FPD industry and Market Outlook

FPD industry and Market Outlook Yoonsung Chung Research Director, NPD DisplaySearch Korea Copyright 2011 NPD DisplaySearch Authorized Users may not provide this report, or any part, to non-authorized Users (internal or external) as stated in the Terms & Conditions. Copyright 2013 NPD DisplaySearch Authorized Users may not provide this report, or any part, to non-authorized Users (internal or external) as stated in the Terms & Conditions.

Global Display market trends Copyright 2011 NPD DisplaySearch. Authorized Users may not provide this report, or any part, to non-authorized Users (internal or external) as stated in the Terms & Conditions.

TFT-LCD Supply & Demand Balance or sligtly tight were expected but.. - Over supply in 1H 13 Continue in 2H 13 - Inventory issue, slower demand amplifying worries in 2H 13 [Quarterly FPD Supply/Demand and Capital Spending Report] 3

Take 1- Inventories Adjustment in 2013 Over-shipments in 2010. 2011 was the first year LCD TV panel shipments declined Y/Y. In 2012, panel makers shipped a lot and raised the Panel/Set index for TV. IT panels, poor demand, production also reduced better Panel/Set index in 2013. Technology transition for IT panels also accelerates production shrinkage. How to clean up inventory in 1H 13 is key issue. LCD TV 2007 2008 2009 2010 2011 2012 2013(F) Panel 92 113 163 221 210 230 230 Set 79 106 145 192 205 203 213 Panel >Set 16% 7% 12% 15% 2% 13% 8% Monitor +AIO 2007 2008 2009 2010 2011 2012 2013(F) Panel 177 174 177 199 197 181 169 Set 166 171 168 183 184 170 165 Panel > Set 7% 2% 5% 9% 7% 6% 2% Notebook+ Mini-Note 2007 2008 2009 2010 2011 2012 2013(F) Panel 115 151 177 214 223 232 210 Set 109 146 171 198 215 218 207 Panel > Set 6% 3% 4% 8% 4% 6% 1.4% * DS WWF report, GTV report, QMPC report, QDM report 4

Take 2 - China TV market China TV market obvioulsy growing market and where industry relies on. But It looks like Q313 demand is gone. Why? - Subsidy program is gone. No driver for Q313. - Pulled in too many panels last 6 months. 5

China TV Seasonality influences the World China is the largest TV market in the world. China TV panel purchase is the largest in the world. The seasonality in China has started to change the global LCD supply demand balance. Panel up and down cycle is always one or two months ahead of the production and sell-through. 9.00 8.00 Unit: Millions 7.00 6.00 5.00 Panel 4.00 3.00 Set 2.00 Retail 1.00 0.00 LCD TV Sell-Through China TV Makers' Panel Purchase China TV Makers' Production (Top 6) 6

Take 3 Hard to drive volumes Panel makers inclease volumes in 2013 especailly China makers. Considering set demand, hard to achive Panel makers Buienss plan. 118M TV panels were shipped in 1H 13. Forecasting indicates it looks like 50:50 or 51:49. - 112M in 2H 13 looks more reasonable. 123M, hard to expect. First activity to protect BP is lowering price. If it doesn t work or hard to take it, next is lowering UT. Couple of scenarios are there but worst scenario becomes bigger possibility. [LCD TV panel makers BP] [LCD TV set/panel ratio forecasting] M units 2012 2013(F) AUO 32.5 36 BOE 11.6 18 CEC-Panda 3 3.6 Innolux 45.7 42 CSOT 11 20 LG Display 56.8 54 Panasonic 5.6 4.1 Samsung Display 54.6 51 Sharp 8.8 13.2 Total 229.6 241.9 Where s 11.9M? 7

Take 4 - Driving Bigger sizes Makers 2013 plan clearly showing Area growth - lack of G7 capacity, 42 MMG(+ 21.6 ) and 40 MMG(+ 23 ) in G8 Jumbo size(60 +), players are very aggressive. - many new sizes(58, 60, 65, 75, 85, 98 ) including 4K2K strategy. - Sharp&Honhai alliance ignites low cost 60 war. 60 $599 in 2013 BF? - China local brands rush to jumbo sizes too. [Panel makers 2013BP] 8

Take 5 - Tablet, key device for TV business Everybody understands tablet will dominate mobile PC. - It is expected that Tablet will catch up note PC within 2013. Tablet becomes key device for TV business. - Possibly tablet can lower second TV demand. - Apple TV, one of key function should be Air Play between TV and smart device. - Once customers get used to certain OS via tablet, will chose TV based on same OS. 1 st tier brands start to have bundle business. - Thinks winner for smart device will take TV market. - Samsung has relatively high tablet 2013 target. [Apple, Air play] 9

