Organic Light-Emitting Diode (Oled) Panels

Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 Organic Light-Emitting Diode (OLED) Panels Ref. Code: 11461 21 June 2008 By Ceng Chun-chou Overview Encouraged by a good performance of organic light-emitting diode (OLED), a large number of Taiwan firms have aggressively developed OLED products in recent years. But a bottleneck in technology has led to no major breakthrough in capacity, resulting in firms’ long-term losses and compelling some to stop research and development on OLED panels.

AU Optronics’ long time commitment to OLED research and development, for example, has just faded away. In November 2006, Opto Tech Corporation dismantled its OLED panel unit, and Teco Optronic Corporation withdrew from OLED market in May 2008. On the contrary, Chi Mei EL Corporation, one of the subsidiaries of Chi Mei Optoelectronics Corporation, continued to expand capacity. In the second quarter of 2007 Chi Mei EL Corporation carried out mass production of 2. 4 and 2. 8 inch OLED panels for mobile phones.

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Meanwhile, RiTdisplay Corporation, Taiwan’s largest OLED panel maker by market share, enjoyed strong sales growth in 2007. Additionally, AU Optronics, Opto Tech Corporation, among others’ withdrawal from OLED panel production in 2006 gave OLED panel industry a boost in 2007. Consequently, the value of output shot up 46. 8 percent from a year earlier. Ironically, output proceeds amounted to a modest NT$6. 34 billion, a clear indication of small market size (see table 1). Taiwan Industry Reports ttp://taiwanindustry. tier. org. tw Page 1 ©Taiwan Institute of Economic Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research. Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 Source: IEK-ITIS Project (May 2008) Arranged by Taiwan Industry Economics Services

Figure 1: Changes in Value of OLED Output in Taiwan OLED panel firms are viewed as TFT-LCD panel firms’ main competitors, but without major technology breakthroughs, the output value of Taiwan-made OLED panels has obviously failed to exceed TFT-LCD panels’ in recent years. Additionally, some firms have kept abandoning the market and, at the same time prices of OLED panels have declined progressively in an attempt to replace TFT-LCD and TN/STN-LCD panels as the market mainstream products.

In 2007, RiTdisplay Corporation, Chi Mei EL Corporation, and Univision Technology Inc. aggressively kept raising capacity, but to no avail as the value of OLED output to display panel industry accounted for a slight 0. 3 percent in because of a slow capacity expansion compared with TFT-LCD and TFT-LCD panel affiliated products. Such a decline suggests that OLED panels are without doubt losing their position in Taiwan (see table 1). Taiwan Industry Reports http://taiwanindustry. tier. org. tw Page 2 ©Taiwan Institute of Economic Research. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research. Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 Source: PIDA (December 2007) Figure 2: Product Spread in Taiwan Monitor Panels RiTdisplay Corporation is Taiwan’s largest OLED producer. But most of OLED firms in Taiwan are not publicly listed without financial transparency.

Therefore, the present report focuses analysis of Taiwan OLED industry on RiTdisplay Corporation. Table 1 and 2 give an insight into quarterly sales and inventories over the recent five years. With RiTdisplay Corporation committed to raising capacity, quarterly sales jumped in 2007 from the 2006 levels. Internationally, RiTdisplay Corporation ranked among the world’s four largest firms and became the world’s largest OLED producer in the third quarter of 2007 before being toppled by Samsung SDI in the fourth quarter of 2007 as Samsung SDI raised its production, implying that Taiwan’s OLED firm is very competitive worldwide.

On the operating performance front, RiTdisplay Corporation has remained committed to increasing capacity in recent years. In 2007, technology proceeds exceeded NT$6 billion, 2. 8 times higher than in 2003. But RiTdisplay Corporation had made loss in recent years, suggesting a wide room for quality improvements in Taiwan-made OLED products. Fortunately, loss stood at NT$1. 162 billion in 2007, improving from the 2006 NT$6. 433 Taiwan Industry Reports http://taiwanindustry. tier. org. tw Page 3 ©Taiwan Institute of Economic Research.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research. Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 billion loss and indicating improvement in Taiwan OLED Panels. To sum up, Taiwan OLED panel industry is very competitive worldwide, with operating revenue improving gradually.

