1、13February2019Asia EquityResearchResearchAnalystsJerrySu886 2 27156361 HYPERLINK mailto:jerry.su HarvieChou886 2 27156364 HYPERLINK mailto:harvie.chou Taiwan Display SectorSECTOR FORECASTSECTOR FORECASTUnder-display fingerprint-sensing becoming more popular than 3D-sensingFigure 1: Android smartphon

2、e displayroadmap20172018201920201Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4QIn-cell TDDI touchFull screenFull screen with COF packaging for TDDIFull screen with notchFull screen but replace notch with hole1/4 or 1/2 under-display fingerprint sensingFull screen fingerprint sensingSource: Company data, Credit Sui

3、sse researchAndroid shifting toward under-display fingerprint-sensing. We believe under-display fingerprint-sensing will become the mainstream biometric identification method for high-end Android smartphones by 2019-20. The proliferation of front-facing 3D-sensing in Android will remain slow given h

4、igher bill-of-materials (BOM) costs (US$20 vs US$5 for under-display fingerprint), lack of other use besides unlocking devices, and the trend of removing the notch for greater viewable area. We estimate under-display fingerprint shipment growing from 30 mn units in 2018 to 185 mn units in 2019, with

5、 135 mn/50 mn for optical-sensing/ultrasonic sensing. By 2020- 21, the industry could shift to new structures for half- orfull-screen-sensing.ToF rear-camera to emerge. We expect more Android brands to launch time-of-flight (ToF) rear-camera in 2019, although there are doubts on cost and end-applica

6、tions. We dont expect iPhone to adopt ToF camera in 2H19 models (we think this should happen in 2H20) and under-display fingerprint-sensing. We think there is a chance for iPhone to replace Face ID with full-screen in-display or under-display fingerprint by 2H20 or 2H21, which could pose significant

7、 risk for existing Face ID supplychain.Remain positive on Egis and Chroma. We believe Egis is seeing good progress in non-Samsung smartphones for optical under-display fingerprint. We lift its TP to NT$310 (from NT$215) on higher shipment assumption. We also lift Chromas TP to NT$160 (from NT$150) a

8、s it should continue to benefit from Vertical Cavity Surface Emitting Laser (VCSEL) wafer-testing capacity-builds for both front- and back-3D-sensing and better growth in electric vehicle (EV)/solar turnkey businesses, while new partnership with Camtek could drive its semiconductor revenue growth 20

9、20 onward. We stay conservative on Win Semi on slower handset demand, rising competition in VCSEL wafer, and limited contribution from 5G in 2019. We believe the market has been over-excited about its 5Gstory.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERT

10、IFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be the a of of as a in Focus charts and tablesFigure 2: Full-screen display seeingstronggrowthFigure 3: Optical under-display shipment takingoffmn unitsFull screen panelTotal smartphone pane

11、lmnunitsOpticalunder-displaysensingTotal fingerprint sensing1,8001,6001,4001,2001,0008006004002000Penetration (RHS)2015201620172018E2019E100%80%60%40%20%0%1,2001,000800600400200-Penetration (RHS)2015201620172018E2019E20%15%10%5%0%Source: Company data, CreditSuisseestimatesSource: Company data, Credi

12、t SuisseestimatesFigure 4: Prototype with 1/4 screen under-displayIn-cell OLED/LCD (full screen)Under OLED (full screen)Under OLED (large area)Under OLED (small area)2022202120202019fingerprint-sensingIn-cell OLED/LCD (full screen)Under OLED (full screen)Under OLED (large area)Under OLED (small area

13、)2022202120202019Source:CompanydataSource: Company data, Credit SuisseresearchFigure 6: Android smartphone makers progress in3D-sensingSource: Company data, Credit Suisse researchFigure 7: Earnings estimates and TP revisionsSource: Company data, Credit Suisse estimatesAndroidsmartphones turnmoreaggr

14、essiveonunder-display ToF for iPhone is likely a 2H20Remainpositive Egis andChromaStay conservativeonWin Smartphone brands developingpop-up cameraandreplacing notch withhole to increase viewable Under-display fingerprint-sensing becoming more popular than 3D-sensingWe believe under-display fingerpri

15、nt-sensing will become the mainstream biometric identification method for high-end Android smartphones in 2019-20 as smartphone brands seek to further increase the viewable area on device and remove the notch design, as well as OLED panels become more affordable with new suppliers joining the supply

