China Smartphone Market Dynamic and Local Panel Makers Strategy the Supply Chain Dynamic and Intensive Investment

China smartphone market dynamic and local panel makers strategy The supply chain dynamic and intensive investment

Nov.3th , 2016 Terry Yu, Senior Analyst IHS Markit | Technology [email protected]

2 Outlines Brand transfer wave and supply chain adjustment in China domestic market

Major panel makers strategy outlook

Smartphone market is getting mature and losing growth

Impacted450 by the weak iPhone demand, smartphone got the negative Y/Y growth in Q1’16 403 35.0%400 378 356 344 350 337 340 335 30% Y/Y30.0% 328 299 300 287 25.0%

250 20.0% 200 15.0% 150

10.0% 100

5.0% 50 -0.6% 1.2% 0% Y/Y0.0%0 Q1‘14 Q3‘14 Q1‘15 Q3‘15 Q1‘16 -5.0% Global smartphone market shipment result

The driving force behind brands competition The multi-wave helped to form current fast changing competitive landscape 50%

40% APPL/Samsung

30% I II III

20% Lenovo/ZTE/CoolPad OPPO/vivo 10% Huawei Xiaomi 0% Q1‘13 Q3‘13 Q1‘14 Q3‘14 Q1‘15 Q3‘15 Q1‘16 **Telecom operator subsidy **Subsidy policy terminal **Boosted off-line demand **China domestic market **Boosted on-line demand **Mature hardware performance Global smartphone shipment share by brand

The changing growth in China domestic market Benefitted from the strong off-line channels and replacement demand, OPPO and vivo performed extremely good in 1H’16.

20 million Huawei

OPPO Xiaomi

15 million vivoHuawei Xiaomi Apple Apple OPPO

1010 million vivo

Samsung Samsung

55 million Q1'15 Q2'15 Q3'15 Q4'15 Q1‘16 Q2’16 China smartphone shipment share by brands

Local brands’ strong positioning among 1,000- 4,000CNY range

Brand OPPO Samsung Samsung GALAXY On5 Model A59 GALAXY On7 GALAXY On5 @1,299 Launch June'16 Sep'16 Oct'16 Price 1,799 CNY($266) 1,799 CNY($266) 1,299 CNY($192) Display Technology aSi LCD LTPS LCD aSi LCD Size 5.5'' 5.5'' 5'' Resolution 720HD FHD 720HD AP Core Octa Octa Octa GALAXY On7 Model MT6750 Snapdragon 625 Snapdragon 617 @1,799 RAM 3G 3G 3G ROM 32G 32G 32G Rare camera 13M 13M 13M Front camera 8M 8M 8M Battery 3075mAh 3300mAh 2600mAh Size mm 154.5x76x7.38 151.7x74.9x8.0 142.8x69.5x8.1 OPPO A59 Weight mg 160 167 143 @1,799

Does the supply chain ready for the booming surge of OPPO/vivo? The tight Samsung AMOLED supply and JDI’s back to OPPO/vivo value chain

1H’15@JDI 5% OPPO vs 3% 7% 6% vivo 5% LGE/Huawei 8% 6% 7% 11% 7% OPPO

1H’16@SDC 85% 89% 80% 79% OPPO vs Samsung 75% 74% 69% 73% SEC

JDI 5.5’’FHD in Q3 & 6’’ FHD in Q4 Q3‘14 Q4‘14 Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 37M 41M 53M 52M 72M 78M 87M 98M SDC AMOLED shipment SDC AMOLED clients

Samsung Note 7 recall issue cannot help China AMOLED supply Besides the direct cash loss, Samsung Display A3 fab loading rate will be another challenge. However, it’s not helpful to improve current rigid AMOLED supply for Chinese brands. Samsung Note 7 loss Less set sales loss Recall cost Repair cost Direct cash loss A3 loading rate Delivery cost External demand major from China X Inventory destroy cost 8 million gap? Internal demand like S7 edge in 2016 √ Legal cost (estimated) Delay new 15K capacity ramp up √ S8 series demand in early 2017 √

Aug.2 Sep.2 Sep.14 Sep.17~ Oct.10~11

Note 7 1.9K recall in Stop sales and debut China global recall 2.5M global recall, New battery except China version delivery

Huawei still keeps eyes on the AMOLED supply chain The coming AMOLED models in 2H’16 and the strategy cooperation with JDI

7% 8% 9% 7% AMOLED 23% 25% 29% 24% 31% 35% 31% LTPS LCD 45% 46% 59% P9 plus Honor Note8 5.5’’ FHD 6.6’’ WQHD Rigid Rigid

75% 77% 76% 71% 69% 65% 61% 47% 45% aSi LCD 34% ? ?

