COP film dominates VA panel market

IHS Report Display Materials & Components COP film dominates VA panel market September 2014 ihs.com Irene Heo, Principal Analyst, +82 31 8039 8763, Irene.heo@ihs.com

Contents EXECUTIVE SUMMARY 6 CHAPTER 1. OVERVIEW 9 1. Research methodology 10 2. Research scope and definitions 11 3. Revisions made in the H2 2014 report 12 CHAPTER 2. POLARIZER MARKET FORECAST 13 1. Polarizer overview 14 1.1. Polarizer structure 14 1.2. Polarizer manufacturing process 15 2. Polarizer market forecast 16 2.1 Overall polarizer market forecast (2013-2018) 16 2.2. Polarizer market forecast by display type 17 2.3. Polarizer market forecast by application 19 2.4. Polarizer market forecast by display mode 29 3. Polarizer price trends 30 3.1. Polarizer price trends 30 3.2. Polarizer production cost (BOM) 32 4. Polarizer production line status and supply/demand 33 4.1. Polarizer production line and capacity 33 4.2. Polarizer supply and demand 37 4.3. Polarizer supply and demand by region 39 CHAPTER 3. CHANGES IN POLARIZER STRUCTURES 41 1. Apple products and polarizer structure change 42 1.1. Influence of Apple 42 2

Contents 1.2. Polarizer structures of Apple s products 43 1.3. Polarizer structure changes for iphone series 44 1.4. Polarizer structure change for ipad series 45 2. Polarizer structure change trend 47 2.1. Thin-type polarizer development 47 2.2. Thin-type PVA technology: Nitto Denko 48 2.3. Thin-type PVA technology: Sumitomo Chemical 50 2.4. Integrated type (3D, Touch) 52 CHAPTER 4. PVA PROTECTIVE FILM (TAC, ACRYL, COP) MARKET 55 1. PVA protective film overview 56 1.1. Basic properties and production process 56 1.2. Types of PVA protective film 57 1.3. Introduction of adhesion process 58 2. PVA protection film market outlook 62 2.1. Definition of PVA protection film by location/use 62 2.2. PVA protection film market forecast (2013 2018) 63 2.3. PVA protection film market forecast by location/use (2013 2018) 64 2.4. PVA protection film market forecast by base film (2013 2018) 66 2.5. Surface treatment-use PVA protection film market forecast (2013 2018) 70 2.6. Plain/Bottom film-use PVA protection film market forecast (2013 2018) 72 2.7. Penetration rate of acryl film 75 3. PVA protection film production capacity and supply/demand 76 3.1. TAC film production capacity 76 3.2. Production line status by TAC film maker 77 3.3. Acryl film production capacity and supply chain 79 3.4. COP film production capacity and line status 80 3.5. TAC film supply and demand 81 3.6. Acryl film supply and demand 82 3

Contents 3.7. COP film supply and demand 83 4. PVA protection film supply chain and price trend 84 4.1. PVA protection film supply chain status 84 4.2. PVA protection film price forecast 85 4.3. Surface treatment and compensation film price forecast 86 CHAPTER 5. COMPENSATION FILM MARKET AND INDUSTRY 87 1. Overview of compensation film 88 1.1. Overview 88 1.2. Compensation concept by control of polarizing axis 89 1.3. Compensation principle by mode 90 1.4. Types of compensation film TN, VA, IPS 93 2. Compensation film adoption trend 103 2.1. Compensation film adoption rate by panel maker Large-sized TFT-LCD use compensation film 103 2.2. TV-use compensation film adoption trend: VA, IPS 104 2.3. Notebook PC-use compensation film adoption trend 106 2.4. Monitor-use compensation film adoption trend 107 2.5. Smart device-use compensation film adoption trend 108 2.6. AMOLED-use compensation film adoption trend 110 3. Compensation film market forecast 114 3.1. Overall compensation film market forecast (2013-2018) 114 3.2. Large-sized compensation film market forecast 115 3.3. Large compensation film market forecast by base film 116 3.4. TAC-based large compensation film market forecast 118 3.5. COP-based large compensation film market forecast 120 3.6. Large compensation film market forecast by display mode 122 3.7. TN mode-use large compensation film market forecast 124 3.8. VA mode-use large compensation film market forecast 125 3.9. IPS mode-use large compensation film market forecast 127 4

