When will the price increase of OLED driver chips stop?

The upstream wafer shortage has affected the OLED driver chip market. According to reports, the strong demand for OLED panels has driven the growth of the OLED driver chip market, but due to the shortage of wafer production capacity, the price of OLED driver chips continues to rise. Following the price increase in the first quarter, the price of OLED driver chips rose by another 20% in the second quarter, and there is a possibility of another price surge in the third quarter.

Increased demand leads to wafer shortage, and the average price of OLED driver chips has risen by more than 20%

After entering the 5G era, OLED, which is flexible, thin, and power-saving, is more in line with the development needs of the smartphone industry. Smartphone manufacturers are fully embracing OLED, and Apple's iPhone 12 series even comes standard with OLED. At present, the market for smartphones equipped with OLED screens is growing rapidly. Omdia predicts that the shipment of smartphone OLED panels will reach 584.5 million units in 2021, an increase of 28% from 2020.

The strong momentum of the smartphone OLED panel market growth mainly comes from the continuous release of production capacity of OLED production lines in mainland China. In recent years, after the mass production of flexible OLED by mainland China OLED manufacturers and LG Display, flexible OLED production capacity has continued to increase, suppliers have diversified, and prices have gradually declined, which has driven smartphone manufacturers to introduce OLED in large quantities.

Last year, domestic flexible OLEDs began to enter large-scale competition, with the market share exceeding 10% for the first time. This year, the production capacity of domestic flexible OLEDs will be further released, and the shipment volume in 2021 is expected to exceed 100 million pieces for the first time. The market share of domestic OLEDs will continue to increase. Omdia predicts that the shipment market share of Chinese smartphone OLED panel manufacturers will reach 15%.

Wang Qiang (pseudonym), a display industry practitioner, is more optimistic. He said that this year's domestic flexible OLED shipments are expected to double. If the white-label and repair markets are included, the domestic flexible OLED shipments will be even greater. BOE's flexible OLED performance in the first half of this year also provides evidence for his point of view. Recently, BOE stated that in the first half of 2021, flexible AMOLED shipments increased by more than double compared with the same period last year. The current situation is good and progress is smooth, especially the shipments of key projects of key customers have exceeded expectations.

The rapid growth of the flexible OLED market has significantly increased the demand for OLED driver chips, but the wafer production capacity of OLED driver chip foundries has been in short supply, limiting the increase in the supply of OLED driver chips. Omdia believes that the tight supply of OLED driver chips is the biggest challenge to the growth of OLED panel shipments in 2021.

Currently, the foundries that can provide foundry services for flexible OLED driver chips mainly include Samsung, GlobalFoundries, TSMC, and UMC. In the case of wafer capacity in short supply, foundries continue to raise the foundry prices. UMC and TSMC have successively raised the foundry prices of 12-inch wafers in the first half of the year, with each piece increasing by about US$400, a 25% increase.

The price increase of upstream wafer foundry is directly transmitted to the OLED driver chip market, driving the continuous price increase of the OLED driver chip market. Isaiah Research pointed out that the shortage of wafers makes it impossible for OLED driver chips to fully meet market demand. From an overall perspective, the production capacity of OLED driver chips can only meet about 70% of customer demand. As of now, the price of OLED driver chips has risen by an average of 20-30%.

Wafer shortage has not eased, OLED driver chip prices may rise by another 10% in Q3

At present, flexible OLED driver chips use 40nm and 28nm process technology. In the future, as the power consumption of flexible OLEDs decreases, the resolution increases, and the display and touch chip integration develops, 28nm is likely to become the mainstream process technology for flexible OLED driver chips.

Samsung, GlobalFoundries, TSMC, UMC and other wafer foundries have rich experience in 40nm and 28nm process technology and currently dominate the global flexible OLED driver chip foundry market. Samsung manufactures for Korean OLED driver chip design manufacturers, while TSMC and UMC mainly manufacture for Taiwanese OLED driver chip manufacturers. Although mainland China wafer factories lack experience, they are also trying to manufacture flexible OLED driver chips.

However, the product lines of mature process technology such as 40nm and 28nm are very extensive. In addition to flexible OLED driver chips, they also include CMOS image sensors, RF components, TV system single chips, WiFi and Bluetooth chips, etc. Other chip orders are also squeezing the production capacity of flexible OLED driver chips. Mature processes such as 40nm and 28nm have become the hardest hit areas of shortage.

In order to meet the needs of various chip markets, TSMC, UMC, SMIC and others have expanded production. It is understood that SMIC announced in March that it plans to invest US$2.35 billion to expand 40,000 12-inch 28nm production capacity, and is expected to start production in 2022. TSMC announced in April that it would spend US$2.887 billion to expand Nanjing TSMC's 28nm production capacity, and it is expected to reach 40,000 monthly production capacity by mid-2023. Soon after, UMC also announced an investment of about 10 billion yuan to expand the 28nm production capacity of the Fab 12A P6 plant in the Tainan Science Park 12-inch wafer factory.

Far water cannot quench near thirst. Most of the expanded production capacity of wafer fabs will take at least one to two years to be released, which cannot alleviate the current wafer shortage problem. Isaiah Research pointed out that in 2021, SMIC's 40nm and 55nm process monthly production capacity will increase by 5,000 to 10,000 pieces, and part of the capacity will be used to produce OLED driver chips; the monthly production capacity of the 28nm process will increase by about 5,000 pieces. This is like a drop in the bucket for the chip market with a huge demand gap. Recently, there have been reports that wafer foundries may increase their wafer foundry quotations again, and the planned increase in the third quarter will be higher than in the first half of this year, which will bring greater pressure to the OLED driver chip market.

At the same time, except for Huawei, mainstream mobile phone manufacturers are increasing their OLED purchase ratio. Omdia predicts that the OLED panel adoption of smartphone brands Apple, OPPO, vivo, and Xiaomi will increase by more than 50% year-on-year in 2021. Among them, Apple's planned purchase of flexible OLEDs in 2021 will increase from 169 million pieces to 173 million pieces, making it the largest buyer of smartphone OLED panels.

OLED purchases continue to grow, and wafer production capacity increases slightly. OLED driver chips will remain in short supply in the second half of the year. Zhang Tian (pseudonym), an OLED panel practitioner, predicts that due to the shortage of wafer production capacity, the price of OLED driver chips will increase by at least 10% in the third quarter. Isaiah Research also pointed out that OLED panel shipments continue to grow, and wafer production capacity is still tight, especially 28nm production capacity has a considerable number of product applications, so the shortage of OLED driver chips will not be alleviated until at least the second half of 2022.