​Samsung Electronics (005930.KS) relies on its DS division (Semiconductors) to generate operating margins that offset the lower (10% or less) margins of its DX division (Phones, Networks, TVs), despite the fact that DX generates ~60% of the company’s sales, against DS’s 37% to 43% of sales.  When the DS division is operating correctly, as it did for most of 2022, it can generate ~30% of company sales but with an operating margin between 22% and 35%.  Unfortunately, the semiconductor business has not been nearly as good for Samsung as it has been for those not as highly focused on the memory market, and based on Samsung’s just released guidance for 4Q, things actually got worse rather than better in 4Q.
Samsung guided the 4th quarter to 75 trillion won ($51.4b US), down 5.1% q/q but up 10.7% y/y.  This is 3.2% below consensus.  Operating profit guidance was worse at 6.5 trillion won ($4.5b US), down 29.2% q/q but still up 130.5% y/y, pointing out how bad things were a year ago.  Operating margin will come in at ~8.7%, against 11.6% last quarter and 4.2% a year ago, but the guidance for operating income was 27.5% below consensus.  Samsung does not give detail as to the divisional breakdown until its call later this month, but it is thought that the delay in getting its High Bandwidth Memory (HBM3E) qualified at Nvidia (NVDA) as the reason, although we, as did others, thought that the semi division would have done a bit better, even with the delay.  Not a good start for 4Q in the CE space.
That said, LG Electronics also gave 4Q guidance, and while sales were 22.78 trillion won ($15.6b US) which is fractionally up q/q and in line with consensus, operating profit, at 146.1 billion won ($100.4m US), far lower than the consensus of 447.9 billion won ($307.2m US) and over 50% lower than last year’s 4Q.  LG also does not give details but did indicate that the rise in shipping costs and one-time costs associated with the company’s treasury stock retirement program, along with global economic uncertainties, all contributed to the shortfall.  On the positive side LG’s home appliance segment was the biggest contributor to sales and operating profit.

​TV brands are notorius for aggressive marketing, and that sometimes leads to marketing that is on the edge of being deceptive.  Last year Samsung added a number of models to its OLED line that used a technology that was significantly different from Samsung’s own QD-OLED display technology.  These sets were, and still are, based on WOLED technology, and purchased from LG Display (LPL), who has been using that technology for years, while those based on Samsung’s QD/OLED technology function completely differently.  Samsung has said little about the fact that the company markets both technologies as OLED line, but does not specify which technologies are used in each of the company’s three OLED lines and various OLED TV sizes.  In fact, certain models and sizes can have different technologies based on the location where purchased, without the customer knowing which technology they are purchasing., and while Samsung says it guarentees the quality of all of its OLED TVs, if one is looking to purchase a QD/OLED Samsung TV, they could wind up with something else.
Of course, Samsung is certainly not the only one who plays these marketing games and with the announcements of new 2025 TV lines at CES, it seems that LG (066570.KS) has declided that product names do not necessarily mean what they seem.  LG has been marketing its high-end LCD TVs as ‘QNED TVs’ for a number of years, which implies that they are quantum dot enhanced (the Q in QNED), yet it seems that this years QNED TV lines are not quantum dot enhanced but rather use software to enhance color reproduction and contain no quantum dots.  Consumers, who assume that QNED still means quantum dot enhanced, will find no quantum dot films, bars, polarizers, or color converters in their new LG LCD TVs, despite the fact that they continue to be sold under the QNED name.
It seems that in November of last year Hansol (014680.KS), a Korean specialty chemical producer and supplier of quantum dots for displays to both South Korean display producers, filed a complaint with the South Korean FTC alleging that a number of TCL’s (000100.CH) LCD TV sets, which are labeled as ‘QD’ models, do not contain the elements necessary for quantum dots.  While TCL denies the claim, they are being investigated under false advertising statutes. 
All in, every time a TV brand tries to slip something past consumers, it erodes both individual brand trust and trust in the CE space overall, giving consumers another reason to hesitate when making purchases.  With a number of TV technologies available to consumers currently, decision-making has become far more difficult than just a few years ago, and brands that keep things simple for consumers will likely maintain a steady user base that will return in each cycle.  When we spend time in retail stores listening to consumers speak with salespersons about TV buying choices, it becomes evident that most are buying based on price, and are taking the word of the salesperson or something they read on the internet in terms of the technology, so even the hint that they might have made a bad decision once the set is home can cause the consumer to abandon that brand forever.  It is hard to imagine that a salesperson could not make a case for or against quantum dots, WOLED, QD-OLED, or Mini-LED when trying to close a sale, so it would seem that there is little point in trying to hide the facts from consumers, but that’s our opinion, not that of brand executives or marketing teams…

