Samsung Corp. , the world's biggest maker of the LCD panels used in laptops, notebooks, TVs, and phones, is spinning off its LCD business. Samsung will continue to control all the shares of the new Samsung Display Co., which is scheduled to launch in early April.
As part of this restructuring, Samsung intends to devote more resources toward organic-light-emitting diode (OLED) displays. OLEDs have a number of advantages over LCDs: they have their own light source; they are thin; they can be sprayed onto flexible substrates such as plastic; and they consume a lot less power. For most applications, OLED is simply the perfect display technology.
OLED displays continue to be prohibitively expensive, however. Unlike LCDs there is no OLED manufacturing infrastructure in place. There are very few materials suppliers. Until OLED reaches volume manufacturing levels and more competition develops, the displays will be rare and costly. IHS iSuppli says:
AMOLED TV prices will remain dramatically higher than those of liquid crystal display (LCD) TVs during the next few years because of manufacturing yield issues, combined with inflated material costs due to the small pool of suppliers. A 55-inch AMOLED TV will be priced at $8,000 in 2012, more than twice the $3,700 average expense for an equivalent LCD TV. And although AMOLEDs deliver a dramatically superior viewing experience compared to LCDs, consumers are unlikely to buy large quantities of AMOLEDs until their prices fall to within a 20 percent premium of comparable LCD TVs.
Samsung is making the right move.
The LCD panel market has been struggling with steep price declines and overcapacity on and off for a number of years. Although prices stabilized in December, IHS iSuppli reports that they are unlikely to increase any time soon:
"The firming in panel prices in December can be attributed to lean inventories throughout the supply chain and to lower factory utilization rates, after suppliers were forced to cut production in order to control supply and stem financial losses," said Sweta Dash, senior director for LCDs at IHS. "Sales also picked up in the United States and China, helping to further boost the market. Despite this, there will be little opportunity for suppliers to increase pricing even after the market has evened out, due to continuing uncertainties in the global economy."
As massive as Samsung's LCD business is, LCD is increasingly price-competitive. Other major display manufacturers, such as Toshiba Corp. (Tokyo: 6502) and Sharp Electronics Corp. , have been outsourcing some of their production to ODMs and EMS companies to save costs. There has also been a move toward manufacturing the panels closer to where end-demand is. Rather than invest in more LCD factories, outsourcing enables panel OEMs to build where demand exists.
Samsung is also holding onto the display business, which is another smart move. Samsung consumes almost as many panels internally as it sells in the merchant market.
IHS iSuppli expects AMOLED display suppliers, equipment makers, material makers, and TV makers to cooperate in developing more efficient and cost-effective ways in order to make large-sized AMOLED panels. As a result, prices are expected to decline:
Early production of 55-inch AMOLED panels is likely to be conducted at existing eighth generation amorphous silicon (a-Si) LCD fabs that will be converted to make the oxide silicon backplanes needed for AMOLEDs. Both LGD and Samsung plan to move mass production to eighth generation AMOLED lines in the future. And as manufacturing matures, large sized AMOLED panels have the potential of becoming cheaper.
Samsung may end up being its own biggest customer.