Chinese Manufacturers Will Dominate Flat Panel Display Manufacturing

The agreement by LG Display to sell its stake in its Guangzhou, China factory to TCL China Star Optoelectronics Technology (TCL CSOT) marks a new phase in the rapidly growing domination of the global electronic flat panel display industry by Chinese manufacturers. LG first had to acquire a 10% stake held by Chinese TV maker Skyworth before it could sell 80% to TCL CSOT. The Guangzhou government continues to hold its 20% stake. With this transaction, Chinese manufacturers’ market share of the LCD panels used in TVs will increase from 66% to 72%, with nearly 100% share in ultra-large 90 – 115 inch screens. If you were worried about geographic supply concentration, the electronic display industry is heading towards a Chinese monopoly. The U.S. has zero domestic manufacturing capacity.

Flat panel displays are ubiquitous. They are in TVs, computers, tablets, smartphones, video games, signboards, airplane flight decks, and countless other areas. A major growth area is automotive, where the increasing amount of screen area used per vehicle is being paced by adoption in electric vehicles and their ability to add a lot of differentiation.

Display And Substrate Types

There are several popular display types, the most popular is the thin-film-transistor liquid crystal display (TFT-LCD). This type is made of a sandwich of two thin sheets of glass. On one of the sheets, transistor “cells” are formed by depositing a layer of indium tin oxide (ITO) conductors followed by a layer of silicon which is then patterned into tiny transistors. On the other sheet, ITO is deposited on one side, followed by a color filter array of millions of red, green, and blue dots in a black matrix on the other. Tiny amounts of liquid crystal material are placed in the cells and the sheets are aligned and glued together. This sandwich is covered with sheets of polarizing plastic film, and then cut into individual “panels,” and fitted with a backlight. These panels are what go into a TV or computer screen. TFT-LCDs were first commercialized in Japan, then Korean and Taiwan took over the lead with 5^th generation factories, and now the lead has shifted to China with its huge installed base of the largest, most modern fabs.

Another display type that is rapidly growing in popularity is the organic light-emitting diode (OLED) display first commercialized at Eastman Kodak. These displays use an emissive layer consisting of organic compounds that produce light in response to an electric current, sandwiched between two electrode layers, all deposited on a substrate. OLEDs have richer colors. Since they are emissive rather than relying on transmitted light from a backlight, they use less power. The iPhone X was the first Apple product to launch with an OLED display, and Omdia forecasts that 2024 shipments will pass a billion units, with mobile phones and smart watches the two largest categories.

Both of these display types rely on that silicon layer into which the transistors are patterned. This “substrate” can be made in different ways, and how it’s made drives the capabilities of the display. The key distinction is the quality of the transistors you can make. Can they switch quickly, do the electrons have high mobility, ­and how much leakage current is there? These properties translates into how frequently a display needs to refresh and how power efficient it can be.

The simplest and therefore most widely used substrate initially was amorphous silicon (a-Si) which is deposited with a plasma-enhanced chemical vapor deposition process. The problem with a-Si is there are lots of grain boundaries in the resulting silicon, so electron mobility isn’t very good. Nonetheless a-Si is relatively inexpensive and good for lower resolution applications like TVs and lower resolution computer monitors. It is also straightforward to make it in very large sizes for huge screens.

High resolution TFT-LCDs, and later OLED displays drove the need for higher electron mobility. This led to the development of low-temperature polysilicon (LTPS) substrates. In this process, a-Si is locally melted and recrystallized using an excimer laser that scans the substrate sheet. The laser heats the a-Si enough to just melt it, but not enough to melt the glass supporting it. As the silicon cools, it crystalizes into larger regions of perfect crystals where the electrons flow easily, though there are still grain boundaries which interfere. This is often called polycrystalline silicon, in contrast to the monocrystalline (single crystals) wafers that semiconductors are made on. LTPS can have roughly 100 – 200X the electron mobility of a-Si, but it costs a lot more to produce. It has been the substrate of choice for high resolution displays found in smartphones and notebook computers, but has not been able to be stretched to the really large panels for TVs.

