Advertisement

Blog

Is Samsung LCD Spinoff the Right Move?

{complink 4750|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 {complink 5648|Toshiba Corp.} and {complink 4907|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.

16 comments on “Is Samsung LCD Spinoff the Right Move?

  1. Cryptoman
    February 22, 2012

    Given that Samsung is losing money in LCD business due to the pressures caused by reducing prices, there is no point in pouring more money into this. By giving the business to an independent subsidiary and keeping the shares, Samsung is positioning itself to a safe position financially. At the same time, Samsung is planning on allocating more resources to OLED technology, which has a growing popularity and is profitable. It is a technology with a promising future and strong signs of growth.

    Thinner and brighter TVs are the way forward. That is a no brainer. (The OLED display market is expected to exceed $20B by 2018.) Therefore, I think this move makes perfect sense given the state of the LCD and the OLED markets and in terms of the long term vision of Samsung.

     

  2. mfbertozzi
    February 23, 2012

    Well done Cryptoman, in addition to your say we need to consider that usually, any spinoff process will impact also other sector of mother company, basically for organization steps to do. As consequence, those sectors which are achieving a good profit level for Samsung, right now (we could mention for example netbook or smartphone) are going to suffer the step mentioned by Barbara?

  3. FLYINGSCOT
    February 23, 2012

    Samsung and Sony need to focus on higher margin technology with a higher barrier to entry.  OLED is far superior to LCD and yield will come once the appropriate focus is applied.  Divesting LCD business is a shrewd move.

  4. Jay_Bond
    February 23, 2012

    I agree that Samsung is making the right move. If Samsung and other major players like Sony start to focus on the OLED technology and creating a supply chain, prices will fall and sales will climb dramatically.

  5. mfbertozzi
    February 23, 2012

    According to recent results, for instance from Gfk analysts, LCD market is expected will grow, including 2012 trend. Did Samsung evaluate to spinoff LCD production due to technology interest in innovative sector ? Is that interest enough for leaving the segment and profit as per analysts have documented?

  6. Barbara Jorgensen
    February 23, 2012

    @mfb: the LCD market will continue to grow, but Samsung doesn't want to continue to invest in LCD. So the spinoff, which Samsung will continue to own, will keep production levels up while Samsung develops OLED. Since Samsung supplies Apple and other OEMs most of the LCDs for tablets and phones, they'd be crazy just to dump the business. Samsung also has a thiving LCDTV business that will remain viable for a long time. Since Samsung has already invested in the LCD manufacturing infrastructure, production will keep chugging along without a lot of additional investment.

  7. ITempire
    February 23, 2012

    “There has also been a move toward manufacturing the panels closer to where end-demand is.”

    Such a strategic shift is likely to put costs down as many of the supply chain obstacles and price-build ups will be avoided. Also the qualititative factors in favour of production near source of end-demand should be the major considerations to further motivate OEMs to make such a shift i.e. the time and custom duty saved in shipments and avoidance of risk incorporated in cross border trading. However, such shift towards outsourcing should be made cautiously by the OEMs as the perceptions and rumours about low quality products manufactured by the outsourced manufacturer may contribute   significantly  towards decline in sales.  

  8. elctrnx_lyf
    February 23, 2012

    This move by samsung is definitely a gud one. The LCD market is becoming price competetive and we have also heard of joint venture of sony, toshibha and hitachi to reduce the operational expenses incurred in manufacturing. So this is the right time to invest in future display tachnolgies and evolve as a leader.

  9. Barbara Jorgensen
    February 23, 2012

    @Waqas: well said. I also think this adds flexibility without the necessity of building new fabs every time demand shifts.

  10. _hm
    February 23, 2012

    With Apple inclined to get LCD from Japanese vendors and LG with huge investment with them, Samsung will face new challenges. If this decision is out of this fear, it may not be good for Samsung.

     

  11. Daniel
    February 24, 2012

    Barbara, now we are paying more than double the price of LCD for AMOLED screen. So far AMOLED screens are not in wide spread use and once it becomes popular, mass production happens and hence obliviously the price may come down.

    Am not getting the difference between OLED and AMOLED? Is OLEDs are going to use in AMOLED Screens.

  12. Barbara Jorgensen
    February 24, 2012

    @Jacob: I'm a little out of my depth here, but AMOLED is active-matrix OLED. I think that is the same as AM LCD, which means there is a backplane and current that runs across the screen to provide light. I think OLEDs need a lot less current and possibly non. I know there are passive matrix LCDs and OLEDs, but the performance is not as good.

    And yes, those TVs are expensive. I'll do with my LCDs for awhile longer!

  13. Barbara Jorgensen
    February 24, 2012

    @hm: The lawsuits between Apple and Samsung can't help matters much. I think LG is the second largest supplier of displays to Apple, and then Sharp. Apple is also reportedly working with China-based AU Optronics. There is no shortage of options for Apple, but as long as Samsung retains control of its panel business, there is still opportunity in LCDs. And, if Samsung suceeds in volume production of OLEDs, it may have Apple banging on its door again for the latest generation of panels.

  14. ITempire
    February 24, 2012

    @_hm

    I think its more about being the innovation and cost leader rather than fear of competition for Samsung. Atleast in the LCD market, Samsung's brand name has become almost as strong as Microsoft's in OS's market. You might argue about LG as a challenging competitor, but Apple has still alot to achieve to make its brand name in LCD market.

  15. Anne
    February 25, 2012

    It is a right move for Samsung spiining off its unprofitable LCD business, I'm suprised it has taken them this long to have upgraded to the recent OLED technology, LCD has been around for about ten years.

  16. JADEN
    February 26, 2012

    It is apparent the OLED is the next big thing in TV market and the demand will increase. Samsung doesn't have a choice but to move on to OLED TV, OLED is a promising technology.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.