that is not dominated by any country or company
Source: HSBC
different set of technologies, the first of which is In the early stages, flexible display will be used in
OLED display, which has a faster response time small displays, such as watches, which can be
and outstanding colour definition. mass produced. Then, depending on how the
technology matures, it will be applied in
OLED is the base technology for flexible display
smartphones and tablets.
because of its self-illuminating properties that
allows greater design flexibility. Samsung Display Flexible display: market
has made rapid progress in OLED technology and prospects
is already using it its smartphones. LG Display
We expect the flexible display market to develop
recently commercialised large TV displays using
along similar lines as the OLED TV market. As
this technology.
we explained in our report LG poised to take
Flexible display uses plates that are pliable and as lead in AMOLED TVs, January 2012, it is a four-
thin as paper. They can be bent without being step process.
damaged, making it possible to create products
Establishing a stable base for the technology
that are thin, durable and flexible. The potential of
(there was an early dispute between LG and
this technology is substantial as the ultimate goal
Samsung over different types of OLED)
will be cheap digital devices that can be rolled up
like paper. Commercialisation based on pilot production
lines and market reaction
Development of OLED display vs. flexible display
OLED TV Flex ible display
④ Mass production
for OLED TV
③ Penetration of ③Penetration of
② Introduction of
new play ers new play ers
① Technological prototy pe through ② Introduction
improv ement pilot line ①Technological of prototy pe
improv ement
2011 2012 2013 2014 2015 2016
Source: HSBC estimates
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Entry of new players, including Japanese and resolution mobile display, to produce plastic display.
Taiwanese companies Samsung Display has already obtained two OLED
lines and may convert more capacity; it is also
Capex investment by LG and Samsung to
working on a hybrid line that can produce both glass
enable mass production
and plastic OLED. How quickly new lines can be
The commercialisation of flexible display is adapted or expanded will depend how soon the
expected to proceed in a similar manner. We think necessary materials can be developed.
that prototype products will be introduced by
Large-scale production in unlikely in 2H13 as not
Samsung and LG and the start of mass production all the technical systems are in place (e.g., it is not
will be dictated by a variety of factors, including yet possible to apply the evaporation process to
technology, market response and cost. Samsung plastic substrate). However, we do expect a pilot
Display and LG Display are both expected to start facility to produce prototype 2” watch and 5”
small-scale flexible display manufacturing in the curved displays.
next few months.
Things are moving fast and Samsung and LG are
The debate about which is the best OLED likely to be able to apply flexible display
technology has yet to be resolved. When large- technology to their respective Galaxy Note 3 and
size OLED panel production started in early 2012 Optimus G2 models before the end of the year.
the two companies adopted different strategies
We expect demand in 2H13 to be about 25m and
when they set up pilot production lines.
take up about 5% of the smartphone market. If our
LG Display plans to invest KRW700 billion in a assumptions are correct, flexible display models
G8 White OLED facility, while Samsung Display could capture 15% of the high-end smartphone
appears to have a two-track strategy, developing market by the end of the year.
both White OLED and RGB technology for high-
The impact on profitability will depend on
end products. For more details on OLED
generating decent yield on OLED, which may not
technology, please see LG poised to take lead in
happen until next year at the earliest. At the
AMOLED TVs, 6 January 2012.
moment, because of the additional technical steps
We believe LG Display is contemplating converting required, production costs are higher than for
a G6 LTPS line, which currently makes high- LCD. We expect them to fall considerably once
Flexible display market forecasts Samsung’s OLED sales and OPM forecast
(USDmil) LCD OLED E-ink Others 25,000 25%
10,000
20,000 20%
8,000
15,000 15%
6,000
10,000 10%
4,000
5,000 5%
2,000
0 0%
0 2010 2011 2012 2013e 2014e
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
OLED rev enue (USDmil) OPM (RHS)
Source: Display Search, HSBC estimates Source: Company data, HSBC estimate
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16. Telecoms, Media & Technology
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8 April 2013
the evaporation process can be applied to plastic
substrate. This should happen next year, along
with other technical breakthroughs, such as the
development of transparent plastic that can
replace the front glass.