More recently, metal oxide substrates have attracted a lot of attention and investment. These might have 20 – 80X the electron mobility of a-Si and a really low leakage current that is 10,000X better than a-Si. Metal oxide substrates offer much better performance for large screen sizes and cost far less to produce than LTPS substrates.

The Industry Is Fiercely Competitive

The reason it is helpful to understand the different types of displays and substrates is that they are central to the competitive dynamics in the industry. When Samsung and LG first took over the leadership of the industry in the mid-2000s from Japanese and Taiwanese producers, they did so by moving aggressively to next generation fabs that produced larger glass sizes more efficiently. The first LCD Fabs established in the early 1990s made sheets the size of a single notebook computer screen. A Gen 5 fab produced sheets that were approximately 1100 x 1300 mm. It was in the transition beyond Gen 5 that the Korean companies grabbed the lead, as they quickly moved to Gen 6 – Gen 10.5 (a Gen 10.5 sheet is 2940 x 3370 mm or 9.6 x 11 ft).

Display fabs are very expensive – a Gen 10.5 fab costs around $6 billion to build. You only make money if you can operate it at high yield and a high utilization rate. As Chinese companies recognized the strategic nature of the industry, they poured investment into building far too many fabs, subsidized by way too much local government money. The result was an aggravated boom and bust cycle, excess capacity, and oversupply of TFT-LCD panels. This meant commoditization of products, low fab utilization rates, and hemorrhaging of money for everyone involved.

The tough market conditions in LCD displays drove companies to try to differentiate. Taiwanese companies like AUO focused on automotive displays, and LG, AUO, and Sharp of Japan focused on premium LCDs for customers like Apple, Microsoft, and gaming manufacturers using metal oxide substrates, which were particularly good at smooth high frequency operation for fast action video, and low electronic frequency applications like static document viewing that didn’t need rapid display refresh. Meanwhile Chinese manufacturers faced challenges getting into metal oxide substrates. While Korean and Japanese makers have been shipping metal oxide substrates since 2010, BOE was only able to obtain it through the acquisition of CEC Panda Fabs in 2020, who got their technology from Sharp. Metal oxide substrates was one of the attractions of the LG Guangzhou fab though it is not clear that the technology was part of the sale, since LG kept the OLED part.

Toshiba, Hitachi, and Sony, three Japanese display manufacturers who lost out to the Koreans in the 2000s, merged their operations in 2012 to form Japan Display Inc., with engineers from Panasonic, Sanyo, and Seiko Epson also joining. JDI focused on high resolution small high-performance displays, especially for smartphones. Panasonic and Sony also merged their OLED businesses in 2015 to form JOLED, but that firm filed for bankruptcy in early 2023. Japanese makers had a 70% share of iPhone LCD screens in 2015, which was fine until Apple decided to switchover completely to OLED. Sharp meanwhile had focused on large LCDs but faced withering competition from Chinese makers so it didn’t have the resources to invest in OLED.

Samsung and LG Display shifted their strategies to focus on OLEDs. But Chinese display makers wanted to get out of the commodity LCD rut too, and they too poured money and resources into OLEDs. While Samsung has been upgrading its fabs and plans to start Gen 8.6 OLED production in 2026, Chinese market leader BOE has set a similar timeline. It is building a 63 billion yuan ($8.7 billion) Gen 8.6 fab in Chengdu with the latest technology, presumably with local government support. According to the Nikkei Asian Review, the plant is operated by a joint venture that is 53% owned by BOE and the rest held by state-owned entities.

The market share of Chinese OLED panel manufacturers is forecasted to increase from 47.9% this year to 50.2% next year, surpassing the OLED shipment share of Korean companies. The willingness of Chinese local governments and state-owned entities to invest tirelessly does not bode well for Samsung, LG Display or any other non-Chinese manufacturer. If you were worried about geographic concentration of supply, The LG Display sale makes clear that over the near-term manufacturers outside China will struggle to compete. Long term, this is an industry that will have a much higher geographic concentration (in China) than semiconductors, but few people seemed to have noticed. People in Washington. D.C. should pay more attention.