Q1’14 Q3’14 Q1’15 Q3’15 Q1’16 Long Island Nice 5.5’’ WQHD 5’’ 720HD Huawei procurement share by display technology Curved display Rigid

Xiaomi debuts AMOLED models without Samsung Display support

Redmi Pro Xiaomi Note 2 Launch: July 27th Launch: October 25th Price: Price: 1,499 CNY @ July 2,799 CNY @October 1,099 CNY @ October Display: Display: 5.7’’ FHD dual curved 5.5’’ FHD AMOLED AMOLED Ever Display, LG Display BOE(sample) Others: Others: AP: MTK Helio X20 AP: Snapdragon 821 RAM/ROM: 3G+32G RAM/ROM: 4G+64G Camera: 13M+5M Camera: 23M+8M Battery: 4050mAh Battery: 4070

The major driving force of the tight smartphone display supply After years of easing supply, smartphone supply chain turns to be tight in 2016, not only for the display part. aSi LCD shipment dropped the most from Q3’15 250

200

150 aSi LCD LTPS LCD

100 AMOLED

0 Oxide LCD Q1‘14 Q3‘14 Q1‘15 Q3‘15 Q1‘16 Smartphone display shipment by technology

The tight aSi LCD supply in 1H’16 and revised price trend $30

$25

$20 5.5’’ FHD LTPS LCD IPS module

$15 $13.5@Jan’16 $13.55@Sep’16 5’’ 720HD aSi LCD IPS module $10 $9@Jul’15 $9@Sep’16

$5.05@Jan’15 $5.4@Sep’16 $5 4’’ WVGA aSi LCD TN module $0 Jan'15 Apr'15 Jul'15 Oct'15 Jan'16 Apr'16 Jul'16 Typical prices in China open market

Why does aSi LCD supply get shortage in China open market?

Limit cell : AUO, BOE, LGD, HSD, INNX, Century

Spec& Maker LA process strategy impact

* Improved demand from Jul * Shut down fabs * Lower negotiation power * Lower loading rate * Higher inventory level * Earthquake * Speculation * Larger size impact * Limit cell source * LA demand and shortage * Embedded * Limit client list * Samsung L6&T7-1 close plan process impact * Develop further applications * Profit orientation * Huawei/OPPO/vivo booking Capacity Demand

Potential Gen 8: BOE Chongqing, CEC-Panda

LTPS LCD and AMOLED will be two major technologies in future

60%

50% aSi LCD 40% LTPS LCD 30%

20% AMOLED

10% ！Oxide will have higher unit share when CPT Gen 6 and CEC- Oxide LCD Panda Gen8 Oxide LCD available for smartphone market 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Smartphone display shipment share by technology

Considerable new Gen 5.5/6 LTPS LCD capacity will be released in 1H’17 The fast increasing LTPS LCD supply may lead to the price down in 1H’17 1,600 Maker Fab Gen Max Capa MP ramp 129 1,400 121 AUO Kunshan L6K 6 25K/M Nov'16 1,200 106 BOE Ordos B6 5.5 30K/M Jan'17 Max 5.5’’ output 1,000 86 Million unit CSOT Wuhan T3 6 30K/M Aug'16 800 Tianma Xiamen fab 2 6 30K/M Sep'16 600 50 JDI Hakusan D3 6 25K/M Oct'16

400 JDI Mobara IPSA J1 6 8K/M Jan'16

200 16 6.1 8.3 LGD Kumi AP3 (P6) 6 8K/M Apr'16

0 Foxconn Kaohsiung 6 24K/M Oct'16 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Quarterly max area of the new capacity JDI Hakusan D3 ramp up will delay again

16 Outlines Brand transfer wave and supply chain adjustment in China domestic market

Major panel makers strategy outlook

The increasing LTPS LCD and AMOLED demand from major Chinese brands 80%80%

60%60% aSi LCD

40%40% LTPS LCD

20%20% AMOLED

0%0% Oxide LCD Q1‘14 Q2‘14 Q3‘14 Q4‘14 Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16

Major Chinese brands display procurement share by technology Major brands include Huawei, OPPO, vivo, Xiaomi, Lenovo+Motorola, CoolPad+LeEco, ZTE, Meizu, TCL and Gionee