Once these are in place, flexible display will be
expanded from watches and small screens to 5-8
inch tablets and 13-15 inch notebooks. The
market should then really start to take off and we
forecast it will be worth up to USD6bn by 2015
and USD8bn in 2018.
However, it remains to be seen how much of a
premium companies will be able to charge for these
products. The consumer will be the judge of that.
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17. Telecoms, Media & Technology
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8 April 2013
Key success factors
Companies must convert existing LCD fabs to flexible display for
investment efficiency
Plastic material is needed to replace glass
Vertical integration – from material providers to handset
manufacturers – is important
The commercialisation of flexible display will a head start on their Japanese and Taiwanese
depend on technology, mass production and cost. competitors in the flexible display market. We
We identify four key challenges. expect the LTPS-based RGB OLED technology –
already being used by Samsung Display in its high-
1: Re-using LCD fabs definition OLED small-size panel production – to
LCD panel businesses already make a wide range become the industry standard for flexible display.
IT products and TVs. Making sizeable new
investments could be a burden as profitability has
2: A substitute for glass
been declining due to oversupply. It will make Glass is currently used in the upper and lower
more sense for these companies to convert layers of LCD and OLED panels. The reason is
existing LCD business lines to OLED to produce simple – it is flat, transparent and resistant to heat
flexible display. and moisture. However, glass has low levels of
elasticity, making is unsuitable for flexible display.
Samsung Display and LG Display have already
made substantial investments in OLED, giving them
Comparison of technologies involved in flexible display production
Process Technology Advantages Disadvantages
Backplane a-Si Cost competitiveness is high because most of existing Low mobility
LCD equipment can be re-used
Oxide More advanced than a-Si with the better mobility Applicability is uncertain due to low stability and low
suitable for OLED, applicable in large-sized OLED yield for mass-production
panels and high-resolution panels
LTPS Most suitable for flexible display: 1) Sufficient mobility Equipment is expensive
is feasible, 2) plastic can be easily utilised as it can be
manufactured in a low-temperature environment
Evaporation / LED Can’t be applied in flexible display
Deposition Backlight
White OLED Can be applied in large-sized panel production Has limitations to be used in flexible display because
it needs other layers, such as colour filters
RGB OLED Safest technology depositioning RGB colour in each
cell; colour implementation is excellent on flexible
surface
Source: HSBC
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18. Telecoms, Media & Technology
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8 April 2013
Next-generation plastic looks like the best
substitute. Currently, it can be used in high-
performance thin transistors as its thermal
expansion coefficient is low. However, this is
expensive and not efficient due to its opaqueness.
However, on the plus side a wide range of
materials can be applied in plastic. Research is
being done on materials with high thermal
resistance, such as PET (Polyethylene
Terephthalate), PC (Polycarbonate), PES
(Polyether Sulfone), PI (Polyimide) and how
plastic boards can withstand the process of
thinning (see table on the next page).
We believe polyimide plastic film is most
compatible with flexible display since polyimide
provides the highest thermal resistance. Polyimide
is a transparent polymer material that has a
relatively low degree of crystallisation and an
amorphous structure. Moreover, it is an excellent
mechanical material and provides outstanding
heat and chemical resistance, electric
characteristics and stable size based on a rigid
chain structure. It is widely used in auto, aviation,
aerospace and flexible circuit boards.
Despite its advantages in being applicable in
insulating material, flexible film, and aerospace
aviation, polyimide is partially used in FPCB
(flexible printed circuit board) and costly displays
within aeroplanes due to its unique yellow colour;
efforts are being made to lower this yellow colour
and raise transparency. The result of this work,
polymer, is likely to be in use in 2014.
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8 April 2013
3: Plastic to replace frontal 4: Vertical integration
glass Some Japanese companies have already
Conditions of plastic substrates vs. physical characters of glass developed technologies for the commercialisation
Plastic Glass of flexible display and have even introduced some
substrate prototypes. However, they are being produced by
Glass transition temperature >250˚C Melting point of a single company, so there is a lack of
Heat deflection temperature 20 ppm/C 1600˚C
Gas transmittance <1,000/m2 day O competition in cost and mass productivity.
