The world of touch devices is expanding at a break-neck pace, accelerating shift from the conventional mechanical HMI (Human Machine Interface) concepts into the world of tactile interaction. In order to have an impeccable user experience (UX), both hardware and software have to work together in unison. We have seen panel and touch screen module manufacturers fighting for TAM (Total Addressable Market) measured in hundreds of millions of dollars but based on our experience, we are yet to scratch the surface of what the Total Addressable Market for touch devices actually is.

Panasonic's 4K supertablet represents a whole new class of devices for which manufacturers have to create the solutions for.
Panasonic’s 4K supertablet represents a whole new class of devices for which the manufacturers have to resolve problems. Touch panel is maybe the biggest issue, since slow reaction time would lead to unsatisfactory user experience.

In our travels across the globe, we meet numerous vendors that are working on solving the touch constraints, which represents a significant challenge. The moment the touch industry thinks they’ve caught up with the market demands, a new market opportunity comes onboard. One such example launched at the 2013 CES exhibition is Panasonic?s 20.5" 4K tablet, collaboration between Panasonic, Intel and Nvidia. However, it is little know that the toughest tasks, such as getting the touch interface to work – comes from subcontracting companies such as Sollensys Corporation. Bear in mind this was the same task for which one touch IP vendor (considered as the market leader) told us "(4K) is impossible" just couple of months ago.

Over the past couple of weeks, we researched Sollensys in order to find out more about the company and their plans for the future, as well as understanding the structure which enables the company to work together with clients such as LG, Samsung, Apple, Panasonic, Nokia and others.

Who is Sollensys?
We first heard about the company at the very beginning of 2013, during the CES 2013 show in Las Vegas, NV. First thing was to correctly recognize the companies, as at the time there were two separate entities. Sollensys Corporation Korea was founded in May 2010, with the first factory opening its doors in December 2010 in Gwangju, South Korea. The standalone U.S. entity was established in 2012. The U.S.entity entered the stock market (IPO) in November 2012. Following the successful IPO, which resulted in company?s valuation in mid-nine figures range, the US entity proceeded to acquire the Korean counterpart, moving the Korean IP, people, foundry etc. under the global umbrella of U.S. corporate and IP protection laws.

The company valuation has been challenged since the merger took place, most notably with the decision to release another 200 million shares in order to finance the acquisition. However, we?re quite used to investors not understanding companies the intricacies of setting up a US entity, as Sollensys Corporation US was valued at $280 million with $460 on the account, while the Korean entity is investing millions of dollars into expanding its manufacturing facilities and bringing in real revenue and net income.

We’re not surprised at such development. Traditionally, financial markets in the U.S. love outsourcing’n'offshoring strategies, which recently backfired majestically with Boeing 787 Dreamliner and the grounding of a fleet based on an offshore manufactured part designed and sold by subcontractor of a subcontractor. 

The company currently employs a dual strategy to secure rapid expansion using public-private partnerships, as the governments around the world are battling for their share of technology production, all while battling the Asian Tigers (Singapore, Malaysia, Thailand, China, Taiwan, Japan and South Korea). Sollensys is one of companies that closely follow the letter of Jerry H. Sanders III, the founder and first CEO of AMD: "Real men have fabs". The company’s annual capacity currently stands at 15.6 million capacitive sensors (Multi-Touch and S-Sensor), alongside with IP licensing agreements.

The company manufactures products capable of scaling from 3 inch (7.63cm – intended for entry level devices, featurephones etc.) all the way to 20" (50.8 cm), needed for all in one computers and large-sized tablets which are coming to market during 2013. The company currently operates with a single factory out of Gwangju, South Korea and is introducing a new factory called GUMI in Guatemala’s Foreign Investment Zone. The selection of the second fab is quite interesting, since the Sollensys business model differs from what we’ve seen so far.

Private-Public Partnership with Guatemala: a Win-Win by escaping the China Trap?
When you mention the computer display foundries or computer factories in general, the first association is probably China, Japan, South Korea or the United States. Yet, there are more than 200 countries on the planet Earth and there are plenty of alternative locations which can offer good manufacturing capabilities. Just like China and Qatar are working on super-ports in Croatia, reducing the cost of transport by as much as 60% compared to super-ports in Amsterdam, Rotterdam or Hamburg, Sollensys looked into a very aggressive strategy to expand the global manufacturing capability. The plan calls for 15 million to 36 million in 2013 and as much as 60 million S-Sensor and Multi-Touch Sensor by 2015. This very aggressive plan called for some unorthodox business practices, and the company engaged with the government of Guatemala in a 50-year contract. This should enable Sollensys to satisfy all the demands from Samsung, LG, Nokia, Panasonic and other potential and current customers.

As this represents a $20 million capex, we wanted to learn more about the nature of the deal. After going through a detailed Q&A with Frank Woo (CEO, Sollensys Corporation), we learned more about the partnership itself. The "Sollensys-Guatemala Contract" is known as "Technical Cooperation and Overseas Plant Export" project, where Sollensys is looking to team up with governments and engage in technology transfer and raising the production of own goods while reducing the capital expenditure risk typically involved with manufacturing projects.