Take 6 - High resolution via high-tech. Nobody doubts high resolution trends in mobile PC But we can say It s the power consumption, stupid It is quite sure demand surging for Oxide, LTPS from now. - Beyond FHD, 4K2K mobile PC accelerates. Better Power consumption = High Premium - Shipment # is not a factor anymore. Technology advantage becomes important. Korean makers are now dominating high resolution(over 200PPI) mobile PCs. But Japanese brands rushing with Oxide/LTPS technology. Korean wants to keep the initiative but it will be decided by technology power. [High resolution Mobile PC, 2.5M 4.9M] 2012 2013 a-si TFT [Oxide allows to have better power consumption] Oxide TFT *Q313 DS QLA report, over 200PPI 10

Take 7 - High Resolution, 4K2K in TVs Taiwan/China makers ignite 4K2K market - Full line-up(39/46/50/55/58/65/85/110) - Accelerate price crashing. - Different atmosphere by region. Booming in China market but.. Panel business is package deal. Can t ignore 4K2K demand from China. - Turning to be aggressive(korean players) 4K2K, Bridge for missing link between LCD TVs and AMOLED TVs. - Who rushes 4K2K? why? - Becomes commodity soon but increases demand for Jumbo size(60 +) TVs. [Panel makers 4K2K plan] [4K2K panel pricing down forecasting] Makers Line-up MP A 4X/55/65/75/8X/9X Q313 B 55/65/8X Q313 C 55/65 Running D 39/50/58/65 Running E 55/85/110 Soon F 55 2H13 G 60/70/80 Soon ( 倍 ) Lowest 기준 11

Smart Phone, move to >350 PPI FHD The smart phone resolution is a way of no return as end users have used to the high resolution. Touch function play a key in requiring the smart phone panel to have higher resolution. >350 PPI Smart Phone panel is all FHD, and using LTPS LCD, Oxide LCD, AMOLED technologies. PPI 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 300-500 28% 39% 39% 43% 45% 47% 49% 51% 53% 54% 350-500 0% 14% 26% 32% 35% 36% 38% 39% 40% Source: DisplaySearch Quarterly Worldwide FPD Shipment and Forecast Report 12

Tablet PC Panel : >250 PPI In Tablet PC, >250 PPI is 100% 1920x1200 (WUXGA) and above resolution, and it will be mainstream in the long term. PPI 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 250-350 0% 30% 17% 30% 35% 39% 44% 49% 53% 56% 300-350 5% 17% 22% 25% 29% 33% 37% 39% Source: DisplaySearch Quarterly Worldwide FPD Shipment and Forecast Report 13

Viewing of Applications by Device Type per Household 15,000 end users in 15 countries surveyed by NPD DisplaySearch in 2013. 88% of tablet PC owners and 82% of smartphone owners in 15 countries surveyed use their devices at least some of the time while they watch TV. Email, Web browsing, texting, Facebook, and weather were among the top applications accessed while watching TV. Email, Facebook, Youtube, Gaming are the key applications. Youtube (or similar) is especially high viewing in TV. This will determine the display features the end users request. Source: NPD DisplaySearch Quarterly Multi-Screen Usage Study 14

LCD panel makers strategies Copyright 2011 NPD DisplaySearch. Authorized Users may not provide this report, or any part, to non-authorized Users (internal or external) as stated in the Terms & Conditions.

Korean LCD makers strategies TV Focusing on Area growth drive with ultra jumbo sizes. Take back 4K2K initiative How to improve(recover) China TV panel busienss. Increasing productivity without additional investment. LCD dominates TV market longer than thought. Pay more resources to LCD. IT New sizes, High-end MNT Keep initiative for Tablet panel business High resolutions with high technologies - Oxide/LTPS backplane, Cu process etc. S/M SDC moves to AMOLED more aggressvely - Outsourcing high-tech S/M LCDs. Samsung-Sharp investment. LGD, Focusing on own high-tech S/M LCDs. LTPS/Oxide, AH-IPS. - More focusing on China S/M market. 16

AUO Business Strategy BriView will be a key BMS, with open cell supplied by AUO and Other Panel Makers. BriView is 100% own by AUO, doing operations including backlight, module and semi-set. AUO s smart phone AMOLED development schedule is delaying, will focus more on LTPS. Component Array Cell Backlight LCD Module System OEM OEM Brand Optical films Cell Backlight Semi -Set LCD TV OEM In-house OGS Touch (OGS=One Glass Solution) etp For Notebook Cell Module Semi-Set OEM LED & LED Lighting Ultra-Slim NB Tablet PC LCD Module JV with OEM IPS/FFS (Gen5) Smart Phone Panel Solar Downsize Oxide TFT Backplane (Gen6, Gen8) OLED TV Technical Co-Work OLED TV Co-Work 17

