Tuesday, February 28, 2012

Samsung spinoff targets next big thing in displays: AMOLEDs

EL SEGUNDO, USA: While the spinoff by Samsung Electronics Co. Ltd. of its liquid crystal display (LCD) operations undoubtedly will boost the short-term competitiveness of the business, the long-term benefit may be domination of the next wave in display technology: the active matrix organic light emitting diode (AMOLED), according to the IHS iSuppli Display Materials & Systems Service.

Samsung last week said it will spin off its LCD business into a new company called Samsung Display Co. on April 1. The next move for Samsung Display Co. may be a merger with Samsung Mobile Display Co Ltd., a joint venture between Samsung Electronics and Samsung SDI Co. that makes both LCD and AMOLED displays.

“Samsung’s LCD division is the world’s second-largest LCD panel maker in terms of unit shipments, while Samsung Mobile Display is the top supplier of AMOLED displays,” observed Sweta Dash, senior director for LCDs at IHS. “A merger would allow the new company to combine its OLED expertise with internal prodigious experience and market influence in the LCD segment. Because of its myriad advantages, OLED represents the future of display technology, representing a huge growth opportunity in the coming years.”

Samsung Electronics in 2011 commanded a 22.9 percent share of the global large-sized LCD shipments, second only to LG Display, with a 25.8 percent share, as presented in Table 1. However, Samsung Mobile Display dominated the AMOLED space, with an 85 percent share, compared to 15 percent for LG Display.

While the AMOLED market is tiny compared to the massive LCD segment, the new technology holds the potential for much-faster growth given its emerging status compared to the mature LCD segment. Global AMOLED shipments are set to rise at a compound annual growth rate of 29 percent from 2011 to 2015, compared to 5.8 percent for LCDs.

AMOLED the beautiful
Compared to LCDs, AMOLEDs offer wider viewing angles, faster response times and lower power consumption. They also eschew the need for backlights, not only further reducing power consumption, but allowing for thinner, more attractive displays. Finally, OLEDs are compatible with flexible substrates, which will enable innovative new form factors that are not possible with LCDs.

AMOLEDs already have been used in large volumes in high-end Android smartphones. Furthermore, both Samsung and rival LG demonstrated 55-inch AMOLED TV prototypes at the Consumer Electronics Show in January, with these products set for introduction in the second half of 2012.

AMOLED panel production costs presently are considerably higher than for LCDs, especially for large-sized TVs that are 55-inches and bigger. Production of AMOLEDs is conducted only at Gen 4.5 and 5.5 fabs, which are capable of making only one to two displays that are 55-inches in size on one substrate. In contrast, 8.5-generation LCD fabs can make six 55-inch displays on a single substrate. This limitation is driving up manufacturing costs for AMOLEDs.

Furthermore, yields for the larger sized AMOLED panels are low—and the limited number of materials suppliers also is driving up costs. These means production costs and prices for 55-inch AMOLEDs will remain high for the next few years. However, companies are investing in AMOLED production and technology, which will drive down costs further in the future.

Leading the way is Samsung Mobile Display, which is making the largest investment in AMOLED manufacturing, with the company planning an eighth-generation fab in the second half of 2013.

However, LG Display, Chi Mei Innolux, AUO Irico and Tianma are all aiming to enter or expand their operations in the AMOLED market. LG Display’s current AMOLED capacity is limited to a 4.5 Gen fab, where the company is making panels for smartphones. However, LG also plans to commence operations at its own eighth-generation AMOLED fab in 2013.

Rear-guard action in LCDs
In addition to merging with Samsung Mobile Display, Samsung Display Co. may combine with S-LCD in an effort to shore up its flagging business in television LCD panels.

S-LCD was established in 2004 as a joint venture between Samsung and Sony Corp. to operate 7.5-generation and newer fabs to produce large-sized television panels. In late 2011, with its television business having become unprofitable, Sony decided to end its seven-year collaboration with Samsung.

This left Samsung as the sole owner of the S-LCD fabs—at a time when television sales growth has slowed markedly. Because of this, the S-LCD fabs now have lowered their utilization rates in order to reduce production. Still, Samsung Electronics may be able to breathe new life into S-LCD by making it part of the independent Samsung Display Co.

“Samsung Display Co. can operate independently, offering panels without the baggage of being so closely associated with the Samsung Electronics brand,” Dash said. “The independent company will have the capability to develop its own innovative products, expand its customer base and establish strategic partnership with other brands—some of whom are direct competitors of the Samsung brand.

Currently, the majority of Samsung’s LCD panels are used internally, although it also has other customers such as HP, Lenovo and Apple. This restructuring will allow the new company to attract a larger number of customers from smartphones, to tablets, to notebooks, to monitors, to televisions. This is essential for the company to make the most efficient use of its fab capacity and to cash in on future growth in the display industry.

Also, the Samsung Electronics brand can still continue to use displays from Samsung Display Co.—but now has the option to buy even more panels from other suppliers.”

Restructuring an unprofitable business
Such a restructuring is essential for Samsung, given that it and other LCD panel suppliers have been losing money for the last four quarters due to the global economic slowdown. There has been slow growth in the consumer electronics market—especially television. This, combined with the over expansion of fab capacity and fierce competition among panel makers, has led to below-cost panel pricing and loss of profitability.

Prior to 2011, Samsung’s LCD business unit had predominantly been profitable, buoyed by rising demand for LCD TVs in particular. In 2010, the LCD unit recorded an impressive operating margin of 6.7 percent, with annual revenue growing to 30 trillion Korean won. This changed dramatically in 2011, with the division recording four straight quarters of unprofitability, leading to an operating loss of 750 billion won in 2011.

Tablets leading the way
More new suppliers from China are starting to enter the LCD market with new Gen 8.5 fab capacity. Because of this, the industry is bracing for more competition and further price erosion in the coming years.

In order to reduce losses and improve profitability, LCD panel suppliers are shifting production at larger fabs— including sixth-generation and 8.5-generation fabs—away from television panels and toward more the more profitable tablet and smartphone applications.

The merger of Samsung Display Co. with Samsung Mobile LCD and S-LCD will allow more efficient and perhaps more profitable ways to use fab capacity.

Source: IHS iSuppli, USA.

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