But how firms can lower loss remains a major challenge (see table 1 and table 2). Table 1: Quarterly Sales of RiTdisplay Corporation, 2007 2007Q1 Value of sales (US$ million) QoQ (%) YoY (%) Ratio to global production (%) Rank 23. 4 -10. 8% 33. 2% 18. 8% 4 2007Q2 23. 0 -1. 7% 67. 9% 18. 6% 3 2007Q3 31. 0 34. 8% 44. 2% 39. 6% 1 2007Q4 30. 3 -2. 3% 15. 5% 19. 1% 2 Source: DisplaySearch Arranged by Taiwan Industry Economics Services, June 2008 Table 2: Operating Performance of RiTdisplay Corporation 2003 Operating revenue (NT$100 million) YoY (%) Net profit (NT$100 million) 16. 9 456. 84% -4. 21 2004 19. 69 20. 83% -8. 79 2005 25. 77 30. 90% -14. 79 2006 25. 70 -0. 27% -64. 33 2007 61. 31 138. 58% -11. 62 Source: Market Observation Post System; DisplaySearch; and Financial Report, RITEK Corporation Arranged by Taiwan Industry Economics Services, June 2008 Industry Development In March 2008, the board of directors of Chi Mei Optoelectronics Corporation decided to invest in Chi Mei EL Corporation by setting up a second production line.

But, by contrast, AU Optronics abandoned the OLED market in May 2008, and Teco Optronic Corporation followed suit in June 2008, suggesting that a massive increase in the production and a decline in price of TFT-LCD panels in recent years have ate away at small and medium size firms’ market shares. Although OLED panels are better than TFT-LCD panels, a lack of technology breakthrough compels many firms to keep withdrawing from the market. Additionally, the whole structure of OLED development is not as complete as that of TFT-LCD panels. Therefore, OLED panels are less competitive than TFT-LCD panels.

Taiwan Industry Reports http://taiwanindustry. tier. org. tw Page 4 ©Taiwan Institute of Economic Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research. Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 Poor operating environment prevents firms from improving performance and carrying out their plans smoothly.

As a consequence, many firms have exited the OLED production since May 30, 2008. On the contrary, some firms are aggressive in expanding the production. With the exception of RiTdisplay Corporation and Univision Technology Inc. , Chi Mei EL Corporation, the subsidiary of Chi Mei Optoelectronics Corporation, has started to increase the production since the second quarter of 2007. In addition to mass production of 2. 4 and 2. 8 inch OLED panels for mobile phone uses in the second quarter of 2007, the company launched 4. 3 inch panels for mobile phones equipped with GPS and PDA and 7. inch panels for digital photo frame and automobile. In March 2008, the board of directors of Chi Mei Optoelectronics Corporation invested NT$1 billion in Chi Mei EL Corporation for the establishment of a second production line. Mass production is expected in the second half of 2008, and the production will focus on 11-12 inch OLED products. This suggests that Taiwan firms are very active in formulating strategies. Overall, there is a polarity between OLED firms in Taiwan. Industry Outlook Although the continual withdrawal of OLED panel firms from the industry dversely affects the value of output, some firms such as Chi Mei EL Corporation, RiTdisplay Corporation, among others are still aggressive in expanding capacity, helping maintain a gradual upward trend in OLED panels in Taiwan. However, the value of Taiwan OLED panels is expected to increase by a tiny 6. 7 percent annually in 2008 because of Teco Optronic Corporation’s abandoning the industry, a steady decline in prices of OLED products and a major shift to alternatives, which may result in a slow growth. OLED firms should address barrier to technology. Meanwhile, Chi Mei EL Corporation aggressively continues to expand capacity.

As a result, the value of output of Taiwan-made OLED panels will rise gradually between 2009 and 2010. Taiwan Industry Reports http://taiwanindustry. tier. org. tw Page 5 ©Taiwan Institute of Economic Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research. Taiwan Industry Reports Taiwan Institute of Economic Research 21June 2008 Worldwide, Japanese and Korean firms are also committed to developing OLED panels.

In 2007, Sony, Epson, and Samsung SDI came up with new capacity. Both countries’ annual OLED capacity will exceed Taiwan’s in 2008. In other words, Taiwan’s global output will decline to 22. 8 percent in 2008; 14. 3 percent in 2009; and 15. 9 percent in a 2010. This demonstrates that Taiwanese OLED panel firms are less aggressive than their peers in Japan and Korea in terms of strategies for the development of OLED panels (see table 3). Table 3: OLED Panel Market Forecast 2007 Taiwan annual output value (%) Global (%) Global share of Taiwan OLED panels (%) 46. 8% 13. 8% 33. 1% 2008 (e) 6. % 26. 6% 22. 8% 2009 (f) 15. 4% 80. 0% 15. 9% 2010 (f) 30. 1% 90. 9% 14. 3% Source: PIDA (December 2007); and IEK-ITIS Project (May 2008) Arranged by Taiwan Industry Economics Services, June 2008 Taiwan Industry Reports http://taiwanindustry. tier. org. tw Page 6 ©Taiwan Institute of Economic Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the publisher, Taiwan Institute of Economic Research.

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