I discussed in a September 29, 2016, Seeking Alpha article entitled "Samsung And LG Move To ALD For Flexible OLEDs, Could Push Applied Materials Out Of The Market," that Samsung Electronics (OTC:SSNLF) and LG Display were moving from PECVD (Plasma Enhanced Chemical Vapor Deposition) as a technology to deposit thin films on OLED displays to ALD (Atomic Layer Deposition) technology.
PECVD equipment is sold by Applied Materials (NASDAQ:AMAT) and others to, among other things, encapsulate flexible OLEDs. I noted that:
"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."
Data are now starting to come in that supports my thesis in the above article. One of the companies I referred to in the article was Korea's Jusung Engineering. The company has reported that it is receiving flexible OLED equipment orders from its major customer LG Display. In addition, the company is receiving orders from Chinese display manufacturers.
For 2016, Jusung will generate $116 million in revenues for its display sector, up 127% from $51 million in revenues in 2015.
By way of contrast, AMAT revenues in its display sector increased only 28% in FY2016, ending November 31, 2016. It must be remembered that AMAT's revenues include both OLEDs and LCDs. The company has a long history of participation in the LCD industry, and although OLEDs are replacing LCDs, AMAT is benefiting from several new Gen10.5 LCD plants that will fabricate larger pieces of glass into displays for the growing large-screen TV market.
Table 1 below shows AMAT's revenues in its display segment.
Table 1 - Applied Materials Display Segment Revenues
While the company does not publicly break out revenues differentiating OLEDs from LCDs there is one caveat to consider. I discussed in a February 17, 2017, article in Seeking Alpha entitled "What To Expect From Coherent In One Chart" that nearly all of the OLEDs being produced for smartphone displays use LTPS (Low Temperature Polysilicon) as the backplane.
LTPS is deposited directly using PECVD or as amorphous silicon and converted to LTPS using excimer lasers annealing technology. AMAT is a major supplier of this deposition equipment. So, AMAT has a history of generating several hundreds of millions of dollars from LCDs. On top of those revenues are sales of deposition for LTPS backplanes for OLEDs (as well as LCDs).
I would estimate that at least 70% of AMAT's revenues are for equipment NOT used from encapsulation based on the large number of backplanes and AMAT's historic revenues for LCDs as illustrated in Table 1 above for pre-OLED years. Again, it is the encapsulation process that is being replaced by ALD. Using this assumption, AMAT's revenues for OLED encapsulation can be estimated at $350 million for 2016, up 28% from $280 million in 2015, as shown in Table 2. This compares to Jusung's 127% growth.
To the naysayer readers, the 70% is my estimate, but the key point is the 28% YoY growth of AMAT compared to 127% YoY for Jusung.
Table 2 - OLED Encapsulation Revenues $Millions)
Another Korean company, NCD, offers its Lucinda line of ALD systems for OLED encapsulation as well as other applications including semiconductors and solar. In 2016, NCD signed a contractor with Chinese display manufacturer, TIANMA, to supply the 5.5th generation class ALD system of Lucida GD series for thin film encapsulation of OLEDs.
There are non-Korean ALD competitors of AMAT addressing the OLED market and they too are generating ALD sales.
- Encapsulix (France) has a unit installed at Astron Fiamm Safety, a leading OLED lighting manufacturer, for encapsulation. In January 2017, Encapsulix announced that a leading Asian AMOLED manufacturer has chosen its ALD-TFE deposition systems, to be used as flexible AMOLED encapsulation. The first tool already is under construction and will start operating in the spring of 2017.
- Privately held Sundew Technologies LLC (Broomfield, CO) has a line of ALD equipment for OLEDs as well as for use in semiconductors (see below)
ALD is replacing traditional PECVD deposition technology for memory devices. We are witnessing several movements in the NAND industry - a shortage, a migration from 2D to 3D, and an increase in bit density. I discussed this in a December 14, 2016, article in Seeking Alpha entitled "Micron Technology Continues To Benefit From NAND Shortages."
3D NAND devices are manufactured by a succession of deposition-etch processed to build up the device in the vertical direction. Two of the key competitors in deposition-etch equipment for 3D NAND are AMAT and Lam Research (NASDAQ:LRCX).