Contents 3.10. Large compensation film market forecast by film type 129 3.11. Large compensation film market share by film type 131 3.12. Small- and medium-sized (s/m) compensation film market forecast 132 3.13. S/M compensation film market forecast by display mode 133 3.14. S/M compensation film market forecast by film type 135 3.15. Overall compensation film market forecast by film type 138 4. Compensation film makers and supply chain status 139 4.1. Market share by manufacturer 139 4.2. Compensation film supply chain status 141 5

Executive summary Polarizer Compensation and TAC/Acryl/COP Film Report 2014 In terms of area, demand for polarizers is forecast to remain robust until 2018 with a compound annual growth rate in the 7% range. There are worries over a lack of production capacity in cyclo olefin polymer (COP) and acryl films, non-triacetyl cellulose (TAC) compensation films with high durability. Due to a competition with non-tac films, prices of TAC films fell to as low as in the 180-yen range. The polarizer market is estimated to grow 5.3% to $10.3 billion in 2014 from a year ago and 5.4% in 2015. By area, the market is projected to grow at a CAGR of 7.3% from 397 million square meters in 2014, to exceed 500 million square meters in 2018. Panel demand is forecast to be particularly strong in 2014 and 2015 following a spike in demand during the World Cup; the Brazilian government s subsidy policy; diversification of product line-ups including ultra-high definition (UHD), 3D, and curved TVs; and the scaling up of smart devices. Prices of polarizers are falling steadily, but a drop in the average price per unit area is likely to be limited by diversification of premium-class large TV line-ups, including UHD, 3D, and curved TVs, as well as their production increase. As a result, the market is expected to maintain a CAGR of 4.0% in value. Such robust demand for panels is stoking worries over a shortage of polarizer supplies. IHS expects polarizer supply to tighten from the second half of this year and its shortage to occur from 2015. The upcoming shortage is expected because demand for polarizers is forecast to grow a CAGR in the 7.0% range in terms of area, whereas its supply is expected to increase only at CAGR in the 2.0% range due to a lack of new operating lines. (please refer to page 56.) The robust TV market is invigorating the market for TV-use poly-vinyl alcohol (PVA) protection and compensation films. In particular, the market for non-tac films such as highly durable acryl, COP, and polyethylene terephthalate (PET) films are rapidly growing, thanks to the increasing thin-type panel demand and open cell business. Among them, the COP film is expected to take the largest share in the vertical alignment (VA)-mode film market as early as 2015. The acryl film is likely to maintain a market share similar to Z-TAC films, and its demand is expected to rise each year. 6

However, supplies of the non-tac films are limited. Production capacity of COP films is forecast stand at 65 million square meters for this year, but its demand is likely to reach 72.2 million square meters, which exceeds supplies by 10%. When new lines start to operate next year, its capacity will rise to 95 million square meters, which will likely ease the supply shortage. But the demand for COP films is expected to rise steadily, so the COP film market will likely face shortage again after 2016. Meanwhile, the acryl film market is also experiencing a constraint on supply. The entire capacity of the lines in operation stands at 140 million square meters, equivalent to a 18% glut. Considering the yield, the supply and demand are in balance in 2014, but from next year, the supply is expected to be tight. There is also an issue with polarizer production. UV curing adhesives are required to produce acryl and COP films. Currently, there are total 10 lines available for UV curing. Assuming each UV curing production line can produce about 12 million square meters of films on average (speed rises by 10 20% after adopting UV curing production), total production capacity of the 10 lines is estimated to reach 120 million square meters, which is not enough to produce even just acryl polarizers. It is possible to produce them by using water-based adhesives, but it takes time to dry water, thereby lowering productivity. And if some of existing lines are converted into UV curing lines, utilization rates can drop at the time of conversion. Hence, some polarizer companies seem to opt not to transform their lines to UV curing lines amid the lack of polarizer capacity. Unless companies make new investments, a supply shortage of non-tac films, such as acryl and COP films, will likely hamper the growth of their usage. (please refer to pages between 80 and 82.) The growing demand for the non-tac film has led the price of TAC films to rapidly fall. There may be numerous reasons behind this, including the attempt by TAC film producers to block the use of rival non-tac films; the attempt by the demand side to check prices; and the attempt by non-tac film makers to appeal to clients that their films have price merits as much as TAC films. They all seem true. TAC film prices, which appeared unlikely to fall below 200, are trading in the range of 180 this year, and new comers are suggesting it even in a lower price range. Moreover, prices of acryl films, which are competing directly with plain TAC films, are likely to fall easily up to as low as 100. Therefore, TAC film prices are likely to continue to fall to as low as in the range of 150 in 2018. 7

