Characteristics of the liquid crystals market
Merck Information Day 2013 – A Deep Dive into Merck’s LC&OLED Business
Walte...
Remarks
All comparative figures relate to the corresponding last year’s period.
Important information
This presentation do...
Basics of liquid crystals and the display industry
Market, customers and competitors
Key products
Supply chain
Conclusion
...
4
Basic setup of a liquid crystal display
 Backlight (LED) as white light source
 Liquid crystals layer modulates light
...
5
Liquid crystals: The decisive element of a display
but with low share of module cost
Liquid crystals determine device
p...
Basics of liquid crystals and the display industry
Market, customers and competitors
Key products
Supply chain
Conclusion
...
7
TV displays dominate the liquid crystals market and
are its most prominent growth driver
 Growth dominated by TVs
 Hom...
8
TV size increase leads to overproportionate demand
increase for liquid crystals
Average TV size in inchIncreasing area r...
9
TV replacement cycles are getting shorter, driving
liquid crystals demand
Average TV replacement cycles
CompetitorsCusto...
10
The liquid crystal market is attractive despite
its potential volatility
Market volatility
 Multi-step supply chain fr...
“Panel makers”
Small- / medium-
size panels
Large size panels
Focus LCD panel
market entry
Local Global
Sakai Display Prod...
12
Merck - The only player with complete geographic
customer coverage
 Single production in Darmstadt
 Merck only player...
13
Merck - THE innovation leader with broadest
competitive platform
Merck – leading in all aspects of liquid crystals
Cong...
Basics of liquid crystals and the display industry
Market, customers and competitors
Key products
Supply chain
Conclusion
...
15
Continued delivery of new innovations
generating additional sales
 Specific features of liquid crystals as
enablers fo...
16
Strong R&D investment fosters innovation stream
and product portfolio
 Ongoing innovation drives
continuous portfolio ...
17
Merck’s deep know-how creates high entry barriers
for potential competitors
New classes of liquid crystals enable revol...
Basics of liquid crystals and the display industry
Market, customers and competitors
Key products
Supply chain
Conclusion
...
19
Special expertise in single and mixture development
crucial for market success
 Up to 25 singles make up a liquid
crys...
20
State-of-the-art multi-purpose production facilities
with world’s largest factory for liquid crystals
Merck continues t...
21
Innovation as key driver for profitability
Merck innovation awardsMarket dynamics
Merck with proven track record in las...
22
Long-term panel demand increases while hard to
predict inventories cause sales fluctuations
 High supply chain invento...
Basics of liquid crystals and the display industry
Market, customers and competitors
Key products
Supply chain
Conclusion
...
24
Merck has the most competitive platform in a
dynamic liquid crystals market
Innovation leader with unique skill set and...
Characteristics of the liquid crystals market (A Deep Dive into Merck's LC & OLED Business)
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Characteristics of the liquid crystals market (A Deep Dive into Merck's LC & OLED Business)

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Characteristics of the liquid crystals market
Walter Galinat (President of Merck Performance Materials)

Additional info: http://www.merckgroup.com/en/investors/information_day_LC_OLED.html

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Characteristics of the liquid crystals market (A Deep Dive into Merck's LC & OLED Business)