Yellow index <5 O
Flexibility O X While a number of technological issues still need
Source: MOTIE, HSBC
to be resolved by individual material and panel
companies, we believe that vertical integration
Frontal glass needs to be more scratch proof than
among material developers, components and
the lower glass panel. A plastic substitute would
panel producers, and handset makers is essential
need to have the same hardness as glass, but this
for the commercial success of flexible display.
technology is still at an early stage. Some
Given the newness and complexity of the
Japanese companies are making progress in this
technology, co-operation among the companies in
area, but the cost is much higher than tempered
the supply chain, especially in the early stages of
glass, making commercialisation difficult.
mass production, will be important.
We think flexibility on pricing is also essential.
Manufacturer info and pros and cons of plastic substrates
Pros Cons Manufacturer
PET Strong UV resistance MD vs. TD direction optical anisotropy General Atomics
(polyethylene Excellent chemical-resistant Weak temperature safety (USA)
terephthalate) Low moisture hygroscopicity (over 24h, 0.1%) Gets murky due to partial recrystallisation after thermal Mitsubishi
process Chemical
High CTE (20~80x10-6/K) (Japan)
Production room temperature (~130C)
PEN Chemical-resistant Optical anisotropy Dupont Teijin
(polyethylene Low CTE (~20x10-6/K) Weak heat resistance Film (Japan)
naphthalate ) Low cost Production room temperature (~130C)
PC Good optical characteristic Weak chemical-resistance Dupont Teijin
(polycarbonate) Good mechanical characteristic High CTE (60~70x10-6/K) Film (Japan)
Easy to purchase Low production room temperature (~150C) GE (USA)
Weak UV resistance Mitsubishi
(Japan)
PES (polyether UV resistance High moisture hygroscopicity (over 24h. 0.4~1.0%) i-Component
sulfone) Easy to purchase High CTE (55x10-6/K) (Korea)
High cost Sumitomo
Weak chemical-resistance Bakelite (Japan)
Production room temperature (~180C)
PI (polyimide) Excellent chemical resistance High moisture hygroscopicity (over 24. 0.2~2.9%) DuPont (USA)
Production room temperature (>200C) CTE (50~60x10-6/K) Mitsubishi Gas
UV resistance Coloured board (dark yellow) (Japan)
Easy to purchase Low transparency LG Chem
(Korea)
Cheil Industries
(Korea)
AryLite Excellent heat-resistance Weak UV resistance Ferrania Image
Production room temperature (~200 C) High (50_60x10-6/K) System (Italy)
Good optical characteristic
Linear CTE change characteristic
Source: MOTIE, HSBC estimates
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8 April 2013
Handset makers have a “40% premium rule” for
TV products, but set prices lower when they
launched LED and ultra-high definition TVs.
They will probably have to adopt the same tactics
for flexible display as customers assess these new
product lines.
Components will also have to change to meet the
design requirements of flexible display. For
example, different shaped batteries are being
developed to fit behind curved screens.
All in all, we believe vertically integrated
companies including the Samsung Group
(Samsung Electronics, Samsung Display, Cheil
Industries, SEMCO, Samsung SDI) and LG
Group (LG Electronics, LG Chem, LG Display,
and LG Innotek) are better placed to develop
flexible display than peers in Taiwan and Japan.
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21. Telecoms, Media & Technology
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8 April 2013
What to expect near term
Unbreakable backplane with curved design could be a killer
application in 2H13
Bendable tablets to boost smartphone/notebook demand in 2014
Fully transparent display may take three years
The OLED technology needed to make prototype PI is already used widely in electronic materials,
flexible display products has already been so the basic structure of flexible display can be
developed by Samsung Display and LG Display. made by coating the OLED luminous layer on top
However, given it will be a gradual process – this of the polyimide-coated lower glass. After this
is how we see events unfolding. process is complete, a plastic OLED structure can
be achieved by removing the lower glass.
Phase 1: Unbreakable display for
Although it is not perfectly transparent, the lower
2Q13
glass will have a plastic finish.
Technology using LTPS, RGB OLED, opaque
PI (Polyimide) substrate Removing the lower glass can make the display
much slimmer, lighter and durable. However, it
LTPS backplane and RGB OLED technology are
will not be completely unbreakable as the upper
suitable for producing flexible products. Many
glass would still be used. A thinner display will
LCD businesses already produce IT equipment,
mean thinner smartphones and tablets.
such as smartphones, tablet PCs and high-
resolution displays. This will help reduce costs. We expect further progress to be made on using
polyimide film technology in flexible display
production in the next few months.