In terms of a structure, a thin polarizer has become a mainstream. Products using resin PVA films, considered the thinnest polarizer ever, have been rolled out in the market, and they are expected to be applied to large TVs from 2015. Some of these products don t even use a single sheet of a TAC film, while some others have a structure that innovatively reduces the number of PVA protection films, such as TAC or acryl films. Such films are predicted to bring big changes to the PVA film market and PVA protection film market moving forward. As such, IHS issues a report analyzing and forecasting the polarizer compensation film market and industry; the markets for TAC, acryl, and COP films; as well as their capacity, demand and supply conditions, and prices from 2013 to 2018. This report is expected to help participants in the related industries have accurate forecasts about the polarizer market and promptly deal with any big changes in the film market. 8

Chapter 1. Overview 9

1. Research methodology Polarizer Compensation and TAC/Acryl/COP Film Report 2014 Data collection The data used in this report has been collected and analyzed through various methods. The most important, basic data regarding supply was collected through Q&A sessions with major suppliers and research. Also, IHS has been collecting information continuously including materials from industrial and academic conferences, various display industry-related exhibitions, companies' earnings and analysis reports, press releases, and Internet search. Data analysis The collected data has been analyzed under the methods of cross fact-checking and correlating the information as well as through diachronic/synchronic studies by using existing analysis data. In particular, past demand/supply conditions and technology comparisons have been using the industry forecasts and regular/irregular reports released by IHS Technology as the fundamental basis of analysis. Demand for polarizers and sub-films This is based on panel makers shipment results and their plans to raise production capacities, collected through various methods and routes from panel makers and polarizer companies. Polarizer and sub-film supplies This is based on polarizer makers shipment results and their plans to raise production capacities, collected through polarizer-use sub-film companies shipment results and supply chains. Polarizer and sub-film markets and prices IHS has researched global prices of polarizers and sub-films every quarter. The entire amount market is calculated by collecting and calculating average prices of quarterly polarizer shipments and supply prices by product. 10

2. Research scope and definitions Polarizer Compensation and TAC/Acryl/COP Film Report 2014 Research scope: Market sizes are calculated based on area as polarizers are provided in the form of films Research item: Polarizer Researched companies: Manufacturers of the above item and its raw materials Research period: Third quarter of 2014 Long-term forecast: Markets from 2013 to 2018 Supply chain: Calculated based on the second quarter of 2014 Units and abbreviations - Y/Y Growth: Year-on-year growth - Q/Q Growth: Quarter-on-quarter growth - CAGR: Compound annual growth rate - L.TFT: Large TFT ( 9-inch or larger, including tablet PCs) - S/M TFT: Small/Medium TFT - Dongwoo: Dongwoo Fine-Chem. - LGD: LG Display - SDC: Samsung Display - CMMT: Chi Mei Materials Technology - BQM: BenQ Materials (Formerly Daxon) - CSOT: Shenzhen China Star Optoelectronics Technology - INX: Innolux Display - TAC: Tri-acetyl cellulose - PVA: Poly-vinyl alcohol - PET: Polyethylene terephthalate - COP: Cyclo olefin polymer - AG: Anti glare - LR: Low reflection - HC: Hard coating - TN mode: Twisted nematic - VA mode: Vertical alignment - IPS mode: In-plain switch - DSC: Digital still camera - PND: Portable navigation device - DPF: Digital photo frame - PMP: Portable multimedia player 11