​​LG Electronics (066570.KS) released a number of updated laptops at CES 2023, as part of its Gram laptop line.  What makes these laptops unusual is the Gram 15.6” “Ultraslim” and the Gram 14” and 15” “Style” models now use OLED displays.  In itself, it is not surprising for LG Electronics to feature OLED displays as it is the leader in large panel OLED display production through its affiliate LG Display (LPL), who also produces small panel OLED displays for Apple and a number of other smartphone customers., but in the case of these new OLED laptops, parent LG Electronics is buying the OLED panels from rival Samsung Electronics. 
Samsung Display (pvt), affiliate of parent Samsung Electronics (005930.KS), is the leading producer of RGB OLED displays, primarily for use in smartphones and tablets, while more recently building out its RGB OLED display line to include larger panels suitable for the notebook market.  While smartphone OLED displays are typically produced on a flexible substrate, with the phone’s structure providing the rigidity, laptop displays tend to be produced on rigid substrates (glass), as the more structurally solid frame keeps the glass-based display from flexing.  Further, the production cost of glass OLED displays is lower than that of those produced on flexible substrates, as during the production process the flexible substrate material must be attached to a glass substrate to make sure it remains flat during deposition, and them must be removed using a LLO (laser lift-off) process to return the display to a flexible state.
LG Display does not produce rigid OLED displays, producing only those with flexible substrates for smartphones, watches, and automotive displays, so in order to keep down cost, but also provide an OLED alternative to its laptop line, LGE had no choice but to buy from SDC or go to a Chinese supplier.  Considering that it has had problems with the displays on earlier models in its laptop line, the choice of Samsung seems logical, albeit a bit embarrassing.  We believe Samsung Display has ~ an 85% share of the rigid OLED display market, with only Everdisplay (688538.CH) and Visionox (002387.CH) competing and has considerably more experience than the others in producing these large OLED displays.
What also stands out in this unusual relationship is that Samsung Electronics and LG Display were said to be in negotiations last year for a potential purchase by Samsung of a large (>1m) number of OLED TV panels, which never occurred.  Rumors that while LG Display was willing to lower the OLED panel price below the price at which it sells OLED panels to its parent, the two were still unable to reach an agreement and the deal was called off, but when it comes to CE products, margins rule. 