16、 chain. Among the two technologies for under-display fingerprint-sensing, we see more adoption of optical sensing over ultrasonic sensing on cost concern. We estimate under-display fingerprint shipment to grow from 30 mn units in 2018 to 185 mn units in 2019, with 135 mn for optical sensing and 50 m

17、n for ultrasonic sensing. By 2020-21, we think the industry would shift to new structures for half- orfull-screen-sensing.We also believe the proliferation of front-facing 3D-sensing for biometric identification will remain slow in 2019-20, given higher BOM cost and lack of other uses besides unlock

18、ing the device. Nevertheless, there will still be few new smartphone models adopting front-3D- sensing in 2019, as well as potential adoption for non-smartphone applications such as cleaning robot, smart doorbell, refrigerator, etc.For the rear-3D-sensing with ToF camera, our checks indicate several

19、 Android smartphone brands have been developing this feature and could see a few flagship models adopting this in 2019, although there is doubt regarding the cost and end- application. However, we do not expect iPhone to adopt ToF camera in 2H19 models (its more likely to happen in 2H20), based on o

20、ur checks on equipment delivery, supplier qualification, and capacity-build plans. We also do not expect 2H19 iPhone to adopt under-display fingerprint-sensing as there has been limited activity in the supplychain.In terms of stocks, we remain positive on Egis and Chroma, NEUTRAL on Himax and VPEC,

21、while staying cautious on Win Semi. We believe Egis is seeing good traction on its optical under-display fingerprint solution for Chinese and Japanese smartphone brands, while the gross margin profile could sustain at a higher level given limited competition from new-entrants. We believe Egis gross

22、margin should see a sharp recovery in 2019, thanks to the increasing mix of optical fingerprint-sensing. We expect Chromas VCSEL wafer and burn-in testing tool shipment to grow in 2019, given the pull-in by both Apple and Android makers, as well as growth from EV, solar turnkey, and semi SLT busines

23、ses.We remain conservative on Win Semi given the slower handset demand and increasing competition from new entrants for both Apple and Android supply chain, which will further impact its ASP and margins. We also think the market is overexcited about its 5G story. We remain NEUTRAL on Himax and VPEC

24、but would monitor their progress on new customer wins for optical components (Himax) and epitaxy wafer (VPEC) to turn more constructive.Androids turn more aggressive on under-displayOur supply chain research indicates Android smartphone brands are turning more aggressive in adopting under-display fi

25、ngerprint-sensing, instead of 3D facial recognition, as they aim to increase the viewable area of the smartphone, not to mention 3D-sensing has much higher BOM cost than under-display fingerprint-sensing and the requirement of cutting a notch on the display panel. Several smartphone brands like Oppo

26、 and Vivo also released their pop-up designs for the front-camera since 2H18; while panel makers are developing panels with hole design, instead of using the notch, for introducing under- display front-camera in 1H19. We estimate full-screen display penetration to reach 85% in 2019 and 90% in 2020,

27、up from 12% in 2017 and 66% in 2018.We believe smartphones moving to full-screen and replacing notch with drilled-hole design will limit the adoption of 3D facial recognition at Android makers, despite all three new iPhones and iPad Pros having adopted 3D-sensing as their only biometric sensing meth

28、odin 2H18. We expect most of the high-end Android smartphones to be launched in 2019 to adopt under-display fingerprint-sensing, while only few models will be equipped with 3D facial recognition. We think Huawei, Samsung, and Google Pixel might have some new models adopting 3D facial recognition but

29、 the overall volume will be less than that of under-display fingerprint-sensing.20172018201920201Q2Q3Q20172018201920201Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4QIn-cell TDDI touchFull screenFull screen with COF packaging for TDDIFull screen with notchFull screen but replace notch with hole1/4 or 1/2 under- dis

30、play fingerprintsensingFull screen fingerprint sensingmnunitsFull screen panelTotal smartphone panel0Penetration (RHS)2015201620172018E2019E100%80%60%40%20%0%Source: Company data, CreditSuisseresearchSource: IHS, Credit SuisseestimatesIn terms of product segmentation, we believe flagship and high-en

31、d smartphone will be using OLED displays, while mid-end devices will stay with LCD panels. Under-display optical fingerprint-sensing, no matter it is ultrasonic, optical CIS, or the under-developing photo-sensor on glass, can only work on OLED panels. 3D facial recognition is only limited to the fla

32、gship models given higher material and production cost. However, as smartphone brands aim to narrow the notch width, introduce pop-up camera, or replace notch with hole design to house front-camera to meet consumers full-screen demand, this would further limit the proliferation of 3D facial recognit

