Update from Clay
Quantum Materials Corp. - (OTCQB: QTMM) Update - Quantum Dots Disrupting Market Growth of OLED TV Technology
We are pleased to report that the "quantum dot TV revolution" continues to gain momentum in terms of consumer interest/sell through and dedicated fab space from many of the world's leading consumer electronic (CE) OEM groups. This market dynamic certainly bodes well for the future of quantum dots and especially favors the list of companies that possess that rare ability to manufacture commercial quantities of this "next generation" semi-conductor material and (most importantly) are able to accomplish this at a competitive price point. As we have discussed in the past, this is a very short list with San Marcos, TX based Quantum Materials Corp. at, or very near the top position in overall annual capacity level (presently at 2.25 metric tons/year).
The utilization of quantum dots to power much wider color gamut screen's in premium, large format flat panel displays also appears to be making it much more difficult for OLED based TV technology to gain a meaningful foothold in the mass consumer end of the flat panel display market. Based on our observations of this industry over the past twelve months, quantum dot driven flat panel displays look to be consuming much of the market "oxygen" that OLED technology was likely counting on to grow market share in a very competitive consumer TV market landscape. Prior to the advent of quantum dot driven UHD (ultra-high definition or 4K) flat panel TV's, OLED TV's had the premium market space pretty much to themselves - allowing the sole OEM in the space (LG) to command the very expensive price points needed to justify and capitalize massive new high-dollar fabs to manufacture these panels. Once the quantum dot driven sets started showing up on store shelves (and internet store portals) with arguably similar performance characteristics at a significantly lower price point (roughly 1/2 the cost of OLED panels for the same size) it was fairly easy to predict how this was going to pan out over time. OLED players dropped retail pricing in an effort to offset the OLED/QD-LCD cost differential, which resulted in the QD-LCD OEM's (namely Samsung) further dropping their pricing to maintain the significant price advantage. Just this past weekend we checked out a side-by-side comparison between a 55" 1080 (Full HD) OLED set and a Samsung SUHD (4K) set - and the QD TV was visibly superior at a markedly lower price point (see graphic above - OLED set on left and SUHD on right). The QD set was much sharper (4K vs 1080) and much brighter as well while maintaining incredible color purity. To get the same sized OLED in 4K resolution pushes the price to $3K for this year's model and we haven't seen pricing on the 2016 OLED models yet for the 55" size but the 65" OLED is now showing up online at a whopping $7,999.00 - so we expect the 2016 55" sets to move up materially in price as well.
We are now starting to see those numbers show up in industry financial results. Samsung had a pretty good year reporting some excellent results for their panel and chip divisions, and we expect that a good percentage of those earnings were contributed by brisk sales of their quantum dot powered SUHD line - while at the same time LG reported some heavy losses for their display division based possibly on higher costs and lower than expected sales (and retail price points?) of OLED sets - while OLED emitter supplier Universal Display Corp. (OLED) also reported a disappointing quarterly result recently with a big miss of analyst consensus and major downgrade of guidance for next year as well. While we understand that these financials are the result of many factors, it seems to us that in a market space that is already challenged with diminishing margins, it will be increasingly difficult for corporate boards to allocate massive sums of capital to build out new infrastructure to support OLED TV capacity. Especially given the fact that the industry has not been successful in increasing yields and materially lowering manufacturing costs in the larger form end of the market (beyond a certain point for 32" and larger sizes) due to the current fine metal mask - CVD (chemical vapor deposition) step in the manufacturing process (just one or two tiny defects in a large mother glass panel can result in a large percentage of sub panels needing to be scrapped - see graphic below). This investment decision becomes even more difficult when you have the bulk of the remaining consumer electronic OEM's (read non-LG) coming to market with quantum dot based sets of their own at materially lower price points than announced (and expected) pricing of 2016 OLED models.
We fully acknowledge here that this situation does not exist in the smaller form OLED market (mobile phones, handhelds, tablets) and that end of the market is experiencing some very solid growth and CAPEX spending to expand OLED market share and we also note here that LG, Samsung and several of the China based OEM's are also planning to build out additional fab space for large form displays. While we expect the number of OLED sets to increase over the next few years (LG reported sales of 400K large TV panels for 2015 with guidance of 1M panels for 2016), we see the growth of QD based panels accelerating at a much higher rate and this burgeoning technology should continue to be a major headwind to the large form OLED end of the market for many years to come - at least until the OLED industry is successful in solving the elusive manufacturing "cost and yield" barrier they have faced thus far.