DRAM (as well as most IC) production is done by using multiple patterning, also a succession of deposition-etch steps in a technique called multiple patterning. Semiconductor manufacturers are utilizing multiple patterning processes, requiring extensive use of deposition and etch equipment, in order to avoid purchasing the extremely expensive EUV lithography equipment.
I discussed this technology in a January 26, 2017 Seeking Alpha article entitled "Applied Materials: 42% Exposure To EUV Lithography Will Stunt Long-Term Growth."
ALD is replacing PECVD as the deposition method in 3D NAND and DRAM production. Two Korean companies selling ALD equipment into this market are Jusung Engineering and Wonik IPS.
Jusung sells to the semiconductor industry, specifically to SK Hynix for NAND production. To remain competitive against Samsung and Micron Technology (NASDAQ:MU), SK is moving from 2z to 1x in 2H17 in DRAMs. On the 3D front, SK Hynix is ready to produce 72-layer 3D NAND chips starting in 2H17. For semiconductor devices, Jusung had revenues of $100 million in 2016, up 6% from $94 million in 2015.
Korean competitor Wonik IPS had ALD revenues for semiconductor production of $70 million in 2015, which could drop $65 million in 2016. However, there should be exceptional growth in 2017 with revenues up 50% reaching sales to $100 million. Samsung Electronics awarded a $46 million contract for Q1 2017 to Wonik as it ramps up its Pyeongtaek fab's capacity by 50,000 wpm in both 2017 and 2018. Wonik also sells PECVD and metal CVD in addition to ALD equipment. It is not clear the product mix that will be sold to SSNLF, but all three are competitors to AMAT.
There are other non-Korean ALD suppliers addressing the semiconductor market, including ASM International, Tokyo Electron, LRCX, and Aixtron (NASDAQ:AIXG), all competing in a $1.0 billion market with PECVD, a $2.1 billion market dominated by AMAT with a 55% share.
The high-tech industry historically replaces older technology with newer technology. I touched on this in two topics in this article: OLED displays are replacing LCD displays in smartphones and 3D NAND is replacing planar 2D NAND. These achievements are made possible because of replacements of older technology by newer technology at the manufacturing level. In this article I address one - the replacement of PECVD as a method of deposition in displays and semiconductors by ALD.
ALD technology is not new, but it is growing at a rapid rate. According to our report entitled "Thin Film Deposition: Trends, Key Issues, Market Analysis," ALD revenues generated in 2002 were only $21 million, but have grown to $1 billion in 2016. In the same 15-year span, PECVD revenues grew from $575 million to $2.1 billion.
ALD is rapidly becoming entrenched in OLED display and semiconductor manufacturing. Why? Because the industry is moving to technologies very different than they were in the past, and demands on thin film coating properties are greater than they have ever been. ALD for OLED display production only established a footing when flexible OLEDs required a different kind of encapsulation than rigid OLEDs.
Already Korean ALD manufacturers Jusung and NCD along with foreign manufacturers have sold their products to OLED manufacturers in Korea and China. There are two key investor takeaways here:
- Jusung is selling equipment to its major customer LG Display, one of the largest display manufacturers
- China is only recently producing flexible OLED displays for smartphones, so ALD sales to this market are only in the embryonic stage and will greatly expand in coming years.
In semiconductor manufacturing, there are also two key investor takeaways:
- ALD is growing rapidly at the expense of PECVD and as 3D and multiple patterning increases, so too will ALD
- Korean ALD supplier Jusung Engineering is selling to SK Hynix while Wonik IPS is selling to Samsung. These two companies, along with MU, dominate the memory market
The main loser will be Applied Materials. First, it is only trying to play catch up in ALD, having tried on several occasions in the past to develop ALD equipment. Secondly, in the semiconductor memory space, LRCX entered the ALD market in 2014 and revenues are over $100 million in 2016. LRCX is a strong competitor to AMAT in the deposition-etch processes used in 3D and in multiple patterning. With its ALD technology, LRCX has become the key supplier of deposition (ALD) and etch equipment to memory manufacturers.
But don't forget the Korean ALD suppliers Jusung and Wonik. They too are gaining market share in memory from AMAT, and their strong ties with SK Hynix and Samsung will only increase their competitive stature.
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