Negotiations
As panel producers begin production for the upcoming holiday period, they are negotiating with brands for next year’s shipments. Rather than the rigid contracts that were the mode used years ago, current contracts are flexible and build in clauses that can adjust to changing economic conditions, and tend to include both long-term agreements for more generic panels, and shorter-term metrics for more specialized panels. Samsung Electronics (005930.KS) is the largest purchaser of LCD TV panels as their display production affiliate Samsung Display (pvt) does not produce LCD panels, and purchases over 40m TV set panels from suppliers each year. With 8 major LCD panel producers, Samsung has TV set panel production contracts with most, if not all, TV set panel producers. Depending on the size of the producer, Samsung can represent between 5% and 30% of the producer’s capacity for the year, making these negotiations quite important and critical to the profitability of panel producers.
Years back BOE (200725.CH) was high of Samsung’s list as China’s largest LCD panel producer and among the lowest cost producer for many panels, however competition for Apple’s display business and conflicts over incentive fees reduced BOE’s share of Samsung’s LCD TV panel purchases to between 3% and 4%. However, after a few visits from BOE officials talk out of South Korea indicates that Samsung and BOE might have settled their differences, giving BOE a chance at bringing it supply contracts with Samsung back up. Expectations are for BOE to have a roughly 4% share of Samsung’s TV panel purchases next year, but if the settlement rumor proves true, that share could increase to as much as 10% next year.
Samsung has an additional consideration next year. LG Display (LPL), a supplier of LCD TV set panels to Samsung, sold their Gen 8.5 LCD fab in Guangzhou, China to Chinastar (pvt), which will reduce LG Display’s share of Samsung’s TV set panel business next year, but at the same time it creates another problem for Samsung. Now that the Guangzhou fab is owned by Chinastar, who is already Samsung’s largest LCD TV panel supplier, that LGD supply contract is now Chinastar’s, and that pushes Chinastar over Samsung’s ‘production maximum’ .
We expect Samsung settled the conflict with BOE, in part, to give it the option to reduce its dependence on Chinastar and increase it reliance on BOE, leading to the current negotiations. The production maximum mentioned above is not a legal or financial point, but one of risk, with too much of Samsung’s TV set panel purchases coming from one supplier a dangerous position that has hurt Samsung in the past. By increasing BOE’s share, Samsung can reduce Chinastar’s share and reduce its overall supplier risk.
OMDIA breaks out estimates for Samsung’s LCD TV set panel purchases for 2024 and this year, which we show below, along with our forecast of share under two BOE scenarios. Scenario A is our current forecast, using a conservative share for BOE, while Scenario B is more aggressive, with Samsung reducing Chinastar’s share by increasing BOE’s. It is too early to tell how this will play out and Samsung does not have to make a final decision yet but given the number of units Samsung is expected to purchase next year (40m+) the stakes are high.
Years back BOE (200725.CH) was high of Samsung’s list as China’s largest LCD panel producer and among the lowest cost producer for many panels, however competition for Apple’s display business and conflicts over incentive fees reduced BOE’s share of Samsung’s LCD TV panel purchases to between 3% and 4%. However, after a few visits from BOE officials talk out of South Korea indicates that Samsung and BOE might have settled their differences, giving BOE a chance at bringing it supply contracts with Samsung back up. Expectations are for BOE to have a roughly 4% share of Samsung’s TV panel purchases next year, but if the settlement rumor proves true, that share could increase to as much as 10% next year.
Samsung has an additional consideration next year. LG Display (LPL), a supplier of LCD TV set panels to Samsung, sold their Gen 8.5 LCD fab in Guangzhou, China to Chinastar (pvt), which will reduce LG Display’s share of Samsung’s TV set panel business next year, but at the same time it creates another problem for Samsung. Now that the Guangzhou fab is owned by Chinastar, who is already Samsung’s largest LCD TV panel supplier, that LGD supply contract is now Chinastar’s, and that pushes Chinastar over Samsung’s ‘production maximum’ .
We expect Samsung settled the conflict with BOE, in part, to give it the option to reduce its dependence on Chinastar and increase it reliance on BOE, leading to the current negotiations. The production maximum mentioned above is not a legal or financial point, but one of risk, with too much of Samsung’s TV set panel purchases coming from one supplier a dangerous position that has hurt Samsung in the past. By increasing BOE’s share, Samsung can reduce Chinastar’s share and reduce its overall supplier risk.
OMDIA breaks out estimates for Samsung’s LCD TV set panel purchases for 2024 and this year, which we show below, along with our forecast of share under two BOE scenarios. Scenario A is our current forecast, using a conservative share for BOE, while Scenario B is more aggressive, with Samsung reducing Chinastar’s share by increasing BOE’s. It is too early to tell how this will play out and Samsung does not have to make a final decision yet but given the number of units Samsung is expected to purchase next year (40m+) the stakes are high.
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