  1. 1. Characteristics of the liquid crystals market Merck Information Day 2013 – A Deep Dive into Merck’s LC&OLED Business Walter Galinat President of Performance Materials Darmstadt, Germany – June 26, 2013
  2. 2. Remarks All comparative figures relate to the corresponding last year’s period. Important information This presentation does not constitute an offer of securities for sale or a solicitation of an offer to purchase securities in the United States. The shares referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration under the Securities Act or an available exemption from such registration. Note regarding forward-looking statements The information in this document may contain “forward-looking statements”. Forward-looking statements may be identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “will” or words of similar meaning and include, but are not limited to, statements about the expected future business of Merck KGaA resulting from the proposed transaction. These statements are based on the current expectations of management of Merck KGaA and E. Merck KG, and are inherently subject to uncertainties and changes in circumstances. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are factors relating to satisfaction of the conditions to the proposed transaction, and changes in global, political, economic, business, competitive, market and regulatory forces. Merck KGaA and E. Merck KG do not undertake any obligation to update the content of this presentation and forward-looking statements to reflect actual results, or any change in events, conditions, assumptions or other factors. All trademarks mentioned in the presentation are legally protected. Disclaimer
  3. 3. Basics of liquid crystals and the display industry Market, customers and competitors Key products Supply chain Conclusion Agenda
  4. 4. 4 Basic setup of a liquid crystal display  Backlight (LED) as white light source  Liquid crystals layer modulates light intensity by changing molecular orientation under applied voltage  Color created by color filters Business drivers Liquid crystals enable revolutionary developments in the business environment and consumer electronics Liquid crystal panel structure Polarizer Glass substrate ITO film Liquid crystal ITO film Glass substrate Polarizer Unpolarized white light TFT Orientation film Color filter Orientation film Acronyms: TFT = Thin-Film Transistor; ITO = Indium Tin Oxide; LED = Light-Emitting Diode
  5. 5. 5 Liquid crystals: The decisive element of a display but with low share of module cost Liquid crystals determine device performance  Contrast  Viewing angle  Response time  Transmission (energy use)  Reliability Business driversCost structure of a liquid crystal display ~2-3% Liquid crystals Glass and Color-filter Printed circuit board Labor Backlight Others Driver liquid crystal Polarizer Chemical Liquid crystals make up only ~2-3% of panel costs but are most critical performance component Source: DS Cost Report Q4 2012 (40” FHD 120Hz TV Module) 3
  6. 6. Basics of liquid crystals and the display industry Market, customers and competitors Key products Supply chain Conclusion Agenda
  7. 7. 7 TV displays dominate the liquid crystals market and are its most prominent growth driver  Growth dominated by TVs  Home cinema: increase of TV sizes  TV display surface expected to grow visibly over next years  LCD area determines liquid crystal growth  CRT1 replacement by liquid crystal displays Business Drivers TVs are the dominant demand driver for liquid crystals LCD area demand by application, display area [km2] 64% 10% 14% Source: DisplaySearch Q1’13; 1 Cathode ray tube; Others include: mobile phones, public displays, car navigation and others CompetitorsCustomersMarket 113km2 141km2 179km2 2010 2013E 2017E Desktop Monitor Mobile PC Others LCD TV 12%
  8. 8. 8 TV size increase leads to overproportionate demand increase for liquid crystals Average TV size in inchIncreasing area requires more LC material Trend toward bigger TV sizes drives liquid crystal demand 2006 2013E 36”: current average diameter 3.5% CAGR + 36” diameter 6% more liquid crystals 1 inch = CompetitorsCustomersMarket 29” 37”
  9. 9. 9 TV replacement cycles are getting shorter, driving liquid crystals demand Average TV replacement cycles CompetitorsCustomersMarket Source: DisplaySearch 2012 0 2 4 6 US UK China-Rural China-Urban Age of TVs replaced in 2011 Age of TVs replaced in 2012E [years]
  10. 10. 10 The liquid crystal market is attractive despite its potential volatility Market volatility  Multi-step supply chain from Merck to the consumer  Downstream inventories driven by seasonal as well as one-time events and revolutions in technology  Seasonal events: Christmas, Chinese New Year Examples of one-time events: Olympics, World Soccer events, etc. Market attractiveness  Innovation-driven  Fast moving Highly concentrated  High margins  Solid underlying growth trends  Constantly new applications Attractive growing market with volatility but underlying strength CompetitorsCustomersMarket
  11. 11. “Panel makers” Small- / medium- size panels Large size panels Focus LCD panel market entry Local Global Sakai Display Products 11 Merck customers: All have strong capabilities in liquid crystal displays Source: Merck research                       1999  2009  1995  1995  1996  2005  2011  1995  CompetitorsCustomersMarket All customers are based in Asia