3. Revisions made in the H2 2014 report Polarizer Compensation and TAC/Acryl/COP Film Report 2014 Changes in classification of small- and medium-sized panel applications. Divided the mobile phone into two: Smartphone and mobile phone (feature phone) Integrated the DSC and the camcorder into the camera. Integrated PND, DPF, PMP, and portable DVD into the portable. Revised down the polarizer price per unit area. H1 2014 pricing trend Technology 2012 2013 2014 2015 2016 2017 2018 AMOLED 131 124 119 114 110 105 101 Large TFT-LCD 35 31 29 28 27 26 25 S/M TFT-LCD 105 101 95 89 84 83 79 H2 2014 pricing trend Technology 2012 2013 2014 2015 2016 2017 2018 AMOLED 112 55 47 45 43 42 40 Large TFT-LCD 35 28 26 25 24 23 22 S/M TFT-LCD 95 71 68 65 62 60 57 Revised up effective area, cutting rates, and yields that are applied when calculating polarizer demand. Previous: Effective area (95%) x cutting rates (85~88%) x yields (93~95%) = 75~79% Revision: : Effective area (95%) x cutting rates (90~95%) x yields (93~95%) = 80~86% Please note that the polarizer value market in the H2 2014 report fell from that in the H1 2014 report due to the revisions in demand area and prices. 12

Chapter 2. Polarizer market forecast 13

1. Polarizer overview Polarizer Compensation and TAC/Acryl/COP Film Report 2014 1.1. Polarizer structure Polarizer is a thin film with a thickness of about 500 um, but it comprises of many films with different functions offered by numerous suppliers. Films used for polarizers are largely divided into PVA films, PVA protection films (TAC films), PET protection films, release films, and compensation films. With increasing TFT-LCD size, know-hows of handling extra wide films with a width of more than 2,000 millimeters (mm) have become one of the most important production elements. As applications have been diversified into various forms, including 3D, light emitting diode (LED), and touch since 2009, development and adoption of films that can fit well to such different applications with a wide range of properties have also emerged as a crucial factor. The manufacturing process of a polarizer first requires absorption of iodine to a PVA film, which is a polarizer, to support this with a PVA protection film (TAC film), and then numerous functional films are laminated in series. Finally, a protective film is attached just before shipping. An schematic of the simplified manufacturing process is presented in the next page. LCD module and polarizer structure Surface Treatment PET(100um) TAC(60um) PVA(60um) Compensation(60um) PSA(20um) PSA(20um) Compensation(60um) PVA(60um) TAC(60um) Top Pol. 190~250um LCD Cell: 1~2mm Bottom Pol. 170~230um SAMPLE www.ihs.com Cover Glass Touch Sensor Top Polarizer Film TFT Glass (Upper) TFT Glass (Lower) Bottom Polarizer Film Micro Lens/Diffusion/Prism Surface Cover Treatment Glass OCA ITO Film OCA ITO Film OCA/OCR TSP panel: 1~2mm BLU Module Light Guide Plate 14

2. Polarizer market forecast Polarizer Compensation and TAC/Acryl/COP Film Report 2014 2.1. Overall polarizer market forecast (2013 2018) The polarizer market is estimated to grow xx% to $xxx billion in 2014 from a year ago and rise xx% in 2015. Polarizer prices are falling steadily despite the brisk panel market, but the drop in the average prices is likely to be limited by diversification of premium class TV line-ups, such as 3D and UHD TVs. The market is expected to maintain growth with a xx% CAGR until 2018. Global polarizer demand for 2014 is predicted to reach xxx million square meters. It is also expected to grow to xxx million square meters in 2018 with a CAGR of xx%. Panel demand is forecast to improve in 2014, helped by a spike in demand during the World Cup; the Brazilian government s subsidy policy; diversification of TV line-ups into UHD, 3D, and curved TVs; and the scaling up of smart devices. Polarizer demand is likely to grow about xx% from a year earlier in 2014 and also rise more than xx% in 2015. Overall polarizer market forecast (Revenue) SAMPLE www.ihs.com Overall polarizer market forecast (Area) 14 10.0% 600 10.0% Billions of dollars 12 10 8 6 4 2 8.0% 6.0% 4.0% 2.0% Millions of square meters 500 400 300 200 100 9.0% 8.0% 7.0% 6.0% % 5.0% 4.0% 3.0% 2.0% 1.0% 0 2013 2014 2015 2016 2017 2018 Revenue 9.8 10.3 10.9 11.3 11.6 11.9 Y/Y Growth 3.9% 5.3% 5.4% 3.5% 2.9% 2.9% 0.0% 0 2013 2014 2015 2016 2017 2018 Area 363.2 397.0 433.9 463.1 490.6 516.2 Y/Y Growth 5.8% 9.3% 9.3% 6.7% 5.9% 5.2% 0.0% 15