BOE to carry out revenue orientation strategy actively in 2016 Besides the increasing module business and LTPS LCD shipment share, BOE also developed embedded touch solutions aggressively. 100% 100%

80% 80% aSi LCD Module

60% 60%

40% 40%

OEM cell 20% 20% LTPS LCD

0% 0% Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 BOE mobile phone display shipment share BOE mobile phone display shipment share by business mode by technology

BOE to develop flexible AMOLED aggressively With the B6 phase 2 capacity ready in Ordos, BOE LTPS LCD, including the in-cell total solutions will boost fast in 1H’17. The flexible AMOLED investment is aggressive that BOE could reach remarkable capacity in 2018 but MP challenge will be very difficult. 1,200 aSi LCD LTPS LCD Flexible AMOLED

1,000

800 B7 phase 2&3 B7 phase 1 B11 phase 1 600 B6 phase 2 400

200

0 Q1‘15 Q3‘15 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Q1‘18 Q3‘18 Q1‘19 Q3‘19 BOE G4-6 quarterly capacity area: 1,000 m^2/Q

Tianma to keep aSi LCD fabs loading rate with priority in 2016 Different from the aSi LCD, Tianma is leading China local LTPS LCD supply chain and benefit from local LTPS LCD demand. 100% 100%

80% 80% Module aSi LCD

60% 60%

40% 40% OEM cell LTPS LCD 20% 20%

0% 0% Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 Q1‘15 Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 Tianma mobile phone display shipment Tianma mobile phone display shipment share by business mode share by technology

Tianma to improve the capacity portfolio gradually With the new Gen 6 LTPS LCD capacity ready, Tianma is supposed to release considerable LTPS LCD output in 2017. AMOLED capacity will increase fast in 2018. 600 aSi LCD LTPS LCD Rigid+Flexible AMOLED

500 Xiamen Gen6 400 Wuhan Gen 6 + 300 Shanghai phase 2

200 Shanghai, ¼ cut G5.5 evaporation 100 only

0 Q1‘15 Q3‘15 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Q1‘18 Q3‘18 Q1‘19 Q3‘19 Tianma G4-6 quarterly capacity area: 1,000 m^2/Q

CSOT to join the small/medium game from 2016 CSOT has developed 5.5’’FHD and 5.2’’ FHD LTPS LCDs and now trying to ramp up. TCL-Alcatel will be the great support to improve MP yield rate. CSOT also plans flexible AMOLED capacity directly in Wuhan T4 fab to prepare for future competitions. 300 LTPS LCD Flexible AMOLED

250

200 Wuhan T3 Gen 6 LTPS LCD Wuhan T4 150 Gen 6 AMOLED

100 Move ahead? 50

0 Q1‘15 Q3‘15 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Q1‘18 Q3‘18 Q1‘19 Q3‘19 CSOT G4-6 quarterly capacity area: 1,000 m^2/Q

Truly to get into the role of panel maker Truly doesn’t prepare aSi LCD capacity for smartphone market for long term run to avoid disadvantage competitions, yet, for the short term run, Truly will develop smartphone AMOLEDs to improve the ramp up yield rate.

350 aSi LCD Rigid+flexible AMOLED 300 Shanwei 250 Gen5 Huizhou 200 Gen4.5 Wuhan T4 Gen 6 AMOLED 150

100 Huizhou Gen 4.5 AMOLED 50

0 Q1‘15 Q3‘15 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Q1‘18 Q3‘18 Q1‘19 Q3‘19 Truly G4-6 quarterly capacity area: 1,000 m^2/Q

EDO & Visionox to focus on AMOLED only EDO is now actually leading China AMOLED shipment scale and mass production yield rate, yet, the delayed Gen 6 project lowers their competition. Visionox is still challenging for 720HD yield rate, but gets support for active Gen 6 AMOLED investment. 500 Visionox EDO 450 400 350 Gu’an Gen 6 300 Move ahead? 250 GVO 200 Gen 5.5 150 EDO Gen 4.5 100 AMOLED EDO Gen 6 50 AMOLED 0 Q1‘15 Q3‘15 Q1‘16 Q3‘16 Q1‘17 Q3‘17 Q1‘18 Q3‘18 Q1‘19 Q3‘19 EDO & Visionx G4-6 quarterly capacity area: 1,000 m^2/Q

Thank You

Terry Yu Senior Analyst IHS Markit | Technology | Small/Medium & AMOLED [email protected]