Structure of OLED and unbreakable display
plastic display
5 um SiN passivation ITO Pixel
TFT Uppe
polyimide layer r glass
Upper glass
0.7 mm thick glass substrate Lower glass
Lower glass
Glass substrate with spin Back Channel Etch a-Si TFT
coated polyimide and SiN made on a glass/polyimide
passivation layer. substrate
Source: HSBC
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8 April 2013
Curved design smartphone design Curved design smartphone design
Source: HSBC Source: HSBC
Phase 2: Unbreakable backplane with Phase 3: Bendable, true plastic
curved design in 3Q13 display in 2014
Technology based on LTPS, RGB OLED, PI Technology based on LTPS, RGB OLED, and
substrate, and thin glass translucent PI substrate
Curved design is one of the great attractions of Once polyimide enters mass production, we
flexible display. We expect the first products to be expect flexible display technology to develop
small two-inch displays, such as watches and car rapidly. An improved polyimide material is likely
instruments, where resolution quality is less to be introduced in 2014, which will lead to the
demanding. Larger curved displays will require an commercialisation of products with displays of
unbreakable backplane and will involve the same over five inches, such as tablets and notebooks.
technology as described in phase one. Bendable display requires the following
procedures: 1) coat polyimide film to the upper
and lower glass panels, 2) OLED manufacturing
procedure to build luminous layer; and 3) separate
upper and lower glass panes. Once bendable
display is commercialised, we expect to see
products that can be bent to an angle of less than
90 degrees.
Irregular type Li-polymer battery Stepped Li-polymer battery
Curved display Curved display
Irregular type Li- Stepped Li-polymer
polymer battery battery
Source: HSBC Source: HSBC
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8 April 2013
Bendable display conceptual picture Bendable display conceptual picture
Source: HSBC Source: HSBC
Phase 4: Transparent display in 2015 Phase 5: True flexible display
Technology based on LTPS, RGB OLED, and Current technology does not allow for truly
transparent PI substrate flexible display products that are totally
We believe transparent polyimide will be available transparent and can be rolled up. How quickly the
from 2014, but it may take at least a year to enter technology develops remains to be seen – for
commercial production. A lot of technological example, bendable batteries are needed – and how
challenges remain, including how to make much added value will be created for consumers
transparent batteries. We think the first products to is also unknown at this stage.
be partially transparent, as progress will depend on
the response from the public. How much demand
will there be for transparent devices?
Curved design smartphone design Transparent display conceptual picture
Source: HSBC Source: HSBC
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8 April 2013
Transparent display concept Transparent display concept
Source: HSBC Source: HSBC
Comparison of TFT backplanes
a-Si Oxide LTPS
Source Drive
Drain Overcoat
Electrode Electrode
Electrode Etching
Stopper
a-Si (N+)
a-Si a-IGZO
Gate Insulator
Gate Electrode p-Si (N+) p-Si
Glass Substrate Glass Substrate
Glass Substrate
Mobility Fair Average Very good
Scalability G3~G10 G8 or larger Up to G8
Availability Very good Average Good
Advantages Low cost Scalability, Good uniformity Superior mobility, stability
Good track record
Weakness Low mobility Low cost Low scalability
Source: HSBC estimates
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25. Telecoms, Media & Technology
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8 April 2013
Who benefits from
flexible display?
LGE and SEC are expected to benefit the most
Their major suppliers, LG Innotek and Cheil Industries, are also
well positioned
SFA has an opportunity to benefit from converting and expanding
Samsung’s production lines
We believe flexible display will have a positive grow their market share on the back of these new
impact on the overall display industry because it and highly differentiated flexible display
will create a new line of business. We expect new products. It’s certainly a substantial opportunity
product shapes and designs to revitalise the slowing for LGE, which is experiencing a slump in its
notebook market. Smart watches, previously smartphone business. The company’s market
considered a niche market, should also benefit. share is only 5%, but we believe this can rise to 7-
8% in 2014. Samsung Electronics, the leader in
We are convinced that a vertically integrated
the smartphone handset market, can use flexible
industry structure that includes materials, panels and
display to further strengthen its position.