The table, right below, lists the price per unit area of polarizers for major applications. As of 2014, the price of the s/m automotive polarizer is the highest. Unlike indoor devices, automotive polarizers need higher durability as they are exposed to tough environment. They also have strict standards for visibility against external light. Moreover, they are more expensive than polarizers used in other devices as the products must be sustained in line with the vehicle s warranty period. When the price per unit area of AMOLED-use smartphone polarizer and that of TFT-LCD smartphone polarizer are compared, the latter cost a lot higher. (Only one sheet of www.ihs.com polarizer is used for the AMOLED-use. It doesn t require pricey films like APF*.) Usually, the tablet PC-use polarizer maintains high price per unit area as it also uses an APF. The monitor-use polarizer also adopts pricey compensation film, called WV, so its price per unit area is higher than that of TV-use polarizer. * APF: A type of film, used to enhance brightness Polarizer price trends by area Dollars per square meter 250 200 150 100 Polarizer pricing trends by area (dollars per square meter) AMOLED 50 SAMPLE 0 Large TFT-LCD S/M TFT-LCD 2013 2014 2015 2016 2017 2018 AMOLED (TV) LCD (TV) TV Mobile phone TV MNT Note PC Tablet PC Smartphone Automotive AMOLED (Mobile phone) LCD (MNT) 2013 2014 2015 2016 2017 2018 16

4. Polarizer production line status and supply/demand 4.1. Polarizer production line and capacity Polarizer production line status, Ksqm/year Makers Region Line Width(mm) Operation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Nitto SAMPLE www.ihs.com Nitto Total Sumitomo Sumitomo Total 17

4.2. Polarizer supply and demand By area, polarizer demand is expected to amount to 400 million square meters in 2014. It is likely to grow at a CAGR of xx% to exceed xxx million square meters by 2018. However, the supply will merely grow at a CAGR of xx% due to an absence of new operating lines. The supply will be tight across the board in 2014 and genuinely fall short of demand from 2015. Supply growth rate versus demand growth rate Polarizer supply and demand % 20% 16% 12% 8% 4% 0% 16% 12% 6% 5% 5% 2% 2% 1% 0% 2012 2013 2014 2015 2016 2017 2018 Y/Y Growth (Supply) 9% 9% 7% 6% Y/Y Growth (Demand) SAMPLE www.ihs.com 5% Millions of square meters 600 500 400 300 200 100 0 20% 18% Balance (10~20%) 13% 2012 2013 2014 2015 2016 2017 2018 Supply 413.1 428.3 447.4 468.2 470.9 476.0 482.0 Demand 343.2 363.2 397.0 433.8 462.8 490.3 516.2 Glut 20% 18% 13% 8% 2% -3% -7% 8% 2% -3% 25% 20% 15% 10% 5% 0% -5% -7% -10% Supply : Design capacity * 80% (maintanance, job changing, etc.) Glut : (S-D)/Demand 18

Chapter 3. Changes in polarizer structures 19

1.2. Polarizer structures of Apple s products Polarizer structures and films used in Apple products are becoming the guide to development of new polarizers. Polarizers for the iphone are being developed in a way more favorable to performance and thickness rather than prices. Notably, it is expected for thin films including resin PVA, thin APF, and 25 um TAC films to be adopted aggressively. Apple products and polarizer structure AIO Monitor - imac - IPS Mode - Polarizer: XX - Films: XX - Hard coating: XX Note PC MacBook - IPS Mode - Polarizer: XX - Films: XX - Dry AR : XX Tablet PC ipad Air (6G) Smartphone iphone 6 - IPS Mode - Polarizer: XX - Films: XX SAMPLE - LR: XX www.ihs.com - IPS Mode - Polarizer: XX - Films: XX - HC: XX Some include speculations based on industry data and future trends 20