​LG Display (LPL) has decided to end TV panel production in South Korea by winding down production at its P7 LCD fab , producing only to fulfill long-term existing contracts.  LGD is also expected to reduce LCD TV panel production at it fabs in Guangzhou, China from 210,000 sheets/month to 120,000 sheets/monthly, leaving that fab as the only one that will continue to produce LCD panels for the TV space. LGD’s P8 fab, which is a Gen 8 fab will produce LCD panels for IT displays (notebook, monitor, and tablets).
LG Display has expressed its intentions to reduce or eliminate LCD TV panel production in South Korea in the past, however the rise of TV panel prices during the COVID-19 pandemic in 2020 and 2021 , gave them reason to postpone those changes, likely with encouragement from parent LG Electronics (066570.KS), who, along with most other TV set manufacturers faced short supply from other sources.  Since last July the price of LCD TV panels has declined precipitously, making the decision a bit of an assumption.
Both Samsung Display and LG Display have been facing aggressive competition from Chinese panel producers, who are able to produce generic LCD TV panels less expensively due to lower labor costs and government subsidies.  In recent quarters, LG Display, along with other non-Chinese panel producers, have shifted away from direct competition with the Chinese and tried to change their mix toward higher margin more specialized products.  While this has offered a bit of protection from competition, weakness in the overall display market has lessened the benefits of those changes and pushed LGD and potentially others to restructure fabs in order to maintain a profitable mix.
Some have moved toward OLED, which we expect will be the case for LG Display in the future, converting P7 to either an OLED IT panel fab or an OLED TV panel fab, but given the current macro circumstances, such decisions can wait for a quarter or so to see how the holidays pan out and what the longer-term picture might be.  While it is expensive to have an idle fab of the size of P7, it is certainly less expensive than running it at low utilization rates or producing at cash costs or below, so the decision was imminent, although we will have to wait until January to get more information on how quickly the implementation will take place, the cost, and if any plans for the future of the fab have been made.

​We have noted previously that LG Electronics (066570.KS) has been selling IP assets for businesses that it has closed in order to monetize those no longer needed for production.  At the end of March, LGE closed the sale of its smartphone business in China to an affiliate of Inspur Group (600756.CH), a large server company based in Jinan, China.  The smartphone lines in other countries were originally to be sold however it was found that there were few buyers that had the need or financial capacity for the lines, while the Inspur sales was easily accomplished due to the existing relationship.  LG had contemplated selling the entire mobile division last year to a number of possible global scale buyers but decided to hold onto the IP, a portion of which is related to 5G, which the company says can be applied to a number of affiliated businesses outside of smartphones, particularly as some of those patents are part of a license agreement it has with Apple (AAPL).
Since then there have been a number of IP sales made by LG, one being through affiliate LG Innotek (011070.KS) to Scramoge Technology (pvt), a non-practicing IP holding company in Ireland that is known for it’s lawsuits against major CE companies, and a number of licensing agreements with Chinese smartphone brands.  While LGE has held on to other mobile IP, which it believes can be used by other divisions, LGE seems to be continuing to sell its non-mobile IP.  In September and October it sold 942 patents relating to its solar business, which it closed at the end of February this year, to Jinko Solar (688223.CH), the 6th largest global solar panel manufacturer, based on capacity, and is expected to sell more such IP to Jinko in the future.  It has also signed a non-exclusive license agreement with Hanwha Solutions (009830.KS), a large Korean chemical company whose Q-Cells (pvt) division is a competitor of Jinko.
LG now shows the intellectual property business as an income line item, with over 24,000 mobile related patents generating revenue, but it is not all profit as LG agreed to share IP profits with employees in July and is still involved in  a number of lawsuits over compensation for the IP ‘invention’ that have been sold, and while the company has been offering compensation to employees for many years, the value of such compensation and its calculation are the basis for those suits.  All in we expect LG to continue to monetize its unused IP, particularly as the near-term outlook for the CE space remains cloudy at best, and we expect another round of intensive segment reviews in 1Q ’23, which could lead to additional segment closings and IP sales in order to reduce losses.

