A Touchy Situation
Many consumer electronics companies have developed or purchased dedicated production facilities for key components, who can both guarantee supply and use excess capacity to produce for external brands, especially display panels that are the basis for many CE products. Typical examples would be Samsung Electronics (005930.KS) affiliate Samsung Display (pvt), LG Electronics’ (066570.KS) subsidiary LG Display (LPL), China’s TCL (000100.CH), that owns Chinastar (pvt) and Foxconn’s (2354.TT) ownership of Innolux (3481.TT). These panel producing subsidiaries run quasi-independently in most cases, and while they are typically the primary display supplier to the parent company, they are not necessarily the only supplier, with parent TV, IT, and mobile divisions purchasing displays from a variety of sources, with many of those decisions based on supplier panel pricing and expertise. Further, most large CE brands farm out design and assembly of a portion of their lines to OEM/ODMs, who are not necessarily bound to the brand’s supplier list, allowing them to source display panels from suppliers with whom they have relationships.
This leads to an ever-changing complex web of interconnections that not only can influence company results but play a significant part in ‘display’ politics, and recently a conflict between LG Electronics and Chinese panel supplier BOE (200725.CH) has made those connections and conflicts quite obvious, and exposes the struggle that such purchaser/supplier relationships can incite.
BOE is the largest LCD panel producer in China and the largest producer of LCD panels globally. While the company has been growing both capacity and sales over the last few years, BOE faces stiff competition from both Samsung Display and LG Display as BOE tends to be the less expensive supplier. That said, BOE has been so aggressive toward building its large panel LCD display business that it became apparent to both competitors that they could not compete with BOE on a price basis, which led to SDC’s complete withdrawal from the large panel LCD production market, and LGD’s large reduction in large panel LCD capacity.
Both competitors however have developed OLED capacity as they have decreased LCD capacity, with SDC dominating the small panel OLED market and LGD dominating the large panel OLED market and remain closely tied to parent organizations due to those display products. BOE, while putting billions to work toward building out its own OLED capacity, does not have the OLED experience that its South Korean competitors have, and has faced challenges as it has entered the OLED display market. One of the bellwethers for the OLED market is being added to Apple’s (AAPL) display supplier list given Apple’s stringent requirements for its displays, and as BOE has been qualified as an Apple OLED supplier, after an arduous and frustrating path to that goal, BOE has shown itself to continue to be a strong competitor.
In fact, due to BOE’s large scale LCD production capacity, the company supplies displays to both Samsung Electronics and LG Electronics, and is the largest outside display supplier to LGE, supplying over 40% of their large panel LCD displays, which would make one assume that they have a somewhat ‘protected’ status with the parent organizations, but that is not the case. Samsung Electronics recently omitted BOE from its supplier list, likely over a conflict between the companies over an advertising fee that Samsung required from BOE,, and Samsung Display has issued a warning to BOE and its customers over allegations that the company tweaked its pixel structure slightly to avoid paying SDC a license fee for the underlying IP. Included in that warning to BOE’s customers was Apple, SDC’s largest outside customer which makes the conflict all the more sensitive to SDC where a misstep could damage that key relationship (Samsung Display is expected to have captured between 70% and 80% of the display business for the Apple iPhone 14).
If that is not enough of a conflict, a subsidiary of LG Display known as Global OLED Technology LLC (pvt)[1], that maintains and licenses the OLED IP that is owned by LG Group (pvt), the entity that controls all LG companies, has also recently warned BOE that it is infringing on OLED patents owned by LGD. However, thus far they have limited the conflict to just a warning and have yet to file any court documents, the typical next step toward forcing BOE to pay due royalties. Given the large role that BOE plays in the TV business of LG Electronics, there are multiple factions involved in the pursuit of IP license dollars from BOE, bringing such conflicts to the highest levels of corporate hierarchy.
Such IP battles have always been a part of the display space and the CE space overall, but we expect to see more aggressive behavior, not only due to the competitive nature of the players, but as a result of the display cycle. Since 2020 panel producers have been focused on being able to supply COVID related increased demand and with that goal, have paid less attention to costs. With demand slowing and costs still high profitability has waned, which we believe will focus more attention on cost containment going forward. Along with costs we expect and increased focus on exploiting existing revenue sources that are not display production oriented, and there is nothing better than a high margin royalty in that regard. We expect a renewed focus by display IP holders to capture IP dollars in 2023, and while this might rile feathers a bit, we expect to see a bit of a shift in corporate sentiment toward enforcement rather than appeasement as a result.