Chapter 4. PVA protective film (TAC, Acryl, COP) market 21

2.3. PVA protection film market forecast by location/use: Area On an area basis, the market is expected to reach xxx million square meters in 2014 and xx billion square meters in 2018. The surface treatment market will likely reach xx million square meters in 2014, making up xx% of the entire market; the compensation film to amount to xx million square meters with a xx% share; and bottom film to stand at xxx million square meters with 25%. PVA protection film market forecast by location/use (Area) Millions of square meters 600 500 400 300 200 100 PVA protection film market share by location/use (Area) 100% SAMPLE 90% www.ihs.com % 80% 70% 60% 50% 40% 30% 20% 10% 0 2013 2014 2015 2016 2017 2018 Comp. film 358 391 431 463 493 522 Surface treatment 203 222 243 261 278 295 Bottom film 201 219 239 254 267 279 Plain film 46 48 50 52 54 56 0% 2013 2014 2015 2016 2017 2018 Plain film 6% 5% 5% 5% 5% 5% Bottom film 25% 25% 25% 25% 24% 24% Surface treatment 25% 25% 25% 25% 25% 26% Comp. film 44% 44% 45% 45% 45% 45% 22

2.7. Penetration rate of acryl film Graphs to forecast acryl film penetration by location and use are presented. Acryl is now used in bottom film and surface treatment film, and its adoption in the surface and bottom film is presumed to reach xx% and xx%, each, in 2014. In the compensation film market, acryl is expected to continue to compete with Z-TAC and increase its use in compensation film to xx% for 2014. Through, with insufficient production capacity for acryl, the actual penetration rate may be lower than the forecast. www.ihs.com Penetration rate of acryl film: Surface treatment film Millions of square meters 11% 13% 15% 14% 14% 15% 24 33 38 40 42 50 5% 74% 0 0% 2013 2014 2015 2016 2017 2018 SAMPLESurface treatment Sureface treatment Acryl Acryl % 350 300 250 200 150 100 30% 25% 20% 10% Penetration rate of acryl film: Bottom film Penetration rate of acryl film: Compensation film 300 30% 600 30% Millions of square meters 250 200 150 100 50 0 25% 23% 23% 23% 20% 20% 17% 15% 10% 48 57 61 64 37 5% 63% 0% 2013 2014 2015 2016 2017 2018 Millions of square meters 500 400 300 200 100 0 25% 20% 17% 17% 18% 16% 15% 14% 11% 10% 39 55 67 78 85 94 5% 0% 2013 2014 2015 2016 2017 2018 Bottom film Bottom Acryl Acryl % Compensation Compensation Acryl Acryl % 23

3.4. COP film production capacity and line status COP Film production capacity and line status (Ksquare meters/year) Company Location Line-Up 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Zeon SAMPLE www.ihs.com Total 24

3.7. COP film supply and demand The COP film demand is rising. The COP film by Zeon can be divided into 45-degree stretched film and general stretched film, and the 45-degree stretched film is used as transparent conductor films for touch panels, films for 3D TV, compensation film for AMOLED, and compensation film for the small- and medium-sized VA mode. Annual capacity is xx million square meters. With steadily growing demand for the Zeonor film used on a typical large VA mode, its supply is estimated to fall short of the demand by xx% this year. Even if the operation of new production lines start next year, its supply is forecast to reach xx million square meters and remain tight. The market will be able to benefit somewhat from the orientation film line built in Toyama in 2006, which has been used, depending on demand condition. COP film supply/demand analysis 120 100 SAMPLE 100% www.ihs.com 80% Market share of 45 stretched film by usage Base film for OLED 18% Millions of square meter 80 60 40 20 Balance (10~20%) 60% 40% 20% 0% -20% Compensation 45% 0 2012 2013 2014 2015 2016 2017 2018 Supply 65.0 65.0 65.0 95.0 95.0 95.0 95.0 Demand 34.3 54.4 72.2 85.6 99.6 104.7 105.8 Glut 89% 19% -10% 11% -5% -9% -10% -40% Base film for touch panel sensnor 36% 3D TV 1% Supply: Design capacity is considered. If the utilization rate of 80~85% is reflected, more severe shortage is expected. Glut: (Supply-Demand)/Demand Compensation film : MVA-use compensation film base, Base film for OLED: AMOLED-use compensation film 25

