Samsung Clearly Has Flexible OLED Production Issues That Could Impact Suppliers And Customers

| About: Samsung Electronics (SSNLF)
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Summary

The cause of Samsung's exploding battery continues to be unresolved.

The Galaxy Note 7 had been sold with only minor changes from previous models.

The transition to a Lithium Polymer battery in the Note 7 is significant, but these batteries are used in a plethora of applications.

Production yields at Samsung can decrease with increasing size, and the larger display of the Note 7 could have been the straw that broke the camel's back.

Recent reports of Samsung moving to alternative processing methods and Apple moving to another OLED display manufacturer may be a result of yield problems.

Samsung (OTC:SSNLF) still hasn't figured out what caused exploding batteries in its Note 7 smartphone not only for the initial release but for replacements using batteries from a different manufacturer. Samsung's Note 7 is just an evolutionary step in smartphone improvements and features promoted by all manufacturers with each successive generation. So why the abrupt disconnect in the performance of the Note 7 when it is just an iteration of previous versions of the Galaxy line? By comparing features of previous Galaxy phones with the Note 7, the problem points to manufacturing problems, which can impact not only Samsung but its supply chain.

According to an article in Android Headlines, the Galaxy S7 and the Galaxy Note 7 have many things in common.

  • The US versions use the same Snapdragon 820 quad-core processor and an Adreno 530 GPU.
  • The international versions use the same Exynos 8890 octa-core processor and Mali-T880 MP12 GPU.
  • Both use 4GB of DDR4 RAM, and both have a 64GB variant and both now have expandable memory.
  • Both use the same 12MP primary cameras and a 5MP front-facing camera (NYSE:FFC) to take excellent photos and selfies.
  • Both have Hi-Res audio for listen through earphones.
  • Both have a fingerprint sensor that can unlock the device or authorize mobile payments.
  • Both have WiFi, Bluetooth v4.2, GPS, NFC, and a USB port - microUSB v2.0 on the S7 and Type-C reversible on the Note 7 - for charging and data transfer.

Both of these phones house a high definition 2K quality screen. The display of the Galaxy S7 (5.1-inch diagonal) is 0.6 inches smaller than the Galaxy Note 7 (5.7-inch diagonal), but its screen is 12% sharper.

Physically the Note 7 is only slightly larger than the S7 and only weighs 17 grams more. Both displays are Super AMOLED, with a QHD resolution.

The Galaxy measures 142.49 mm x 69.60 mm x 7.90 mm while the Galaxy Note 7 measures 153.50 mm x 73.90 mm x 7.90 mm to accommodate the larger screen.

Could the problem be the screen, the battery or the combination of the two?

So why does the Galaxy Note 7 have exploding batteries and not the Galaxy 7? Samsung has yet to identify the problem. Even replacing the battery manufacturer didn't help. Let's take a closer look at the major differences.

Both have non-removable batteries that offer quick charge and wireless charging. And both use the "always on" technology to save battery life. But the S7 uses a 3000mAh lithium ion battery while the Note 7 uses a 3500mAh lithium polymer battery. The display is typically the biggest drain on a phone's battery, so the Galaxy Note 7's larger screen will drain its battery faster than the display on the Galaxy S7.

Samsung Display is currently producing flexible OLEDs in two production lines, the A2 line with steadily increased capacity through five various phase investment to reach 140K 5.5G (1300x1100mm) substrates per month and the newer A3 Gen-6 (1500x1300mm) line that has a capacity of 15,000 monthly substrates. Samsung is currently producing around 9 million flexible OLEDs per month to satisfy demand for the S7 edge and other devices.

An OLED display can control the luminance of each pixel because each pixel is its own light source and draws power individually. Maximum brightness can be raised or lowered depending on the number of pixels that need to be illuminated. OLED screens get brighter with less content on screen. A measurement called APL (Average Picture Level) defines the amount of lit pixels. A full white screen is 100 percent while a black screen is zero percent. APL is inversely related to brightness. Thus, a 100 percent APL has the lowest possible brightness.

The Galaxy Note7 provides over 480 nits of brightness, but when Automatic Brightness is turned on, the Galaxy Note 7 produces up to 1,048 nits, which is higher than any display currently on the market.

Increasing the brightness requires an increase in current and power and can push a phone to its thermal limit. Circuitry in the smartphone controls is suppose to prevent heating.

The Galaxy S7 Edge Has a Curved Screen too

The Galaxy S7 Edge is almost the same size as the Note 7. Although both handsets have dual-curved display, the Note 7's curved screen is more pronounced and with less sloping than the screen of the S7 Edge. But there are two main differences: Galaxy S7 Edge maximum brightness of 715 nits. The battery on the S7 Edge is a non-removable Li-Ion 3600 mAh battery.

Shown in the table below are a comparison of the three phones I've discussed above.