The contract was established in 2012, with the factory coming into production during 2013. The goal is to ramp up the montly production up to 3 million S-Sensor multi-touch controllers in 2013, perform a capacity expansion in 2014-2015 timeframe to reach an annual production rate of 62 million controllers by 2016. The deal itself called for Guatemala to build the factory on a 50 year contract, with a 2% royalty coming out of production. The technology transfer between the company and the government entity calls for presence of Sollensys engineers at the facility, mixing with the local experts, enabling Guatemalan engineers and students to work on development and manufacturing of next-generation touch products throughout the company.

Furthermore, the capacity expansion does not stop with Guatemala. The company also wants to set up as much as seven factories by 2015, close to where the lead partners need parts. The factories are located around the globe, as global players such as Samsung, Nokia, LG, Blackberry & co expand their manufacturing into Brazil, Turkey, India, Indonesia, Vietnam, Cambodia and others. The company seeks to integrate themselves into the ecosystem, making sure their IP is protected (28 patents so far).

Can the 2013 Products Result in a nine-figure revenue by 2015?
Based on internal projections, design wins and the growth of production should bring the company revenue into mid to high nine figures, offering substantialy high levels of profitability for a manufacturing firm. The value of the current and emerging IP is considered one of key high growth areas. The key for the company is to neatly utilize the private-public partnerships in Guatemala, Turkey, Indonesia, Vietnam or Cambodia etc., all while delivering current and next generation of touch devices. 

We’ve all heard or saw two year old Samsung’s AMOLED test, and if you haven’t – watch the video above. However, in order to enable mass production of mobile phones based on flexible displays, you need to have a flexible touch controller and the panel itself. 

As you can see on the image above, factories in South Korea and Guatemala will start delivering products to smartphone vendors which expressed interest (or have already demonstrated) in flexible devices, such as Nokia or Samsung.

While we cannot go in-depth over unannounced products, the fact of the matter is that the industry concepts often find themselves in an "impossible to manufacture" situation, such as ASUS’s wrist smartphone from 2010. With the new generation of S-Sensor and MMTSP, smartphone and tablet vendors can plan on offering flexible devices on Mobile World Congress 2014 and onward. Naturally, Sollensys faces tough competition, but the associated IP is reason enough why the company wanted to become a U.S. Entity.

Expanding Markets: Smartphones are a Start to a Touch Screen Future
In order to understand where the need for all the extra manufacturing capability comes from, we need to take a look at some hard data and see the Total Addressable Market (TAM). The world touch display market is accelerating and outpacing industry predictions by a mile. For example, just three years ago DisplaySearch (a division of NPD Group) released its market forecast which predicted that the touch panel market will grow from $4.3 billion to $14 billion by 2016 and $16 billion in 2017. As we all know by now, the real pace is much faster than that. In 2012, the market passed the $16 billion mark, five years "ahead of schedule". The truth is that the pace is accelerating, and component suppliers are pressured to deliver as much product as humanly possible. The market expansion doesn?t show the signs of slowing down.

When we go through the numbers for the touch panel market, the real growth drivers come from mobile. In 2012, smartphones alone grew 41% year-on-year, reaching 686.7 million devices sold. This was topped off by almost 500 million touch screens sold in tablets, featurephones and digital cameras, with the total mobile market size being around 1.2 billion touch panels.

New market opportunity: on CES 2013, LG demonstrated 4K touchscreen TV. There aren't many companies in the world that can produce sensor or the actual glass for it.
New market opportunity: on CES 2013, LG demonstrated 4K touchscreen TV. There aren’t many companies in the world that can produce sensor or the actual glass for it.

Thus, there is no denial that the market opportunity is significant. As far as the current year is concerned, the total touch panel market is expected to reach the 2 billion mark. The PC platform is shifting toward touch with Microsoft Windows 8 and the upcoming Windows Blue operating systems, the need for high-resolution touch panels will only increase. PC market alone is a 500 million units annually, and you need to include about $120 million displays on top of that figure. TV?s are not slated to go touch, but rather motion detection. However, the digital signage marked has the need for large sized TV panels that support touch, and that market is expected to grow as well. At present, the TV panel market stands at 260+ million sets sold every year, and the touch panel market might reach 2.5 billion units each year.

This pace of growth is purely limited by the supply. It is clear that demand outstrips the supply and is causing a lot of issues in the chain. As such, companies in the ecosystem such as Sollensys have to react and significantly ramp up their production capabilities.

Conclusion
At the end of our research, we can say we’re quite impressed with the growth of smaller players and turning into big ones. Unlike the common wisdom of "nobody makes money in hardware", there are market opportunities which can yield big with the appropriate approach to business.

What impressed us with Sollensys Corporation is the openness towards the world. Unlike most South Korean companies we have talked to in the past, the company representatives seem eager to capitalize on opportunities in foreign ecosystems such as Guatemala, Turkey, Brazil and others. Can Korean companies catch up to the manufacturing lead by western and rare Asian companies? Only time will tell.

Disclosure: The author does not own SOLS nor was compensated by the company for this article. Bright Side Network, Inc. has a policy preventing its employees to invest in the areas they cover.

Update March 10, 2013: Legal representatives of Sollensys Corporation requested that we take the images down from their corporate presentation, as the images were marked Confidential. The story will remain online.