First iPhone, Now Android: Production Troubles Limit Smartphone Availability
Active Matrix Organic Light Emitting Diode (AMOLED) displays have become a very hot commodity in smartphones, most notably in Android devices, but the high demand coupled with very limited manufacturing capabilities is causing some real shortages.
When Google (NASDAQ: GOOG) introduced the Nexus One in January, the device was the first to feature an AMOLED display. AMOLEDs use no backlights, which saves power, and makes them much thinner than Active Matrix LCDs (AMLCDs). They also look beautiful, something people noted as soon as they saw the Nexus One.
Shipments of small-sized AMOLEDs used in cell phones and other devices are projected to explode from 20.4 million units in 2009 to 184.5 million units by 2014, representing a compound annual growth rate (CAGR) of 55.1 percent during that period, according to a revised forecast from market researcher iSuppli.
That's still peanuts compared to small-sized AMLCDs, which are forecasted to rise to 1.75 billion units by 2014 from 1.3 billion in 2009.
But there's a problem with AMOLEDs. Plenty of vendors are providing lots of supply of AMLCDs, but there's very little AMOLED production going on. Only Samsung Mobile Displays (SMD) and LG Displays are making AMOLED panels, and while Samsung plows $2.2 billion into increasing its production, that capacity won't come online until 2012.
As a result, Android phones are becoming as hard to get as an iPhone 4, and for the same reason: production. Verizon was recently forced to give $25 gift cards to customers who pre-ordered the HTC Droid Incredible because it can't make enough phones.
"Starting with the Nexus One introduced in January, Android-based smart phones have aggressively adopted high-quality AMOLED displays as a competitive differentiator against the advanced-technology AMLCD screen used in the iPhone," iSuppli analyst Vinita Jakhanwal said in a statement. "However, rising demand -- combined with a limited supply base -- has led to the constrained availability of AMOLEDs."
Is AMOLED necessary?
Samsung and LG are the leaders of AMOLED technology, with Samsung accounting for 54 percent of the supply and LG making 27 percent, according to John Jacobs, an analyst with market research firm DisplaySearch.
Both handset makers are racing to get new fabs up and running. Samsung is investing more than $2 billion in AMOLED production and plans to bring a new fabrication plant online by late 2011. LG is starting a new fab that will manufacture both LTPS (Low Temperature Polysilicon LCD) and AMOLED panels.
DisplaySearch estimates that AMOLED capacity will increase 18 percent in the fourth quarter of this year over the third quarter, and another 10 percent in Q1 2011. Overall, capacity will grow 52 percent in 2011 over 2010. But Jacobs admits he's not sure if that's enough.
"It's hard to say what happens with HTC and the other phones out there. Will it be enough? I don't know. There are still many technical hurdles for that technology, like manufacturing issues, yield rates, lifetime and cost," he told InternetNews.com
AMOLED has been "five years from mass production for 10 years," as Jacobs put it. It has market potential due to its thin design, color, fast response and low power consumption. But LCD is catching up technologically -- Apple (NASDAQ: AAPL) proved that with the iPhone 4, which boasts a thin, bright and very fast screen that displays colors beautifully.
"A lot of advantages AMOLED had over LCD were significant for a long time but the advantages are getting smaller and smaller. There's a lot of stuff that can be done on proven technology that has proven sources and a very mature supply base," Jacobs said. Of course, not everyone has Apple's engineering talent base and the money to develop a screen like the iPhone 4, he acknowledged, but that will become more common in time.
Still, Jacobs said AMOLED is here to stay. "Now that these guys [are] investing heavily in it, I think it's more than a flash in the pan," he said. It could make its way beyond smartphones and TVs into desktop and laptop computer screens, because AMOLED has much faster refresh rates than LCD, and the 3D video that's all the rage these days needs a fast refresh rate.
And if HTC and other phone makers can't get AMOLED, they might be well advised to look at what Apple has done with the iPhone's LCD screen and reconsider that technology.
"I think you have to," Jacobs said. "Anybody who doesn't evaluate all possible display technologies for a handset, given what Apple has proven they can do, is foolish."