Samsung cuts prices on QLED TVs
Directly comparing Samsung’s (0056930.KS) QLED TVs and LG’s (066570.KS) OLED TVs is like comparing a fund that specializes in health care and medical against a fund that invests in South American conglomerates. While they are both TVs, and look similar on the outside, they are very different on the inside, utilizing dissimilar technologies, and approaching the development of the device from nearly polar opposite staring points. One is based on LCD technology, the same as what has been used since CRTs were booted from living rooms worldwide, with an additional boost from Quantum Dot materials that can enhance the color quality of such sets. OLED TVs do not use LCD technology and generate light by stimulating organic materials that produce which produce light that is filtered through a color filter, one piece common to both TV sets. The arguments pro and con for each should be left to experts like Displaymate, that perform detailed analysis of the physical and optical characteristics of all TV types, but are more often left to the wiles of TV brand marketing departments, which tends to obfuscate facts and statistics about both.
When it gets down to it however, the consumer decides based on what they see on the store floor, which could be the subject of another note, but picture quality is only a part of what gets a consumer to decide to go toward one type of TV or another. Salesmen can make a significant difference, with their personal preference or a commission motivation driving their patois toward a particular type or brand, and of course, the output of the set itself makes a difference, but remember that this is a purely subjective decision category, with a huge number of likes and dislikes that can vary not only from consumer to consumer but from region to region (did you know TV sets made for the Asian market are tipped toward a ‘bluer’ tint while those for the North American market are ‘warmer’, with a more yellow/red tint). Then there is price, which can be either a tie-breaker or an absolute, but it definitely plays a very important part in the final decision, as well as the marketing that the consumer relentlessly hears a multitude of times when faced with such a buying decision.
So, in the high-end TV space, essentially the only portion of the TV business that carries ‘premium’ margins, it all comes down to marketing and price. Both QLED and OLED TVs look great to the average consumer, and whether the ‘mine is better than yours’ marketing really makes all that much of a difference is quite debatable, but consumers are driven by price and whether they feel they are getting a bargain, no matter whether the set is QLED or OLED. This brings us to the fact that Samsung has decided, at least in the US, to cut the price of its QLED TVs to both stimulate TV sales, and show that their decision to back QLED over OLED is a correct one that consumers should also make. Looking further, QLED materials should add $50 and $100 to the cost of a TV set, and have been on a declining cost path for the last 18 – 24 months as material capacity is increased. OLED TV cost structure is a bit more complex, as using OLED materials to make a TV requires a new production fab, which makes for high initial cost, declining as production capacity and yield increases, and while both technologies are very different and have dissimilar characteristics, they are compared on price, just like generic TV sets, and to that end, Samsung has decided to cut the prices of this year’s crop of QLED TVs.
The chart below shows current Best Buy (BBY) prices (Northeastern US) for Samsung QLED TVs, before and after, with the rate of change. While each model in a particular size category has its own characteristics[1], the reductions tend to be greatest for the more expensive models in each category, except 75”, where the $9,999 model received only a 10% price reduction. Why Samsung made such a decision is unknown, but the cost of producing 75” TVs is generally higher that smaller sizes, and Samsung might be looking to preserve at least some of the premium margin carried for the larger sets, but Samsung’s TV division did not perform well in 1H 2017, and the company will be focused on driving unit volumes to reduce inventory levels for the next few months. They want to enter the holiday season with fresh, lower cost inventory, that reflects what they believe will be lower TV panel prices, and are trying to set the stage for a better 2H, having to take near-term lower margins to get into that position. Of course, if TV panel prices do not decline further, things will not get appreciably better for the TV set business, but Samsung seems to be taking the proactive approach going forward. Those waiting for price reduction on the new 88” QLED TV will have to wait as will those waiting for discounts on the LG or Sony (SNE) 77” OLED TVs.
[1] These are all 2017 QLED models designed for the North American market, with the primary differentiators being flat or curved screens, and a broad set of features (“family”) that is indicated by the 6 letter from the left in the model number. The higher the number, the more features.
When it gets down to it however, the consumer decides based on what they see on the store floor, which could be the subject of another note, but picture quality is only a part of what gets a consumer to decide to go toward one type of TV or another. Salesmen can make a significant difference, with their personal preference or a commission motivation driving their patois toward a particular type or brand, and of course, the output of the set itself makes a difference, but remember that this is a purely subjective decision category, with a huge number of likes and dislikes that can vary not only from consumer to consumer but from region to region (did you know TV sets made for the Asian market are tipped toward a ‘bluer’ tint while those for the North American market are ‘warmer’, with a more yellow/red tint). Then there is price, which can be either a tie-breaker or an absolute, but it definitely plays a very important part in the final decision, as well as the marketing that the consumer relentlessly hears a multitude of times when faced with such a buying decision.
So, in the high-end TV space, essentially the only portion of the TV business that carries ‘premium’ margins, it all comes down to marketing and price. Both QLED and OLED TVs look great to the average consumer, and whether the ‘mine is better than yours’ marketing really makes all that much of a difference is quite debatable, but consumers are driven by price and whether they feel they are getting a bargain, no matter whether the set is QLED or OLED. This brings us to the fact that Samsung has decided, at least in the US, to cut the price of its QLED TVs to both stimulate TV sales, and show that their decision to back QLED over OLED is a correct one that consumers should also make. Looking further, QLED materials should add $50 and $100 to the cost of a TV set, and have been on a declining cost path for the last 18 – 24 months as material capacity is increased. OLED TV cost structure is a bit more complex, as using OLED materials to make a TV requires a new production fab, which makes for high initial cost, declining as production capacity and yield increases, and while both technologies are very different and have dissimilar characteristics, they are compared on price, just like generic TV sets, and to that end, Samsung has decided to cut the prices of this year’s crop of QLED TVs.
The chart below shows current Best Buy (BBY) prices (Northeastern US) for Samsung QLED TVs, before and after, with the rate of change. While each model in a particular size category has its own characteristics[1], the reductions tend to be greatest for the more expensive models in each category, except 75”, where the $9,999 model received only a 10% price reduction. Why Samsung made such a decision is unknown, but the cost of producing 75” TVs is generally higher that smaller sizes, and Samsung might be looking to preserve at least some of the premium margin carried for the larger sets, but Samsung’s TV division did not perform well in 1H 2017, and the company will be focused on driving unit volumes to reduce inventory levels for the next few months. They want to enter the holiday season with fresh, lower cost inventory, that reflects what they believe will be lower TV panel prices, and are trying to set the stage for a better 2H, having to take near-term lower margins to get into that position. Of course, if TV panel prices do not decline further, things will not get appreciably better for the TV set business, but Samsung seems to be taking the proactive approach going forward. Those waiting for price reduction on the new 88” QLED TV will have to wait as will those waiting for discounts on the LG or Sony (SNE) 77” OLED TVs.
[1] These are all 2017 QLED models designed for the North American market, with the primary differentiators being flat or curved screens, and a broad set of features (“family”) that is indicated by the 6 letter from the left in the model number. The higher the number, the more features.
Table 1 - Samsung QLED Price Reductions - Source: Best Buy
Table 2 - LG & Sony OLED Prices & Reductions - Source: Best Buy
Figure 1 - Samsung QLED TV - Source: Samsung Electronics
Figure 2 - LG OLED TV - Source: LG Electronics
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