LG Electronics (066570.KS) (technically LG Group) owns LG Technology Ventures, the company’s VC arm.  With ~40 investments and $400m in fund assets, the portfolio of early-stage start-ups are chosen in order that they might develop strategic partnerships with other LG companies in a number of strategic areas including advanced materials.  Most recently LGTV made a $2.155m investment in InnoQD (pvt), along with additional investments by Wonik IPS (240810.KS), a well-known Korean supplier of display and semiconductor tools, and local VCs for a total of $4.31m, with an additional ~$1m in progress.  The company had previously raised ~$4m in earlier financings.
InnoQD is a developer and producer of QD materials that specializes in resin development, a material that is mixed with quantum dots it both protects the QD material from exposure to air and water along with barrier films, and holds the quantum dots in place.  One issue that faces quantum dot films is the dispersion of the quantum dots across the display film.  Poorly distributed QDs cause color and light changes where QDs are bunched or thinly dispersed.  By maintaining a highly uniform concentration of QDs across the film, the film can be thinner and have more consistent results across its entire area and by starting the protection of the QDs at the resin level, thinner barrier layers can be used and lifetime extended
InnoQD has purchased a factory and has production equipment on order, with expectations for mass production next year in collaboration with LG Display (LPL) and Nanosys (pvt) as the supplier of the basic QD material.  While LG Display has a strong focus on OLED, parent LG Electronics is broader based with a line of Mini-LED/QD and QD only TVs based on Nanosys QD material.  The investment in InnoQD will hopefully reduce the cost and increase the quality of LG’s QD products and potentially create a path toward the two goals in the quantum dot timeline, full ink-jet QD printing (Samsung Display’s (pvt) QD/OLED is using it) and self-emissive quantum dot displays in the future.

​LG Display is the world’s only supplier of OLED panels for TVs and has set the tone for large panel OLED products, offering WOLED displays from 97” down to 42”, with flexible, rollable and transparent offering across many of those sizes.  LGD’s TV OLED displays are based on technology that uses a substrate coated with yellow/green and blue OLED materials that produce a white light which passes through a color filter that consists of red, green, and blue phosphors that convert the white light to the colors necessary to produce highly color accurate images.  While this differs from smaller OLED displays that pattern red, green, and blue OLED emitters and do not need a color filter, limitations on the size of RGB OLED displays keeps the technologies from overlapping and given LGD’s experience in producing large panel OLED displays, the competition in the large panel space is limited.
Gamers push the display envelope, looking for larger, faster and more accurate displays, and OLED displays for gaming and monitors have become increasingly popular but at these smaller sizes, the choice of OLED technologies becomes more difficult and with Samsung Display’s QD/OLED the choices become even more complicated.  Small panel OLED producers are looking to find ways to bypass the size limitations of RGB OLED displays while LGD is looking to reduce the size of its displays to further feed the gaming market while still using existing OLED resources.  To that end LGD has indicated that it will introduce a 20” OLED display by the end of this year, which we assume will utilize its WOLED technology, while it works toward the commercialization of an RGB OLED process that is feasible for such panel sizes.  Samsung Display and others are looking to also find ways to bypass the RGB size restrictions to feed such demand but those projects are in the development stage, leaving LG Display’s smaller OLED panel size seeing only minor competition from ink-jet printed panels from JOLED (pvt), which seem to be produced in relatively small quantities.
If LGD is able to produce 20” or 21.5” displays under it current WOLED process it would have an efficiency advantage over those OLED producers that use Gen 6 fab lines as LGD’s large panel OLED lines are based on Gen 8.5.  Not only does this give LGD the ability to produce between 35 (21.5”) and 40 (20”) panels on a single substrate vs. 18 and 21 on a Gen 6 line, giving economies of scale, but also increases the substrate efficiency (the used substrate/total substrate size) from 85% to 93%, and while this doesn’t seem like a big advantage, when multiplied by hundreds of thousands or millions of units, it adds up.
LGD has also indicated that it is working with a customer to design a flexible gaming panel with a curvature that can be adjusted by the user.  This would allow a gamer to adapt the OLED display to the needs of particular games, some of which require extreme focus on the center of the display while others need more peripheral viewing, which would be enhanced by a tighter curvature.  LGD was quick to point out that its WOLED displays, which are based on a single substrate, would be able to provide such a function, while SDC’s QD/OLED displays, which are based on two substrates (OLED and quantum dots) would not.
All in, LGD continues to squeeze as much as possible out of its investment in WOLED which has given it the ability to maintain the massive lead it has in large panel OLED display production, and anything that extends those capabilities should be a plus, but we expect as sizes get down to around 20” the competition from small panel OLED producers will become intense, even if they are less efficient, and by the end of 2023 we expect there will be at least some Gen 8.5 RGB OLED capacity that will compete directly with LGD in that panel size category.  Grab the ring as soon as possible as new contenders are waiting in the wings…