When you consider that every OEM that makes LCD displays can also make QD powered displays just by switching out one piece of color filter film with quantum dot infused film to attain materially increased color gamut levels approaching or exceeding OLED color gamut (at a very minor variable added cost per panel and no additional capital expense) you start to get a sense of just how "regenerative" QD's are to the flat panel industry (and how disruptive they are to OLED technology). Based on this dynamic, many of the OEM's have either switched (Samsung, Hisense, Vizio, Phillips) or are making plans to switch to QD technology in 2016 which will put even more pressure on large form OLED TV technology in the future, while allowing quantum dot based technology to continue to build market share. At this year's CES, Samsung made it clear that they are moving forward in their large form TV market exclusively with quantum dot technology, and we expect based on the economics and financial results they have achieved with this strategy, the bulk of other OEM's are planning to follow suit and embark on a quantum dot panel strategy of their own, which will result in a high demand for quantum dots over the next few years as a large chunk of the more than 200 million panels built per year migrate to quantum dot technology. We also saw several stunning quantum dot driven computer monitors at CES this year which leads us to believe that will be another major market growth sector for quantum dots.
Here are a few articles that discuss these market dynamics in more detail:
> LG profits tumble in 2015: http://www.androidauthority.com/casey-neistats-gear-360-oscars-vlog-677682/
> Samsung's recent results with their SUHD line: http://www.koreaherald.com/view.php?ud=20160301000254
Also, here is an article which describes in detail how quantum dots are helping the display industry phase in the new high color gamut standard Rec 2020: http://www.idtechex.com/research/articles/the-new-ultra-hd-standard-and-why-it-matters-for-quantum-dot-suppliers-00009013.asp
Dr. Nathan Stott Presenting at Quantum Dot Forum - Newport Beach, CA
Wednesday March 9, 2016 @ 4:30pm
The newest addition to QMC's technical staff, renowned quantum dot pioneer Dr. Nathan Stott will be presenting at this year's Quantum Dot Forum speaking on quantum dots and their role in the advancement of solar energy technology. Dr. Stott sat down with conference host SMITHERS APEX the other day for a brief Q&A session in advance of his presentation and for everyone invested in, or considering an invesment in Quantum Materials Corp. this is a must read interview. We have included a brief excerpt below with a link to the full session as well.
SMITHERS APEX: What is the greatest advancement you’ve seen in the industry thus far? What really excites you about this and why?
Dr. Nathan Stott:The greatest advancement in the QD industry as a whole is the broader transformation from nanoscience into nanotechnology as we see these materials moving from the laboratory to increasingly being put into application in actual commercial products. This year, more QD-based 4K HDTV brands entered the market than ever before with forecasts for millions of units per year and escalating. Obviously, this really excites us at QMC, in particular because we believe we are uniquely positioned to meet market demands with our proprietary high-throughput QD process, which may easily be expanded to meet higher capacity with minimal footprint as the market demands.
Link to full interview: http://www.photonicconference.com/quantum-dots/news/quantum-material-corp-is-drive-qd-production
We are planning to attend this event and will be reporting the highlights of Dr. Stott's presentation in our next QMC update. Also, we will be attending the upcoming Roth Capital Investment Conference on March 13-16, 2016 (also in Newport Beach, CA) where QMC will be presenting and meeting with prospective investors to expand awareness of the Company - and we will be including any meaningful highlights from that event in the next post as well (if you are planning to attend, be sure to schedule a face-to-face meeting with management via the "MEETMAX" system or give us a call and we will help coordinate a meeting time).
So, what's the takeaway from this market information on quantum dots and flat panel tv technology? Well, the way we see it is that the market for quantum dots is moving at a rapid pace at this time, with many of the OEM's looking to solidify (and/or better) supply agreements with film manufacturers and/or QD material suppliers. While QMC has yet to announce any definite supply agreements with OEM's to date (beyond two Joint Development Agreements - one with a leading flat panel display OEM group and another with major film manufacturing group Nitto Denko as well as a recently announced $20 million joint venture funded by China based Guanghui Technology Group for build out of Quantum Materials QDX™ quantum dot production facilities and quantum dots application development in China (PR link here), based on what we see in the market presently and their current capability of producing commercial quantities of high heat, moisture and oxygen stable quantum dots (both cadmium-based and cadmium-free) Quantum Materials Corp. looks to be in an ideal position to both build and maintain meaningful market share in what we expect to be an extremely lucrative and hyper growth industry for many years to come.
It goes without saying that in the event they are successful in accomplishing this milestone in the near term, shareholders in at this level should benefit materially.
SD Torrey Hills Capital