4.3. Surface treatment and compensation film price forecast The price of compensation films including B-TAC, N-TAC, Z-TAC, and Zeonor have rapidly declined on the fall in polarizer prices and intensified competition with similar films, and it is now trading at the similar level of the TAC base film price. Meanwhile, surface treatment films such as AG, HC, and LR are forecast to maintain a price range 100 higher than that of the compensation film. Film makers generally produce compensation films. However, surface treatment films are supplied to polarizer makers after they are bought from base film makers and treated, and this value chain is affecting the prices. Compensation film and surface treatment film price trends Yen per square meter 1,400 1,200 1,000 800 600 400 200 SAMPLE www.ihs.com 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 AG TAC 508.00 463.70 424.90 399.60 369.00 333.00 311.00 299.00 280.00 265.00 LR TAC 1,162.40 1,116.60 1,072.60 965.00 866.00 815.00 761.00 720.00 692.00 HC TAC 425.40 419.90 405.20 372.00 335.00 317.00 301.00 284.00 270.00 WV 1,267.40 1,208.00 1,160.50 1,114.80 1,002.80 896.00 848.00 814.00 782.00 751.00 B-TAC 580.00 288.75 262.50 250.00 230.00 200.00 186.00 180.00 175.00 171.00 N-TAC 550.00 400.00 300.00 250.00 220.00 200.50 188.00 182.00 177.00 172.00 Zeonor 630.00 400.00 300.00 260.00 255.00 250.00 245.00 240.00 235.00 230.00 Z-TAC 500.00 290.40 264.00 240.00 216.00 190.00 181.00 175.00 172.00 170.00 26

Chapter 5. Compensation film market and industry 27

Acryl film started to be used from around 2009 and 2010 when light-emitting diode (LED) was first applied as backlight. Heat from LED can cause film degradation, so the acryl film, which has higher durability than TAC, but no stretching value, started to be applied. A hybrid type with Z-TAC applied to the top plate and acryl film applied to the bottom plate had the same structure as replacing the conventional Z-TAC and used to be the most popular. However, the structure employing the acryl film on both sides has recently become a mainstream. With the growth of the open cell business, the four-sheet type acryl film with acryl employed on the outer covering as well was introduced. www.ihs.com Nitto Denko and LG Chem produce acryl compensation film. Nitto Denko uses Nippon Shokubai's acryl resin, while LG Chem uses Nippon Shokubai's resin and its internally-produced resin together. The film manufactured by Nitto Denko is commonly called CAT, and that of LG Chem is called ACE. For the conventional TAC film, PVA and TAC layers are attached through water-based adhesive process. For acryl, the adhesive process is conducted through UV curing. Currently, Nitto Denko has four lines available for UV bonding, while Sumitomo has a total of three lines one line for each country. LG Chem has two lines and Samsung SDI has one. SAMPLE IPS polarizer structure : Acryl polarizer 28

2.2. TV-use compensation film adoption trend IPS mode Acryl polarizer started to be used as a solution to tackle heat problem in LED products. The acryl polarizer became so popular that all of IPS mode LED models have employed it. With the recent rise in the open cell business, demand for better durability is stronger than ever, helping boost usage of the acryl polarizer steadily. The adopt of two-sheet acryl polarizer started to grow substantially from 2013, and even xxxxxxxxxxxxxxxxthat applies an acryl film xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx started to be adopted from 2014. Other than this, starting 2015 the earliest, a TV-use polarizer is expected to employ PVA resin solution. IPS mode TV-use compensation film adoption trend SAMPLE www.ihs.com 29

2.6. AMOLED-use compensation film adoption trend AMOLED-use polarizer aims to improve contrast ratio by preventing internal reflected light from reaching our eyes. AMOLED is composed of a TFT device on the bottom; an emissive layer and cathode above the TFT; encapsulation glass above them; and reflection film below the TFF to send light emitted from the EL to an one direction. AMOLED structure and light path OLED Structure Polarizer Encapsulation Glass TFT Glass Reflection Film SAMPLE www.ihs.com OLED with polarizer Polarizer ¼ λ plate Light Encapsulation Glass TFT Glass Cathode EL layer Reflection Film OLED without polarizer Cathode EL layer *RHP: Right-Hand Circulated Polarized Light **LHP: Left-Hand Circulated Polarized Light Encapsulation Glass TFT Glass Reflection Film Cathode EL layer 30

