OLED is at a tipping point for revolutionizing consumer interfaces After a year where the slowing growth in smartphones became starkly evident, we see Apple’s adoption of OLED (organic light emitting diodes) displays in 2017 as rejuvenating products’ design and providing the impetus for a re-accelerating replacement cycle. We then expect rapid OLED propagation within the broader smartphones mark27et.
OLED displays enable lower power consumption, vivid pictures and flexibility in form factors, including foldable devices. The coinciding emergence of virtual reality, which OLED is best suited to, and possibility that foldable devices could branch into a totally new product category could provide further substantial upside to our forecasts, just as the iPad created a new products category with tablets.
Flexible OLED will also find significant use in automotive, commercial, and other applications. OLED explosive growth to be driven by smartphone adoption We forecast an above-consensus OLED-induced re-acceleration in the iPhone cycle, with 10%/13% YoY iPhone unit growth in CY17/18E, after -8% in CY16E. OLED adoption could further contribute 3-5ppts upside to our smartphone shipment estimates and US$4-7bn per year for component suppliers. Our analysis suggests 1bn OLED smartphone shipments in 2020E (penetration of 67% up from 20% in 2015). Massive build-out across supply chain is on course and supports our analysis We have witnessed a significant increase in OLED manufacturing equipment orders YTD, our detailed analysis equates to cUS$10bn in spending. A large portion comes from Samsung, which will be the sole supplier for Apple in ’17, before LGD comes in as a second source in ’18. This is sufficient to support up to two iPhone models in ’17 using OLED (up to 85m units combined).
We then expect OLED investment to increasingly come from Chinese panel makers, although the competitive gap to Samsung/LGD will likely remain for a while. We estimate that OLED panel makers will need to spend another US$40bn in manufacturing equipment by 2020, which suggests a fairly long investment cycle, which is not discounted by equipment stocks. Who will benefit, and who may lose out? We recommend Apple and suppliers into ’17 including TSMC, Pegatron, Sony, Alps, Sumitomo Chem and Largan. Within our coverage of OLED equipment suppliers, we recommend Applied Materials, Wonik IPS, and initiate with a Buy rating on Viatron, but a Neutral on AP Systems due to valuation. Key OLED panel winners are Samsung and LGD, whilst LCD panel vendors AUO, Innolux and JDI may lose out in the transition.