handsets is essential to commercialise flexible
display. This involves: We believe LG Innotek (LGI) will be one the
biggest indirect beneficiaries of the flexible display
Re-using existing LCD equipment
trend. For example, if LGE’s handset business
Co-operation between handset makers and improves, LGI will supply most of handset
material providers to obtain a decent yield components – touch screen, PCB, and camera
from mass production modules – to LGE. LGI also holds the key to
developing the required flexible components (e.g.,
Set makers fully utilising flexible display to
flexible PCB) when curved design is introduced.
maximise added value and secure sales capacity
This will strengthen the relationship between LGI
Samsung Electronics and LG Electronics have the and LGE. Moreover, LGI is focusing on
technological advantages to lead industry as both developing a transparent electrode, essential for
have already commercialised OLED panels that transparent display in the longer term.
are generating stable yields.
We also believe Cheil Industries will have the
We believe it’s the handset makers that stand to largest upside risk in the mid to long term as the
benefit most at first as they have an opportunity to company can co-operate with Samsung Display to
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8 April 2013
develop core technologies required for flexible
display. This is Cheil’s differentiating factor and
is expected to drive revenue growth at its
electronic material division.
It’s also good news for equipment makers.
Starting in 3Q13, Samsung Display and LG
Display are expected to expand capacity by
converting existing LCD fab to plastic OLED in
order to maximise investment efficiency. As a
result, SFA, Samsung Display and related
equipment makers are expected to benefit.
Our preferred stocks among handset makers are
Samsung Electronics and LG Electronics, while
we prefer Cheil Industries, LG Innotek, and SFA
among component, materials and equipment
providers. We upgrade Cheil Industries and SFA
to OW from N and Duksan Himetal to N(V) from
UW(V). We remain OW on Samsung Electronics
(an Asia Super 10 and GEMs Super 15 portfolio
stock) and OW (remove the volatility (V)
indicator) on LG Electronics and LG Innotek.
HSBC estimate vs. Consensus
(KRWbn) _________ HSBCe __________ _______ Consensus ________ _______ % Difference _______
2013e 2014e 2013e 2014e 2013e 2014e
LG Electronics Sales 60,769 64,901 54,519 57,862 11.5% 12.2%
OP 1,686 1,946 1,483 1,892 13.7% 2.9%
OP margin 2.8% 3.0% 2.7% 3.3% 0.1%pt -0.3%pt
LG Innotek Sales 5,939 6,598 6,015 6,588 -1.3% 0.2%
OP 157 250 128 228 22.0% 9.5%
OP margin 2.6% 3.8% 2.1% 3.5% 0.5%pt 0.3%pt
Cheil Industries Sales 6,788 7,368 6,789 7,521 0.0% -2.0%
OP 415 501 422 512 -1.6% -2.2%
OP margin 6.1% 6.8% 6.2% 6.8% -0.1%pt 0.0%pt
Samsung Electronics Sales 225,668 245,350 238,686 264,048 -5.5% -7.1%
OP 39,182 41,939 39,388 43,038 -0.5% -2.6%
OP margin 17.4% 17.1% 16.5% 16.3% 0.9%pt 0.8%pt
LG Display Sales 33,560 34,567 31,349 33,274 7.1% 3.9%
OP 2,362 2,755 1,384 1,553 70.7% 77.4%
OP margin 7.0% 8.0% 4.4% 4.7% 2.6%pt 3.3%pt
LG Chem Sales 25,243 28,347 24,791 26,611 1.8% 6.5%
OP 2,693 3,213 2,299 2,686 17.1% 19.6%
OP margin 10.7% 11.3% 9.3% 10.1% 1.4%pt 1.2%pt
SFA Sales 771 979 694 842 11.1% 16.3%
OP 109 137 93 116 17.9% 17.3%
OP margin 14.1% 14.0% 13.3% 13.8% 0.8%pt 0.1%pt
Duksan Himetal Sales 189 251 171 213 10.9% 17.5%
OP 47 66 48 61 -2.2% 7.9%
OP margin 25.0% 26.2% 28.3% 28.6% -3.4%pt -2.3%pt
Source: Bloomberg , HSBC estimate
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27. Telecoms, Media & Technology
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8 April 2013
Implications for non-
Korean players
Samsung and LG should enjoy early-mover advantage because of
their advanced technology in flexible display
Taiwan players are already strong in electronic paper and waiting
for OLED technology to stabilise
Apple is behind at the moment, but should catch up by 2015
Flexible display uses OLED as its basic Two Taiwan companies, AU Optronics and
technology, giving companies like Samsung and Innolux, are actually further advanced in one area
LG, which have already commercialised the of flexible display technology than the Korean
process, an early-mover advantage. They probably companies – electronic paper (EPD) – which is
have a 2-3 year head start. Taiwanese and commonly used in e-books. For example, they
Japanese panel makers believe that OLED have made excellent progress in terms of
technology is not mature yet, so they have not production yield (see E Ink: Initiate OW(V): The
invested much in mass production, although they year of recovery, 18 March 2013).