[1] Global OLED Technology LLC is 32.7% owned by Idemitsu Kosan, a Japanese chemical supplier, with the rest divided between LG Display, LG Chem, and LG Electronics.
This leads to an ever-changing complex web of interconnections that not only can influence company results but play a significant part in ‘display’ politics, and recently a conflict between LG Electronics and Chinese panel supplier BOE (200725.CH) has made those connections and conflicts quite obvious, and exposes the struggle that such purchaser/supplier relationships can incite.
BOE is the largest LCD panel producer in China and the largest producer of LCD panels globally. While the company has been growing both capacity and sales over the last few years, BOE faces stiff competition from both Samsung Display and LG Display as BOE tends to be the less expensive supplier. That said, BOE has been so aggressive toward building its large panel LCD display business that it became apparent to both competitors that they could not compete with BOE on a price basis, which led to SDC’s complete withdrawal from the large panel LCD production market, and LGD’s large reduction in large panel LCD capacity.
Both competitors however have developed OLED capacity as they have decreased LCD capacity, with SDC dominating the small panel OLED market and LGD dominating the large panel OLED market and remain closely tied to parent organizations due to those display products. BOE, while putting billions to work toward building out its own OLED capacity, does not have the OLED experience that its South Korean competitors have, and has faced challenges as it has entered the OLED display market. One of the bellwethers for the OLED market is being added to Apple’s (AAPL) display supplier list given Apple’s stringent requirements for its displays, and as BOE has been qualified as an Apple OLED supplier, after an arduous and frustrating path to that goal, BOE has shown itself to continue to be a strong competitor.
In fact, due to BOE’s large scale LCD production capacity, the company supplies displays to both Samsung Electronics and LG Electronics, and is the largest outside display supplier to LGE, supplying over 40% of their large panel LCD displays, which would make one assume that they have a somewhat ‘protected’ status with the parent organizations, but that is not the case. Samsung Electronics recently omitted BOE from its supplier list, likely over a conflict between the companies over an advertising fee that Samsung required from BOE,, and Samsung Display has issued a warning to BOE and its customers over allegations that the company tweaked its pixel structure slightly to avoid paying SDC a license fee for the underlying IP. Included in that warning to BOE’s customers was Apple, SDC’s largest outside customer which makes the conflict all the more sensitive to SDC where a misstep could damage that key relationship (Samsung Display is expected to have captured between 70% and 80% of the display business for the Apple iPhone 14).
If that is not enough of a conflict, a subsidiary of LG Display known as Global OLED Technology LLC (pvt)[1], that maintains and licenses the OLED IP that is owned by LG Group (pvt), the entity that controls all LG companies, has also recently warned BOE that it is infringing on OLED patents owned by LGD. However, thus far they have limited the conflict to just a warning and have yet to file any court documents, the typical next step toward forcing BOE to pay due royalties. Given the large role that BOE plays in the TV business of LG Electronics, there are multiple factions involved in the pursuit of IP license dollars from BOE, bringing such conflicts to the highest levels of corporate hierarchy.
Such IP battles have always been a part of the display space and the CE space overall, but we expect to see more aggressive behavior, not only due to the competitive nature of the players, but as a result of the display cycle. Since 2020 panel producers have been focused on being able to supply COVID related increased demand and with that goal, have paid less attention to costs. With demand slowing and costs still high profitability has waned, which we believe will focus more attention on cost containment going forward. Along with costs we expect and increased focus on exploiting existing revenue sources that are not display production oriented, and there is nothing better than a high margin royalty in that regard. We expect a renewed focus by display IP holders to capture IP dollars in 2023, and while this might rile feathers a bit, we expect to see a bit of a shift in corporate sentiment toward enforcement rather than appeasement as a result.
[1] Global OLED Technology LLC is 32.7% owned by Idemitsu Kosan, a Japanese chemical supplier, with the rest divided between LG Display, LG Chem, and LG Electronics.
BOE Large Panel LCD Capacity vs. Large Panel Sales - Source: SCMR LLC, OMDIA, RUNTO, Company Data
RSS Feed