33、ion in Android devices.Figure 10: Smartphone front camera shifting to pop-up or hole-design to increase display viewableareaVendorHuaweiGooglevivoOppoHuaweiHuaweiSamsungHisenseDesignNotchNotchPop-upPop-upPop-upHoleHoleHoleModelMate 20 ProPixel 3XLNEXFind XHonor Magic 2Nova 4A8SU30Screen size6.396.36

34、.396.426.396.46.46.3Display typeOLEDOLEDOLEDOLEDOLEDLCDLCDLCDRetail PriceUS$410 (RMB2,799)US$899US$575 US$735 (RMB4,988)US$550 (RMB3,799)US$450 (RMB3,099)US$440 (RMB2,999)n.a.Source: Company data, Credit Suisse researchUnder-display fingerprint-sensing taking off in 2019Fingerprint-sensing prolifera

35、tion on smartphone started in 2013 as Apple integrated touch ID with capacitive fingerprint sensing on iPhone 5S and it took four years (until 2017) for fingerprint-sensing to become the standard feature on mainstream smartphone models. Capacitive fingerprint-sensing has now been commoditised, as ex

36、pected (click HYPERLINK /r/NOMUe2AF-X2Mx here) and the smartphone industry has been looking for new technologies for biometric identification, such as iris-scanning, facial recognition (2D/3D), under-display fingerprint-sensing (ultrasonic and optical), multi-finger fingerprint-sensing, etc.At MWC S

37、hanghai 2016, Qualcomm worked with LeTV and introduced its first-generation ultrasonic under-display fingerprint solution but volume has not taken off due to weaker performance and higher BOM cost. Apple has also been working on its own under-display fingerprint-sensing solution but didnt launch the

38、 product in 2017, which we believe is alsoSamsungiscurrentlythe onlyone using ultrasonic due to weaker performance. Instead, Apple adopted structured light 3D-sensing Face ID on iPhone X in 2017, and all new iPhone models have now replaced Touch ID with Face ID. However, we think Face IDs user exper

39、ience, cost structure, security level (has issues for identifying twins) are still not as attractive/intuitive as TouchID.Chinese smartphone maker Vivo is the most aggressive Android maker adopting under- display fingerprint sensing. Besides Qualcomms ultrasonic solution, it has also tried optical-s

40、ensing solutions from Synaptics and Goodix. Nevertheless, Vivo has decided to widely adopt optical under-display technology in 2018, with Goodix as the major supplier. Other brands such as Oppo, Xiaomi, and Huawei have also launched several high-end models since 2H18 with optical under-display solut

41、ion, while Samsung will also adopt optical under-display solution for its mid- to high-end A-series.For Samsungs flagship Galaxy S10 that will be launched in late February 2019, we believe the two higher specification ones will adopt Qualcomms second-generation under- display ultrasonic sensing solu

42、tion, while the lower specification one will adopt Egis capacitive fingerprint solution integrated with the powerbutton.VendorvivovivoXiaomiOppoHuaweiOnePlusMeizuFigure 11: Goodix is the main supplier for optical under-display fingerprintsolutionVendorvivovivoXiaomiOppoHuaweiOnePlusMeizuModelX20+X21

43、Mi 8RX17 ProMate 20 Pro6T16XScreen size6.436.286.216.46.396.416.0Solution providerGoodix/SynapticsGoodix/SynapticsGoodix/SynapticsSileadGoodixGoodixGoodixUS$530US$310US$440US$635US$885US$549US$265Retail Price(RMB3,598)(RMB2,098)(RMB2,999)(RMB4,299)(RMB5,999)(RMB3,399)(RMB1,798)Source: Company data,

44、Credit Suisse researchUltrasonicfingerprintis lessattractivefor Chinese brands duetohighercostWe estimate under-display fingerprint sensing shipment to grow from 30 mn units in 2018 to 185 mn units in 2019, with 135 mn for optical sensing and 50 mn for ultrasonic sensing. We believe optical under-di

45、splay will outgrow ultrasonic under-display given lower production cost (US$5-6 vs US$15), multiple solution suppliers (Goodix/Egis/others vs Qualcomm), and better flexibility for selecting the processor. We believe majority of the shipment of ultrasonic under-display fingerprint solution in 2019 wi