are investing in R&D.
Comparison between flexible colour EPD and flexible OLED
Flexible colour EPD Flexible OLED
Advantages Similar to a piece of paper Self-light emitting -> No need of external light source
Consumes electricity only when changing page Able to generate natural colour and image
Wide viewing angle Fast reaction speed
Easy to mass produce with simple manufacturing processes Wide viewing angle
Disadvantages Mirror reflection type -> requires external light source High cost from organic EL
Difficult to generate natural colour Requires high-end TFT
Difficult to play movie due to slow reaction speed Difficult to mass produce due to complicated manufacturing
processes
Source: HSBC estimates
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The downside is that e-paper does not have self- emphasises the importance of platform efficiency
illuminating properties and must be viewed under in mass producing one innovative product rather
an external light source. It also uses a colour filter, than going into a variety of product line-ups.
so it has limited ability to generate natural colours Therefore, it may be some time before Apple
and also has a fairly low rate of response, which is commits a lot of resources to flexible display.
not compatible with showing video clips.
Apple’s “wrap-around” display
This is why OLED is considered to be the solution
for the next generation of flexible display. Taiwan
panel makers already have a G3.5 pilot production
line to manufacture small-sized OLED panels, and
a conversion from LTPS to OLED line is being
seriously considered. In Japan, Panasonic and
Sony have already displayed ultra-high definition
OLED TV technology this year.
However, generally, non-Korean panel makers Source: USPTO
appear reluctant to invest aggressively in OLED
or flexible technology as the start-up costs are We think the market will take notice once Korean
high. The technology will only become profitable companies such as Samsung and LG start to
with strong demand for flexible design introduce differentiated flexible design products.
smartphones or tablets. At the moment only small As their technology improves, mass production will
displays are possible, so companies find it hard to kick in, expanding the supply chain for materials
justify the investment needed to set up mass and equipment by 2H 2014. In turn, with
production of OLED or flexible displays. economies of scale we expect production costs to
fall and the number of products to increase; we
There is also the risk that with such a new believe this will be the catalysts for Taiwanese and
technology early entry could result in expensive Japanese players to enter the market.
failure. It seems that panel makers may be waiting
Korean companies are likely to benefit from being
for a good entry point after the Korean players
able to introduce high-end products after each
make the first move and build up the necessary
technical improvement. Meanwhile, competition
supply chain.
will increase as products with many different form
Meanwhile, in the US, Apple appears to be factors come on the market as mass production
interested and has filed a patent application for a grows outside Korea.
smartphone that uses flexible display. However, Although the company has a great record of
Apple still has doubts about the ability of these innovation (e.g. sophisticated software, in-cell touch,
new products to combine natural-coloured images Retina display and aluminium casing), Apple may
and excellent clarity. This is the main reason find it increasingly difficult to differentiate its
why Apple had not been aggressively pursuing products using existing technology. Apple is
OLED technology. expected to introduce flexible display in 2H 2014
when the technology platform has stabilised and
Apple is considered to be more interested in
mass production improves. Given its outstanding
applying Retina display to iPhones and looking at
ability to meet customers’ needs, the company may
other options for iPads and MacBooks than start to come up with innovative flexible display
moving into something completely new. Apple products in 2015.
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Technology overview
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