Back On?
The on-again/off-again negotiations between Samsung Electronics and LG Electronics’ (066570.KS) subsidiary LG Display (LPL) have been reignited according to industry sources (unconfirmed) in China. As we have noted in the past, Samsung’s desire to offer a complete line of display options to its customers and the relatively low production capacity of its own QD/OLED display production, have been pushing the company to procure OLED TV panels from rival LG Display. Rumors that prices for a high volume contract that would likely span at least two to three years has been a sticking point that has kept the two companies from such an agreement.
The most recent rumor-mill states that progress in the negotiations has been made and an agreement is getting close to being signed, but in the case of a commitment from both parties, which would likely entail additional capital spending on LGD’s part and a guaranteed financial commitment from Samsung, there will be lots of details to be worked out. In such a case we doubt the more typical ‘cooperation agreement’ typically used in China, would suffice, so we expect if Samsung is to release its own ‘OLED’ TV this year (other than the QD/OLED), it would have to forge such an agreement by June or July, which gives LGD a bit more negotiating power if Samsung stays on its September rumored release date. That said, Samsung can still walk away at any time and get its marketing gurus to come up with a reason it has decided to postpone such a release. Since LGD is the only producer of volume large panel OLED displays, its going to be a question of whether an agreement can be reached within the next 90 to 120 days and whether Samsung is able to gather the necessary components (drivers, etc.) to make this all happen for the holiday selling period.
Some say it is a win-win situation for both parties, but that seems rather naïve as there is considerable ‘face’ involved in such a deal. Samsung has pointedly stated that OLED is not well suited for large panel displays and discontinued its own large panel OLED development program years ago, particularly due to the use of a color filter in OLED TVs, which reduces brightness but creates the colors necessary for typical displays. LGD will gain a potentially big customer but parent LG Electronics will now face another fierce competitor in Samsung, which will likely put some pressure on OLED TV margins, so it is not as cut and dried as one might think. There is also the financial commitment and the capacity necessary to meet that commitment, which could entail further capacity expansion on the part of LG Display, and once that commitment is implemented, should Samsung back away for any reason, LGD will be stick with potentially excess OLED TV panel capacity, something LGD has faced years ago in its dealings with Apple (AAPL). At the same time, should LGD be ‘unable’ to meet the supply requested by Samsung, there could be considerable friction between the two as Samsung would be unable to meet its own TV production commitments. Its like two tightrope walkers trying to pass each other while over the Grand Canyon...
The most recent rumor-mill states that progress in the negotiations has been made and an agreement is getting close to being signed, but in the case of a commitment from both parties, which would likely entail additional capital spending on LGD’s part and a guaranteed financial commitment from Samsung, there will be lots of details to be worked out. In such a case we doubt the more typical ‘cooperation agreement’ typically used in China, would suffice, so we expect if Samsung is to release its own ‘OLED’ TV this year (other than the QD/OLED), it would have to forge such an agreement by June or July, which gives LGD a bit more negotiating power if Samsung stays on its September rumored release date. That said, Samsung can still walk away at any time and get its marketing gurus to come up with a reason it has decided to postpone such a release. Since LGD is the only producer of volume large panel OLED displays, its going to be a question of whether an agreement can be reached within the next 90 to 120 days and whether Samsung is able to gather the necessary components (drivers, etc.) to make this all happen for the holiday selling period.
Some say it is a win-win situation for both parties, but that seems rather naïve as there is considerable ‘face’ involved in such a deal. Samsung has pointedly stated that OLED is not well suited for large panel displays and discontinued its own large panel OLED development program years ago, particularly due to the use of a color filter in OLED TVs, which reduces brightness but creates the colors necessary for typical displays. LGD will gain a potentially big customer but parent LG Electronics will now face another fierce competitor in Samsung, which will likely put some pressure on OLED TV margins, so it is not as cut and dried as one might think. There is also the financial commitment and the capacity necessary to meet that commitment, which could entail further capacity expansion on the part of LG Display, and once that commitment is implemented, should Samsung back away for any reason, LGD will be stick with potentially excess OLED TV panel capacity, something LGD has faced years ago in its dealings with Apple (AAPL). At the same time, should LGD be ‘unable’ to meet the supply requested by Samsung, there could be considerable friction between the two as Samsung would be unable to meet its own TV production commitments. Its like two tightrope walkers trying to pass each other while over the Grand Canyon...
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