46、ll be for Samsungs flagship models as Samsung has entered into a licensing agreement on the ASIC with Qualcomm, while the Chinese brands will be adopting optical sensing solution.Other than higher module cost, we believe using Qualcomms ultrasonic fingerprint solution requires to use its high-end pr

47、ocessor or needs to have a standalone ASIC, which makes the solution less attractive for Chinese brands. Moreover, ultrasonic fingerprint sensing only works with flexible OLED panels, which will also limit the adoption due to higher cost for flexible OLED and lack of stable alternative suppliers, ot

48、her than Samsung; not to mention issues on an adding protection layer on the OLED screen. Regarding under-display fingerprint for iPhone, we do not expect 2H19 iPhone to adopt either ultrasonic or optical sensing, as there have been limited activities in the supplychain.Figure 12: Ultrasonic fingerp

49、rint hashighercostFigure 13: Optical vs ultrasonic under-displayFPGoodix (optical)Egis (optical)Qualcomm (ultrasonic)Display typeRigid/Flexible OLEDGoodix (optical)Egis (optical)Qualcomm (ultrasonic)Display typeRigid/Flexible OLEDRigid/Flexible OLEDFlexible OLEDKey componentsSensors: CIS plus MCU/PM

50、IC/Flash Lens: 2P LensSensors: CIS only Lens: 2P/3P LensUltrasonic on TFT with piezo actuatorHigh-end Qualcomm AP orseparate ASICFull laminationwith displayNoNoYesModule partnersO-film, Q TechKorea: Partron, MCNEX China: O-film, Q TechCentury, GIS/O-film2520151050Capacitive FP Capacitive FP Optical

51、under-Ultrasonic under- Structured light 3Dthe back of the phonethe side of the phonedisplaydisplaysensingSource: Company data, CreditSuisseestimatesSource: Company data, Credit SuisseresearchGoodix andEgis ahead ofotherson optical fingerprintsensingOptical fingerprint toreach mn units in2019E,up fr

52、om 27 mn in2018EFor the optical under-display fingerprint solution, we believe Goodix and Egis are the only two capable solution providers in the market today, although solution providers such as Silead, Elan, FocalTech, Novatek, etc., are working on their designs. We think algorithm is the key entr

53、y barrier for optical under-display fingerprint sensing since the key components like CMOS sensor, 2P/3P lens, MCU, holder, filter, etc., are not critical components for outsourcing. Moreover, most of the new entrants (except Novatek) have limited know-how and resources on developing their own algor

54、ithm amid the capacitive fingerprint era as they licensed the algorithm from third-parties like Precise Biometric. Hence we believe developing their own algorithms for optical sensing will be challenging. Nevertheless, we believe optical under-display-sensing is unlikely to replace capacitive finger

55、print for the mid- to low-end models, where TFT-LCD panel is still the mainstream display technology for this segment.OLED supply could limit optical under-displays growth in 2019We estimate optical under-display fingerprint shipment of 27 mn in 2018 and will increase to 135 mn in 2019, below market

56、 expectation of 150 mn-190 mn due to potential OLED supply constraint. Although optical under-display fingerprint sensing could be applied to both rigid and flexible OLED, we believe the slower ramp-up of OLED output from non- Samsung suppliers would limit the overall adoption of optical under-displ

57、ay fingerprint- sensing.We estimate total OLED panel shipment of 430 mn units in 2018, where 160 mn units are flexible OLED and the balance is rigid OLED. However, Samsung still dominated the market with 93% share, and the remaining suppliers (BOE, LGD, Tianma, Visionox, CSOT, Everdisplay, etc.) onl

58、y shipped 30 mn units of OLED panels in 2018, as per our industry checks. We expect non-Samsung OLED panel shipment to grow to 80 mn in 2019, below their aggregate target of 120 mn units, suggesting the potential OLED constraint could cap optical-display fingerprint-sensing proliferation in2019.Figu

59、re 14: Optical under-display shipment taking off from2019mnunitsOpticalunder-displaysensingTotal fingerprint sensingFigure 15: OLED panel shipment to increase in2019-20, but TFT-LCD stilldominatesmnunitsa-Si TFTLTPS TFTRigid OLEDFlexible OLED1,2001,000800600400200-Penetration (RHS)2015201620172018E2

60、019E20%15%10%5%0%1,8001,6001,4001,2001,000800600400200-2015201620172018E2019E2020ESource: Company data, CreditSuisseestimatesSource: Company data, Credit SuisseestimatesWe believe Goodix and Egis will dominate the optical under-display fingerprint market in 2019 at Chinese brands and Samsung, while