Samsung Display – Juggling Act
Samsung Display (pvt), the display production arm of parent Samsung Electronics (005930.KS), has a few balls in the air. Early last year, after a year-long brutal decline in LCD panel pricing and increasingly aggressive capacity expansion by Chinese LCD producers, the company decided to end large panel LCD production. This entailed putting its Gen 8 LCD fab in Suzhou, China on the block and potentially shutting down all large panel production at its fabs in South Korea. Timing for this plan, which surfaced toward the end of March ’20, could not have been much worse given that TV panel prices began a very steady rise in prices that continues today. Toward the end of last year, the company changed its mind and has decided to continue large panel production, mainly for Samsung Electronics, at its remaining LCD fabs in Korea.
At the same time that SDC indicated that it would be shuttering local large panel production, it championed a new display process that combined OLED and quantum dot technology, which it planned to develop and offer by converting its L8-1 Gen 8 LCD fab to the new process. While SDC was looking to replace its large panel LCD capacity with this new hybrid, parent Samsung Electronics was not as sanguine about the technology and its ability to fill the production gap, and until recently there seemed to be a bit of a rift between the two over the change. Recent comments from the Korean trade press seem to indicate a more upbeat view from Samsung toward the project, but not only does SDC bear the technology risk of a new process, but might not have the full support of its largest potential customer.
However, the juggling continues to SDC small panel LCD and OLED display business, which, like a number of other suppliers, has lost a major customer, Huawei (pvt), who has seen its mobile business curtailed by US trade sanctions, leaving SDC with some idle small panel OLED capacity. At the same time, Samsung Electronics has been seeing relatively poor results from its high-end smartphone line, which is based on OLED displays, and better results from its mid to low-end smartphones, which are based on LCD to keep the BOM low. This is leading SDC to consider shifting production at its A2 fab from OLED smartphone display production to OLED notebook production, especially as notebook market demand has been exceptionally strong due to the COVID-19 pandemic.
The issue for SDC is whether they believe in the sustainability of notebook demand and a continuation of US sanctions against Huawei. If they make the necessary conversions to the A2 fab and Huawei’s smartphone business recovers, they will have lost the ability to add back Huawei as a small panel customer to a degree, having made a larger bet on the success of OLED notebooks, which would be affected by both the status of the pandemic (overall notebook demand) and the consumer’s willingness to pay a higher price for an OLED notebook. Samsung has already indicated that they expect to ship 2m OLED notebook units this year, up from 800k last year, but that doesn’t guarantee that customers will be as enthusiastic as the company.
SDC is still evaluating whether it will stick with QD/OLED technology or do more R&D on nano-rods, a substitute for the OLED portion of the new process, although a decision is expected next month, and questions remain as to whether parent Samsung will utilize the technology in either case, which leaves SDC to find a potential customer for the new process if Samsung does not adopt. Sony (SNE) has been said to be a potential customer for QD/OLED, as they are the 2nd largest consumer of large panel OLED displays produced by LG Display (LPL) (parent LG Electronics (066570.KS) is #1) and could use that fact to negotiate favorable pricing for QD/OLED with SDC, but we expect that SDC will already be dealing with a new and expensive process and will have very little price negotiating room unless it is willing to produce substantial losses,
All in, SDC has put itself, intentionally or otherwise, in a precarious position, with a number of decisions that need to be made relatively soon that could materially affect the company’s forward prospects. Making it more difficult is the COVID-19 issue that could swing demand in a number of possible directions as the year develops
At the same time that SDC indicated that it would be shuttering local large panel production, it championed a new display process that combined OLED and quantum dot technology, which it planned to develop and offer by converting its L8-1 Gen 8 LCD fab to the new process. While SDC was looking to replace its large panel LCD capacity with this new hybrid, parent Samsung Electronics was not as sanguine about the technology and its ability to fill the production gap, and until recently there seemed to be a bit of a rift between the two over the change. Recent comments from the Korean trade press seem to indicate a more upbeat view from Samsung toward the project, but not only does SDC bear the technology risk of a new process, but might not have the full support of its largest potential customer.
However, the juggling continues to SDC small panel LCD and OLED display business, which, like a number of other suppliers, has lost a major customer, Huawei (pvt), who has seen its mobile business curtailed by US trade sanctions, leaving SDC with some idle small panel OLED capacity. At the same time, Samsung Electronics has been seeing relatively poor results from its high-end smartphone line, which is based on OLED displays, and better results from its mid to low-end smartphones, which are based on LCD to keep the BOM low. This is leading SDC to consider shifting production at its A2 fab from OLED smartphone display production to OLED notebook production, especially as notebook market demand has been exceptionally strong due to the COVID-19 pandemic.
The issue for SDC is whether they believe in the sustainability of notebook demand and a continuation of US sanctions against Huawei. If they make the necessary conversions to the A2 fab and Huawei’s smartphone business recovers, they will have lost the ability to add back Huawei as a small panel customer to a degree, having made a larger bet on the success of OLED notebooks, which would be affected by both the status of the pandemic (overall notebook demand) and the consumer’s willingness to pay a higher price for an OLED notebook. Samsung has already indicated that they expect to ship 2m OLED notebook units this year, up from 800k last year, but that doesn’t guarantee that customers will be as enthusiastic as the company.
SDC is still evaluating whether it will stick with QD/OLED technology or do more R&D on nano-rods, a substitute for the OLED portion of the new process, although a decision is expected next month, and questions remain as to whether parent Samsung will utilize the technology in either case, which leaves SDC to find a potential customer for the new process if Samsung does not adopt. Sony (SNE) has been said to be a potential customer for QD/OLED, as they are the 2nd largest consumer of large panel OLED displays produced by LG Display (LPL) (parent LG Electronics (066570.KS) is #1) and could use that fact to negotiate favorable pricing for QD/OLED with SDC, but we expect that SDC will already be dealing with a new and expensive process and will have very little price negotiating room unless it is willing to produce substantial losses,
All in, SDC has put itself, intentionally or otherwise, in a precarious position, with a number of decisions that need to be made relatively soon that could materially affect the company’s forward prospects. Making it more difficult is the COVID-19 issue that could swing demand in a number of possible directions as the year develops
Ribchester, Lucy. “Sigma - Gandini Juggling's Homage to the Beauty of Patterns.” Edinburgh Festival, The List, 10 Aug. 2017, edinburghfestival.list.co.uk/article/93830-sigma/.
Aggregate TV Panel Pricing - 2019 - 2021 - Source: SCMR LLC, IHS, Company Data
RSS Feed