More disruption ahead

The $84 billion global flat-panel display industry—already groaning under huge startup costs and plummeting prices—could be in for another shock, due to a maverick Dutch inventor and a farsighted Chinese manufacturer. Read original article

Ron Kok has made a career of disrupting established businesses by dreaming up radically simpler ways to manufacture products ranging from DVDs to contact lenses to solar panels. His discovery in the early 1980s of a better way to make CDs, for instance, slashed the cost of producing a single disc from $3.23 to 18 cents.

Now Kok, who was named a Technology Pioneer in 2003 by the Geneva-based World Economic Forum, has turned his attention to the next generation of flat-panel displays, which are based on a technology called organic light-emitting diodes, or OLEDs. Thinner, brighter, and faster than traditional liquid-crystal displays or plasma panels, OLED displays are already starting to show up in cell phones and portable media players. But making a panel big enough for a TV is still plagued by technical challenges, and the manufacturing plants cost billions of dollars to set up.

Kok's breakthrough mirrors his earlier discoveries for optical discs and other high-tech products. Rather than relying on elaborate and expensive cleanrooms to build OLED panels in batches, his technology lets manufacturers create them inside particle-free machines. Instead of billions, Kok's approach costs only around $100 million to $150 million for each production line. He also came up with a better method to seal the individual display cells against moisture and oxygen, significantly improving their stability and endurance.

"A Huge Opportunity"

Yet ironically, when he tried to drum up business for his inventions in Japan, Korea, and Taiwan, he was sent packing. With billions of dollars already sunk into cleanroom factories that manufacture LCDs and plasma displays in batches, the outfits weren't interested in undermining their own investments. So Kok hopped a plane to China, where he found a willing buyer in Universal Display Technology, a Chinese foreign venture company controlled by local government officials in the Jilin region. (Jilin is also home to China's largest auto plant and film studio.)

The implications for the display industry could be huge. "The only technology today that could take over from LCDs in the future is OLEDs," says Paul O'Donovan, a principal analyst with Gartner (IT) in London. "If the Chinese have got their foot in the door to manufacture high-volume products at a reasonable cost structure, then as OLED moves into TVs there will be a huge opportunity."

What's more, Kok's process is so simple and inexpensive that it could also drive OLED manufacturing to other parts of the world lacking the technology infrastructure of East Asian tigers. "The ripple effect could be really profound," says David Barnes, vice-president of strategic analysis at DisplaySearch, a market research and consulting arm of the NPD Group. Until now, Barnes says, flat-panel manufacturing has been a "high-stakes poker game." Kok's technology "opens it up.

That could let makers in Europe or South America enter the market, even without the scale advantages of big players in Japan, Taiwan, and South Korea. "If you are a Brazilian entrepreneur you could just plop the technology into a warehouse and fabricate there, and work around tax and tariffs," says Barnes.

That's the sort of impact the iconoclastic Kok loves to have. After leaving school at the age of 14, he spent his early career with Royal Philips Electronics (PHG) in Eindhoven, Netherlands. While at Philips, Kok devised a better way to produce compact discs, which until then were made in a series of separate processes in different parts of a factory, requiring that the entire facility had to be free of dust and particles. His idea instead: an in-line processing machine that would handle all the steps in one place—and that did away with the need for a cleanroom.

Kok's bosses scoffed at the idea, so he left Philips in 1982, built a 20-foot-by-10-foot prototype, and started his own company, called Optical Disc & Memory Engineering. The first orders came from independent CD producers, but eventually industry giants such as Warner Music (WMG) came on board. Kok later founded Eindhoven-based OTB Group, which has done work for clients such as Johnson & Johnson (JNJ) and Royal Dutch Shell (RDS). Subsidiary OTB Display is the unit responsible for promoting the new OLED technology.

Chinese Looking to Leapfrog

OLED technology has been around for years, but suffered from drawbacks such as limited life span and high cost. What kept engineers pushing to perfect it, though, were significant advantages vs. alternatives. In an OLED panel, every pixel emits its own light, blinking on and off as required. That makes for a smoother flow of motion and eliminates the blur typical of action scenes on LCDs. OLEDs also are thinner than plasma or LCD screens and use less power. They're being used already in portable MP3 and DVD players, as well as some mobile phones.

Big Japanese LCD makers are now getting into OLEDs with an eye to building TV-sized panels, but they're relying on traditional batch manufacturing and expensive clean rooms, requiring billions of dollars in outlays to build factories. Toshiba (TOSBF) and Matsushita Electric (MC) have formed a joint venture with a 2009 target date for 20.8-inch OLED TV displays. And Sony (SNE), which is already using OLED displays in small consumer electronic devices, has started a 50-50 joint venture with Toyota Industries, called ST Liquid Crystal Display, to produce 11-in. OLED TV displays, using a process that leverages existing manufacturing equipment.

But thanks to Kok's process, the Chinese hope to leapfrog into cheaper OLEDs. They've never been credible players in LCDs because they entered the market too late and with too few resources. Now, because they don't need to protect billions of dollars in LCD-related capital expenditures, they're set to take the lead in OLED.

The first licensee, Universal Display Technology placed an order on Apr. 16 for OLED production equipment made by Kok's OTB Display. It plans to build a 15,000-square-meter factory in Changchun and to begin production of OLED panels in 2008. Most will likely be sold to Chinese display makers who supply the blossoming domestic market.

Kok figures it will be at least two to three years before OLEDs are optimized for big-screen TVs. Indeed, analysts forecast that the entire OLED market will amount to only $3 billion to $4 billion by 2009, compared to LCD sales that could hit $82 billion that year.

But even before TV-sized panels are possible, Kok says OLED technology is ideal now for the type of handheld wireless devices in high demand in China. He estimates OTB's production process and technology will slash the cost of making mobile-phone screens by at least 30%. The technology also allows for slimmer devices that use less power and run longer on a battery charge.

Big Boost

Kok has had some outside help getting to this point. He has received an undisclosed amount of funding from Dutch media tycoon and billionaire John de Mol, best known for his role in developing the reality TV shows Big Brother and Fear Factor via his production company, Endemol. De Mol's investment company now owns 20% of OTB.

OTB also got a lucky break when Philips decided to quit all of its display-making activities a few years ago. Though Kok and his team at OTB dreamed up the production processes and devised several breakthroughs in OLED technology, they also expanded their service offering by buying Philips' entire OLED unit—complete with design team—in 2005 for an undisclosed sum.

Now, it's up to OTB's Chinese partners to put the technology into practice. It may take time, but "the potential is there," says Display Search's Barnes. After all, he says, as the Chinese well know "a journey of a thousand miles starts with a single step."