Innolux & Foxconn Business Strategy Module UV2A Know-how and Licensing $$$ License Fee Cell Panel OEM Small Medium Size IPS Know-how and Licensing $$$ License Fee IPS Tablet PC & Smart Phone New Business LCD TV OEM 14% of Innolux Investment Foxconn Japan RD Co., Ltd Investment 47% of Gen10 (SDP) Investment Century ( 深超 ) Gen5 a-si LTPS LCD TV OEM LCD TV OEM LCD TV OEM Investment Tian-Yi ( 天億 ) Gen6 LTPS Pending 18

BOE Capacity Plan & Product Mix Strategy To increase efficiency, G5/G6 would focus on 10.1 below products, while B4 would focus on Tablet/NB from 2014 on; B8 G8 would focus on NB and TV panels mainly while B5 focus on MNT & TV panels. B1 B2 B3 B4 B5 B6 B7 B8 B9 (Beijing) (Chengdu) (Hefei) (Beijing) (Hefei) (Ordos) (Beijing) (Chongqing) (?) Gen G5 G4.5 G6 G8 G8 G5.5 G8 G8 G6 MG Size 1100x1300 730x920 1500x1850 2200x2500 2200x2500 1300x1500 2200x2500 2200x2500 1500x1850 Tech. & Capa a-si 45k/m a-si 90k/m a-si 30k/m AMOLED a-si 40k/m a-si 110k/m a-si 120k/m LTPS 20k/m LTPS 60k/m LTPS 5k/m Oxide 10k/m Oxide 30k/m 80k/m Oxide 40k/m Investment $1.25billion $0.45billion $2.56billion $4.18billion $4.5billion $3.38billion? $4.52billion? MP Timing Feb 05 Sept 09 Oct 10 Sept 11 Jan 14 Mar 14 May 16 (?) Apr 15 Jan 17 (?) Mobile Mobile Mobile NB MNT Mobile LCD TV NB Mobile 1.77 ~4.x APP. 1.45 ~4.x 3.9 ~5.2 Tablet 15.6 MNT 18.5 ~21.5 LCD TV 3.5 ~6.2 Tablet 32 ~55 10.1 ~15.6 LCD TV 3.5 ~6.2 Tablet Product Mix 4.3 ~9 7 ~10.1 NB 18.5 ~21.5 LCD TV 26 32 ~55 5 ~10.1 LCD TV 32 ~55 5 ~10.1 10.1 ~15.6 MNT 32 ~55 84 /110 32 /55 18.5 ~21.5 19

CEC-Panda & Sharp 100% 2010 Gen6 & UV2A Technology Sold to CEC OEM for many TV brands 37% 57% 92% 8% 2015 : Gen8 Joint Venture TV Technology & Possibly IGZO CEC-Panda 2013 TV Customer Base Unit : M pcs Others (incl. OEM), 1.2 OEM - TPV, 0.5 Sharp, 0.2 Konka, 0.4 Hisense, 0.3 Skywort h, 0.3 Changho ng, 0.4 Haier, 0.3 Investment Share Royalty License Fee CEC CEC-Panda Nanjing Government CEC is a direct government own electronics corp. and has many government resources. CEC-Panda intends to build a Crystal Valley together with Nanjing government. Sharp Gen6 19% 51% 30% Tech. Shares Gen8 92% - - 8% 20

CSOT New Fab & Capacity Increase Plan Reserved Fab2 Fab1 G8 a-si Shenzhen Government transfer its 55% Fab1 G8 stock share to TCL in Apr 13, make TCL the dominant controller of ChinaStar, and also the biggest customer of China Star. China Star is also planning 2 more fabs, 1 G8 in Shenzhen and 1 G6 in Huizhou or Wuhan, local city government would still play important roles in these new fab plan. Fab1 G8 a-si Investment Shares - Shenzhen Government 55% - TCL 30% - Samsung 15% Change in 2013 -Stock Shares TCL 85% -Samsung 15% Fab2 G8 a-si +Oxide - Capa: 60k/M - MP: Apr 14 - Shenzhen Government would still be biggest investor Fab3 G6 LTPS - Capa: 60k/M - MP: 1H 16 - Location Choice: Wuhan/Huizhou 21

AMOLED industry outlook Copyright 2011 NPD DisplaySearch. Authorized Users may not provide this report, or any part, to non-authorized Users (internal or external) as stated in the Terms & Conditions.

