By Seo Jeong Yun WIRED Korea
A rebound in price, albeit small, should be welcome news to Korean display makers that find themselves in a slump. But the display manufacturers do not pay much attention to the price increases, with market watchers predicting that they will be short-lived.
The average price of 65-inch LCD panels had a month-on-month increase of 0.6 percent to $177 this month, while that of 55-inch panels marked a 0.9 percent increase to $112, according to a report from an LCD market research firm, WitsView Technology. It was the first monthly uptick since April 2017.
Instead of living in a false sense of euphoria, both LG Display and Samsung Display say they will continue to downsize the manufacture of low-end products and move on to the production of technology-intensive, next-generation displays.
For both LG and Samsung, 2019 was a painful year, with a glut of LCD panels driving down the prices in the world market.
Last month, LG reported an operating loss of 421.9 billion won on 6,421.7 billion won in turnover in the final quarter of last year. It also said the 2019 turnover dropped 4 percent from the previous year to 23,475.5 billion won. The company’s aggregate losses were posted at 1,359.3 billion won.
The debt ratio, or the ratio of total debt to total assets, shot up from 161 percent in the third quarter to 185 percent in the fourth quarter.
Also worsened was the ratio of current assets to current liabilities, a measure of the company’s ability to pay off short-term debt. Other indicators also deteriorated.
LG said the bottom line went down when it wrote off impaired assets in the wake of restructuring.
Samsung fared better, but not too much. Unlike LG, it did not suffer a quarterly operating loss. Instead, it had an operating income of 220 billion on 8,050 billion won in turnover in the final quarter of 2019.
But it gave Samsung no solace. The operating income represented a mere fraction of the 970 billion that was posted in the final quarter of 2018.
The downturn in the global display market is closely related to the rapidly expanding presence of BOE and other Chinese makers, whose market share more than doubled in five years from 10.5 percent in 2013 to 25.1 percent in 2018. It further expanded to 30 percent in the first half of 2019.
Government subsidies, which were provided in the initial stage, helped Chinese makers roll out low-priced LCD displays and catapulted them to the position of leading global players.
In contrast, Korea’s display market share dropped 42.6 percent in 2018 to 39 percent in the first half of last year. The change reflects the fact that LG and Samsung have lost their comparative advantage in LCD panels. They need to focus on new technologies and move up to high-end products such as OLED and Quantum Dot displays.
The global display market has started to reshape as technology advances and the demand for new products with higher resolutions is on the rise.
As a result, the global market share of LCD panels, which stood at 78.8 percent in 2018, slightly fell to 75.6 percent last year.
The slide will accelerate in the years ahead, according to a report from the Korea Display Industry Association, which projected the LCD market share will fall to 68.4 percent this year and 55.3 percent in 2025.
Against this backdrop, both LG and Samsung are speeding up restructuring, focusing on high-end products.
LG, which is moving out of its LCD operation, slashed its payroll by 3,000 jobs in 2018 and another 2,500 last year. Now it is focusing on large OLED panels for TV displays and “pOLED” panels for smartphone displays, with “p” denoting plastic used as the substrate instead of carrier glass.
For TV panels, it is planning to put its OLED fab in Guangzhou, China, in full operation during the first quarter of this year. The new factory has a monthly capacity of 60,000 substrates, which LG says will be expanded to 90,000 by 2021.
LG, which debuted pOLED panels in 2017, has been upgrading the products regarding their production as a potential growth engine. CFO Seo Dong-hee, apparently with critical reviews on earlier products in mind, acknowledged the pOLED operation is not an easy one. Yet, he said that LG will continue to focus on it because it is still a promising one.
All these efforts, LG says, will turn its operating loss to an operating income this year.
Samsung has a different strategy for tiding over the current downturn, focusing on the diversification of high-end products. It is planning to meet an increasing demand for foldable phone displays, large 8K-resolution TV panels and premier monitors, such as curved and gaming displays.
“This year, we expect that the use of OLED panels will be in full swing, as a growing number of people will adopt 5G-enabled smartphones this year,” said a Samsung official. “We will actively promote them, based on our differentiated technologies and a competitive edge in pricing.”
Samsung’s main focus, however, will be placed on the production of 65-inch or larger Quantum Dot displays. The company plans to invest a whopping 13.1 trillion won on the construction of Quantum Dot display production lines in its Asan fab by 2025. The new production lines will roll out 30,000 substrates per month when they go into operation nesxt year.
With display prices predicted to fall during the second half of this year, it is yet to been how LG and Samsung will surmount the gloomy prospect.
Kim Dong-won, an analyst with KB Securities, is quoted as saying that Chinese display makers will expand their LCD supplies, pushing down their prices during the second half of this year.
In his opinion, LG and Samsung will have to continue restructuring their business operations geared for high-end OLED products, given the worsening market condition for the LCD market.
The above is a translation of Seo Jeong Yun’s Korean-language article by Choi Nam-hyun, deputy editor in chief at WIRED Korea.