Galaxy S7

Galaxy S7 Edge

Galaxy Note 7

Size

142.4 x 69.6 x 7.9 mm (5.61 x 2.74 x 0.31 in)

149 x 72 x 7.62 mm (5.85 x 2.85 x 0.30 in)

153.5 x 73.9 x 7.9 mm (6.04 x 2.91 x 0.31 in)

Weight

5.36 ounces

5.54 ounces

5.96 ounces

Screen

5.1-inch Quad HD Super AMOLED

Dual-edge, 5.5-inch Quad HD Super AMOLED

Dual-edge, 5.7-inch Quad HD Super AMOLED

Resolution

2,560 x 1,440 pixels

2,560×1,440 pixels

2,560×1,440 pixels

OS

Android 6.0 Marshmallow

Android 6.0 Marshmallow

Android 6.0 Marshmallow

Storage

32/64GB

32/64GB

64GB

SD Card Slot

Yes

Yes

Yes

NFC support

Yes

Yes

Yes

Processor

Qualcomm MSM8996, Snapdragon 820 (U.S. Models),

Exynos 8890 Octa (International Models)

Qualcomm MSM8996, Snapdragon 820 (U.S. Models),

Exynos 8890 Octa (International Models)

Qualcomm MSM8996, Snapdragon 820 (U.S. Models),

Exynos 8890 Octa (International Models)

RAM

4GB

4GB

4GB

Connectivity

Wi-Fi, 4G LTE, HSPA+

Wi-Fi, 4G LTE, HSPA+

Wi-Fi, 4G LTE, HSPA+

Camera

Front 5MP, Rear 12MP

Front 5MP, Rear 12MP

Front 5MP, Rear 12MP

Video

2,160p 4K UHD

2,160p 4K UHD

2,160p 4K UHD

Bluetooth

Yes, version 4.2

Yes, version 4.2

Yes, version 4.2

Fingerprint sensor

Yes

Yes

Yes

Water Resistant

Yes

Yes

Yes

Battery

3,000mAh

3,600mAh

3,500mAh

Charger

Micro USB

Micro USB

USB Type-C

Quick Charging

Yes

Yes

Yes

Wireless Charging

Yes, Qi and PMA

Yes, Qi and PMA

Yes, Qi and PMA

Marketplace

Google Play Store

Google Play Store

Google Play Store

Investor Takeaway

From the discussion above, the Note 7 appears to be merely an iteration of existing Galaxy phones but with a Li-Polymer battery and a slightly larger flexible screen.

The Galaxy Note 7 comes with a 3,500mAh non-removable Li-Po battery whereas the Galaxy S7 Edge has a 3,600mAh non-removable Li-Ion battery. So the battery's electrical charge is actually less for the non-exploding S7 Edge. The difference is the lithium polymer battery of the Note 7. However, Li-Po batteries are not new and used in a plethora of products.

Another significant difference is the display. Galaxy Note 7 has a maximum brightness of 1,048 nits whereas the Galaxy S7 Edge has a maximum brightness of 715 nits, yet the difference is display size is 5.7 inches versus 5.5 inches.

There are other smartphones on the market with these large display sizes, and of course a phablet or laptop have even larger ones. But the Galaxy Note 7 is made using a flexible OLED display while larger ones are made from LCDs. However, the Galaxy S7 Edge also comes with a flexible OLED display.

Flexible OLEDs are made on a flexible substrate and then attached to a curved rigid glass. Since it is flexible, the thin film components on the polymer substrate can crack because they are not pliable like the polymer. One of the main culprits is encapsulation using PECVD, a technology promoted by Applied Materials (NASDAQ:AMAT). Encapsulation is used to protect the completed OLED from the deleterious effects of moisture and oxygen. An imperfect process can cause high leakage current, which can cause local Joule heating near the sharp edges of the ITO electrode. This can result in pinholes and dark spots on the display.

I discussed in a previous article in Seeking Alpha entitled "Samsung And LG Move To ALD For Flexible OLEDs, Could Push Applied Materials Out Of The Market" that the thinner ALD films are advantageous:

"ALD offers advantages over PECVD. ALD-deposited thin films offer better water and oxygen protection and a thinner film is needed to provide the same protection as thicker PECVD-coated films. The fact that ALD film is a slower coating process is balanced by the need for a thinner film."

Thicker dielectric films tend to crack more readily than thinner films. While I'm not saying that the thicker film is the reason for the exploding batteries, I am saying that Samsung is having trouble with the larger screen size of the flexible OLED. In fact, a recent article in the Korea Herald reported that Samsung may drop the entire Note line of smartphones. The Note phones are the only model that have the larger format.

Also in a recent article from The Information Network entitled "Why Is Apple In Talks With Sharp For OLED Displays When It Will Likely Be Buying From Samsung?" the author questioned why Apple (NASDAQ:AAPL) would be in discussions with Sharp for flexible OLED displays when it has been suggested for the past year that the company would be buying from Samsung.

If Samsung's production of flexible OLEDs is having yield problems, clearly it seems to be amplified by the larger, albeit not much larger display and the curvature of the glass. With the reports of movement away from PECVD to ALD for encapsulation, it will affect Applied Materials. If the report that AAPL is moving to Sharp is true, it will impact Apple and it will add more headaches for Samsung. Most importantly it would impact the applicability of flexible OLEDs to larger sizes and curved shapes.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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