Korean AMOLED CapEx Trends SDC finalized A2 extension equipment installation in 1H 13. - 24K capacity/month is added to current A2 line. - It seems like SDC is now testing A2 extesion line for MP preparation. MP looks Q313. SDC will have G6 AMOLED line instead of another G5.5 line(so called A3) - A3 line initial plan indicates it will adopt new technologies like LITI, no cut evaporation. - However, it seems like SDC changed the plan and finally decided to go to G6. - New G6 plan looks already started. MP timing looks middle of 2014. - On the contrary, SDC G8 AMOLED MP line might be delayed. LGD is mainly focusing on AMOLED TV productions rather than S/M. - G8 AMOLED Mass production line(m2) plan is on going. 24K/M, MP timing looks middle of 2014. The line will locate P9 factory. - LGD is focusing on flexible AMOLED for Small&medium AMOLED business. SDC, A2 factory in Tangjeong LGD, 55 curved FHD AMOLED TV 23

China AMOLED investment Need to watch BOE, Tianma, Visionox and Hehui - These makers have government s support. Others have less interest in AMOLED. For AMOLED TV, China makers clearly focusing on Oxide+WOLED. 24

AMOLED tablet will be back? AMOLED camp tried Tablet business but stopped the business for a while. - Samsung mobile and Toshiba launched 7.7 AMOLED tablet, panels coming from SDC. - It seems like tablet business is not going well as they initially thought. It seems that Set brands think LCD is better in terms of Price and resolution for a while. - Unlikely smartphone, tablet has no subsidy program so price is very important. - AMOLED also can make higher resolution but cost and price going up together. However, AMOLED will be back to tablet market with unique form factor. - Tablet is great capacity consumer for AMOLED. - Flexible is AMOLED s unique benefit. Samsung is aggressive for AMOLED tablet [AMOLED tablet panel forecasting] - looks like preparing AMOLED tablet targets 2014. - Double targets. LCDs for volume zone, AMOLEDs for High-end. 25

AMOLED TV Demand boosts up when? LCD TV market is matured. Slower after 2015. Business perspective, compensator is required after 2015. Need to think about AMOLED TV investment from MP timing, 2015. - How many lines required? guess 200K panels/month in AMOLED G8. - 4 lines( 16), 8 lines( 17), 13 lines( 18), 19 lines( 19).. 26

55" (1920 1080) AMOLED vs. LCD AMOLED cost is 8.2x higher than TFT-LCD s now. Major factor is yield rate. AMOLED has low yield rate near to single digit. panel material portion for AMOLED is much higher while module materials for LCD is much higher. Depreciation portion is key issue for AMOLED. 42%(AMOLED) Vs. 3%(LCD) 55 FHD Oxide/WOLED 6-Up Manufacturing Costs(total yield 11.1%) 55 FHD a-si/lcd 6-Up Manufacturing Costs $2,004.5 (Q1 14F) $3,069 (Q1 13) $326.4 (Q1 14F) $373.1 (Q1 13) 27

Yield Rate Issue for AMOLED TV Panel Costs Currently 55 AMOLED TV panel s yield rate is around 11% only while LCD case is over 90%. Since poor yield rate is major reasons for AMOLED TV panels higher manufacturing cost, to have Apple to apple comparison, put the 55 AMOLED TV panel s yield at 96% then compare its manufacturing costs with 55 TFT-LCD s. It shows dramatical changes. The cost gap is decreased from 8.2X to 1.5X. prices. AMOLED process technology is still innovating, with more possibilities for lower production costs and lower material usage. 55 FHD Oxide/WOLED 6-Up Manufacturing Costs(@96.1% yield) $565.6 (Q1 13) 55 FHD a-si/lcd 6-Up Manufacturing Costs $373.1 (Q1 13) 1.5x gap 28

Flexible AMOLEDs Create Wow-product with flexible technologies for making the gap wider. - Starts Unbreakable AMOLED business this year. For the time being, flexible AMOLED is adopted to mobile Phone mainly. - Only 1 model to minimize the risk. - Volume looks 1~1.2M within this year. But early stage of flexible AMOLED has meaning of market test after the technology mature(1~2 years), it will be widely adopted even for tablets. 29

OLED TV, UHD is mandatory An interesting survey in Korea about OLED TV and UHD TV. Respondents are working in finance and securities company. well educated and relatively high income. Answer is clear. OLED TV needs to have UHD resolution ASAP. Also we can see again most important things in Display are 1)Size 2)Resolution [Which TV you prefer?] [If both TVs prices are same at $8,000, which TV you want to buy?] $8,000 is estimated by respondent as reasonable price 200 人應答 * Performed by A Korean securities company 人數 30

Thank you! ys_chung@displaysearch.com 31