​When LG Electronics (066570.KS) decided to end its smartphone business last year it offered to license its mobile patent portfolio to outside customers to generate income as it can no longer gain a competitive advantage from the IP itself.  Since 1976 LGE has made 24,677 patent applications in the US alone and has been granted 39,775 patents, with 55.3% of applications and 53.8% of approved patents filed and granted over the last 10 years and on the WIPO (World Intellectual Property Organization) database, LGE shows over 264,769 filings that reference the company name.
While this is a commendable indication as to the company’s R&D efforts, LGE has a reputation for not compensating those employees who were instrumental in creating that IP.  That seems to be changing, at least to a degree, as the company is offering compensation to current and former employees for their contribution to license or royalty generating IP for the first time, and indicated that it generated 800b won (~$615m) in profit in the 1st quarter of this year.  Compensation ranges from a few million won (1m won = $769 US) to millions of dollars, although the company has not revealed how it arrived at such figures to employees.
While LGE is involved in many IP related lawsuits, particularly with competitors, it is also involved in ~50 lawsuits with employees over compensation for IP development, which seems to lessen the altruistic tone to the LGE offer, but compensation is compensation, and settlements of those suits are the likely goal of the compensation offers, as legal costs and an eventual compensatory payout are the likely result of many of those lawsuits, it is probably a wise decision to make such offers, especially if you don’t have to disclose how the compensation was determined, and will likely avoid new suits going forward under the theory that if they get something now they will be less likely to sue in the future…

Ultra-large TVs are headline producers but not great sellers, but TV panel and set manufacturers continue to push display dimensions higher despite lackluster sales.  While most of these ultra-large sets are more a proof-of-capability, they are fodder for articles and advertisements extoling the expertise of panel and TV set manufacturing.  LG Electronics (066570.KS) promised to ship a 97” OLED TV this year and seems to be getting close to making that promise a reality as the set received certification from South Korea’s National Radio Research Agency, the organization that ensures devices that emit radio waves are compliant with regulations and safe for the public. In South Korea.  While there is no assurance that certification will lead to an imminent product release, it is among the last necessary steps before a product release.  LG would have OLED monitor and TV products ranging from 48” to 97” upon release.
Under the assumption that the 97” 4K OLED sets will be released in LG’s home country of South Korea first, the price of these sets, which are ~4’ x 7’ is expected to be between $23,300 and $25,500, which will likely keep them out of the hands of the average consumer, but they will show up at exhibitions, promotional tours, and major events, although the idea that they will be released in time for the FIFA World Cup in Qatar later this year, with elimination rounds already underway.  Samsung has a 98” QD/Mini-LED TV but it has been rumored to have sold only a few units at the bargain price of $15,000.

​LG Electronics (066570.KS) which withdrew from the smartphone business last year, has completed the sale of the business, after converting smartphone production lines in Brazil, India, and Vietnam to home appliance production, and selling the lines in China to affiliates of Inspur Group (600756.CH), a large server company based in Jinan, China, who was said to have ties to the People’s Liberation Army, which precludes US companies or investors from owning its shares.  We believe LG owns 30% of the JV that was set up to encompass the sale with Inspur having been responsible for the production of a portion of LG’s low-end smartphones in the past. 
The lines in other countries were originally to be sold however it was found that there were few buyers that had the need or financial capacity for the lines, while the Inspur sales was easily accomplished due to the existing relationship.  LG had contemplated selling the entire mobile division last year to a number of possible global scale buyers but decided to hold onto the IP, a portion of which is related to 5G, which the company says can be applied to a number of affiliated businesses outside of smartphones.  Since then there have been a number of IP sales made by LG, one being through affiliate LG Innotek (011070.KS) to Scramoge Technology (pvt), a non-practicing IP holding company in Ireland that is known for it’s lawsuits against major CE companies, and a number of licensing agreements with Chinese smartphone brands.