For mobile, the OLED-use polarizer is produced by adhering anti-reflection compensation film to a general polarizer with PSA, whereas the TV-use is generally manufactured in roll-to-roll form because of productivity and price issues. The biggest advantage of AMOLED is its slimness, so demand for a thin-type AMOLED-use polarizer is high, intensifying competition to minimize thickness. As mentioned in chapter 3, a wide range of solutions for thin types have been introduced. Especially, Sumitomo has been supplying the xx.x-um thick polarizer that is composed of a polarizer laminated with TAC, a PVA compensation film, on only one side and two sheets of COP compensation films adhered on it. Thin-type polarizer for AMOLED Model Galaxy S1 Galaxy S2 Galaxy S3/S4 /Galaxy Note Unit SAMPLE Galaxy S4 Galaxy S 5 Note 3 (presumption) www.ihs.com Nokia Lumina 900 Galaxy Note 3 (presumption) New Ver. II Thickness Supplier 31

3. Compensation film market forecast Polarizer Compensation and TAC/Acryl/COP Film Report 2014 3.1. Overall compensation film market forecast (2013 2018) The total compensation film market in 2014 is estimated to reach xxx billion in value and grow up to xxx billion yen in 2018. The market has shrunk significantly from 2013 to 2014 in value on the fall in the usage of WV films for TN mode and intensified price competition. Overall compensation film market forecast (Revenue) 140 120 12% SAMPLE www.ihs.com Overall compensation film market forecast (Area) 600 500 7% 13% 8% Billions of yen 100 80 60 40 2% -3% Millions of square meters 400 300 200 3% -2% 20-8% 100-7% 0 2013 2014 2015 2016 2017 2018 Revenue 129 115 116 118 123 127 Y/Y Growth -8% -11% 1% 2% 4% 4% -13% 0 2013 2014 2015 2016 2017 2018 Area 358 391 431 463 493 522 Y/Y Growth 8% 9% 10% 7% 6% 6% -12% 32

3.15. Overall compensation film market forecast by film type: Area Overall compensation film market forecast (Area/ Millions of square meters) TFT-LCD S/M AMOLED Total N-TAC Zeonor Z-TAC B-TAC Acryl WV ND(Nitto) I Film NV Film Arton Z-TAC WV Zeonor Acryl ND IPS I-Film NV Film NH ESSINA COP 2 sheets type Amond WRF 2013 2014 2015 2016 2017 2018 CAGR SAMPLE www.ihs.com 33

4. Compensation film makers and supply chain status 4.1. Market share by manufacturer: Revenue Fujifilm is the largest producer of TAC base compensation films, such as WV, Z-TAC, and B-TAC films, and its revenue in 2014 is forecast to reach XXX billion, taking the lead in the market with a XX% share. It is followed by Zeon, which exclusively supplies COP films, with a XX% share, worth about XX billion in revenue. In 2018, the shrinking WV market and increasing price competition are projected to reduce Fujifilm s market share to XX%, but to raise Zeon s to XX%. Overall compensation film market forecast by manufacturer (Revenue) Overall compensation film market share by manufacturer (Revenue) 140 100% SAMPLE 90% 120 www.ihs.com 80% Billions of yen 100 80 60 40 20 0 2013 2014 2015 2016 2017 2018 Others 0.20 0.29 0.69 1.31 2.11 3.15 LG Chem 3.68 4.60 4.80 4.69 4.70 4.94 JX 1.52 0.65 1.08 1.36 1.68 1.93 Nitto 6.86 6.37 7.59 8.23 9.56 11.33 Zeon 15.21 20.74 23.81 27.30 28.82 29.52 Konica minolta 16.0 15.9 15.4 15.0 15.0 14.9 Fujifilm 85.40 66.44 62.62 60.25 60.88 61.29 % 70% 60% 50% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 2018 Others 0% 0% 1% 1% 2% 2% LG Chem 3% 4% 4% 4% 4% 4% JX 1% 1% 1% 1% 1% 2% Nitto 5% 6% 7% 7% 8% 9% Zeon 12% 18% 21% 23% 23% 23% Konica minolta 12% 14% 13% 13% 12% 12% Fujifilm 66% 58% 54% 51% 50% 48% 34

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