  12. 12. 12 Merck - The only player with complete geographic customer coverage  Single production in Darmstadt  Merck only player with production in all four customer countries  Development of tailor-made mixtures according to customer specifications  Fast response time  Close cooperation with leading universities  Local R&D and fast track development of marketable solutions based on worldwide network Key success factorsProduction and R&D centers in Asia Merck, TaiwanMerck, China Merck, Korea Merck , Japan Sakai Display Products CompetitorsCustomersMarket Customer proximity: A successful differentiator
  13. 13. 13 Merck - THE innovation leader with broadest competitive platform Merck – leading in all aspects of liquid crystals Conglomerate advantage Technologies TN IPS VA PS-VA New techs Market Position Share R&D center China Korea Taiwan Japan some activity some activity No.1 No.3 No.2 ~ 30% ~ 60% ~ 10%          Merck and competitors CompetitorsCustomersMarket
  14. 14. Basics of liquid crystals and the display industry Market, customers and competitors Key products Supply chain Conclusion Agenda
  15. 15. 15 Continued delivery of new innovations generating additional sales  Specific features of liquid crystals as enablers for new display applications  Within technologies emergence of various distinct generations, e.g. PS-VA  Novel liquid crystal materials SA-VA and Blue Phase currently in R&D Liquid crystal technologiesMerck volume development per technology LC innovation cycles are getting shorter 1990 1995 2000 2005 2010 2015 2020 Volume TN-TFT PS-VA (various generations) New liquid crystal materials IPS/VA/FFS Illustration
  16. 16. 16 Strong R&D investment fosters innovation stream and product portfolio  Ongoing innovation drives continuous portfolio expansion  Typical age of liquid crystal mixtures only two to three years  Additional sales generation through new liquid crystal materials and technologies Product portfolio expansionPortfolio of various liquid crystal materials [% of sales] High R&D: ~10% of sales p.a. to safeguard ongoing innovation Introduced in 2012 Introduced in 2010 Introduced in 2011 Introduced before 2009 ~74% < 3 years 201220112009 2010
  17. 17. 17 Merck’s deep know-how creates high entry barriers for potential competitors New classes of liquid crystals enable revolutionary display and performance Merck‘s liquid crystal single material  Tons of raw materials used in multistep chemical syntheses to produce > 300 singles  Ultra pure organic chemistry  High quality standard of single substance Merck: Customized liquid crystal mixtures  Leveraging our expertise in mixture recipes  Approximately 10,000 mixtures per year  We design the exact liquid crystal that our customers need Translate chemistry into physics
  18. 18. Basics of liquid crystals and the display industry Market, customers and competitors Key products Supply chain Conclusion Agenda
  19. 19. 19 Special expertise in single and mixture development crucial for market success  Up to 25 singles make up a liquid crystal mixture  Merck customizes liquid crystal mixtures for each new product line-up  Singles and mixtures determine product features  Reliability  Viewing angle  Contrast  Response time  Transmission (energy consumption) Process detailsDarmstadt/Germany Single 3 Single B Single A Single Z > 300 liquid crystals singles Asia/China, Japan, Korea, Taiwan Development of ~10,000 liquid crystal mixtures every year vvv > 200 m LCD TVs sold in 2012 Display production Display production Display production
  20. 20. 20 State-of-the-art multi-purpose production facilities with world’s largest factory for liquid crystals Merck continues to invest in advanced process technologies Based on complex organic synthesis with up to 12 synthesis steps Portfolio of >300 singles Strong R&D and production expertise enable fast product launches Strong R&D Flexible manufacturing of a complex product portfolio Unique production  “Micro-reaction” technology  In-house development of highly specific catalysts Cost advantages through technology
  21. 21. 21 Innovation as key driver for profitability Merck innovation awardsMarket dynamics Merck with proven track record in last decade of successfully overcoming pricing pressure through innovation Innovation New liquid crystal mixtures launched continuously Pricing pressure Competition in existing technologies Declining liquid crystal panel prices Process improvement + + German Future Prize 2003 Innovation Award 1999 *SID: Society for Information Display SID* Award 2009 and 2012
  22. 22. 22 Long-term panel demand increases while hard to predict inventories cause sales fluctuations  High supply chain inventory levels will lead to decreasing liquid crystal orders in forthcoming quarters  Inventory levels difficult to predict, as various factors influence consumer, wholesaler and manufacturer behavior  Liquid crystal sales have always seen fluctuations while the underlying business remained healthy CommentsQuarterly weeks of inventory delta at panel / set makers over last two years* Quarterly Merck Liquid Crystals sales -1 0 1 2 3 Weeksofinventory *Source: GfK; April 2013 LiquidCrystalssales Excess Balanced Tightness
  23. 23. Basics of liquid crystals and the display industry Market, customers and competitors Key products Supply chain Conclusion Agenda
  24. 24. 24 Merck has the most competitive platform in a dynamic liquid crystals market Innovation leader with unique skill set and R&D centers in all customer countries Panel makers need best-in-class supplier to build best-in-class displays Underlying solid LCD TV market growth subject to occasional volatility High margin technologies dominating sales split

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