SEOUL— Billboard manufacturers in South Korea are in trouble.
LG Display, the world’s largest manufacturer of liquid crystal displays, recorded a loss for the year-end last December, while Samsung Electronics plans to completely withdraw from the business of large LCD screens.
“The game’s over. We are no match for the Chinese in LCDs,” said an official at a flat-panel parts maker in South Korea upon hearing the news of Samsung’s pullout in late March, voicing a widely held view among local suppliers and analysts.
To survive, both manufacturers are banking on more advanced technologies, such as organic light-emitting diode panels. But Chinese manufacturers are catching up.
South Korean makers, which previously overtook their Japanese rivals with ambitious investments, are now at risk.
LG Display had placed its hopes in supplying OLED panels to Apple for the new iPhone. He has been making panels for the Apple Watch since its release and also wanted to provide larger, high definition panels for the iPhone. But Apple has refused to compromise on quality.
“This level of quality cannot be used on the iPhone.” This verdict from an Apple QA manager last summer left OLED engineering staff at LG Display stunned. The September 11 release of the iPhone 11 was upon us.
The root cause of LG Display’s miscalculation was overconfidence. The company initially planned to crank out large numbers of panels for the iPhone at a plant in Paju, South Korea.
LG Display began outsourcing to other companies, such as U.S.-based Applied Materials and Kateeva. LG Display was able to supply Apple with the needed components after a short delay, but the quality was uneven and deliveries did not grow as expected. That led to a slowdown at the Paju plant, causing the company to incur a one-time loss of 1.4 trillion won ($1.15 billion) in the 2019 October-December quarter.
“The [facility’s] future value does not match its book value,” Chief Financial Officer Seo Dong-hee said at the time. But shorn of accounting jargon the fact remained: LG Display’s technology did not meet Apple’s standards.
BOE Technology and China Star Optoelectronics Technology are increasing market share in large LCD panels used in TVs. BOE and Tianma Microelectronics are doing the same in small and midsize panels for smartphones.
BOE, China’s largest panel maker, is building new factories at the rate of one a year, fed by government subsidies. For large LCD screens, its technology is already comparable to that of Sharp and Samsung. Tianma, which bought NEC‘s LCD business, is making inroads in the market for small and midsize panels for smartphones.
According to U.S. research company Display Supply Chain Consultants, LG Display still holds the top share in large LCD panels, at 24.2%. But BOE, with 19.7%, is closing in. In terms of total production capacity, China surpassed South Korea in 2017.
Samsung is also feeling the heat and said on March 31 that it will halt the production of large LCD panels for TVs. Samsung is moving upmarket, focusing on next-generation quantum dot OLEDs. The company plans to invest 13.1 trillion won in the technology and will start mass production at Tangjeong and other factories.
Samsung will cease operations at its LCD panel factories in South Korea and China at the end of the year. Among the South Korean plants calling it quits is one in Tangjeong. The plant, which began as a joint venture between Samsung and Sony, had been a symbol of Samsung’s LCD prowess in the 2000s, helping make Samsung the world leader in LCD TVs.
Ten years ago, LG Display and Samsung supplied half the world’s LCD panels, and the two vied with each other for the top spot globally. But as the Chinese close in, both South Korean panel makers are at a crossroads, with LG Display in particularly dire straits.
“The very survival of the company is at stake,” said LG Display CEO Jeong Ho-young. Declining profits in its LCD panel business pushed it into a 2.87 trillion won net loss for the year ended December. That was the company’s second consecutive annual loss and a 16-fold jump from the previous year’s loss of 179.4 billion won.
The company’s strategy of staying in all four major market segments backfired because of the amount of investment required. LG Display now aims to return to quarterly profitability in 2020 by ending production in South Korea of LCD panels for TVs and cutting payroll.
For the mass production of OLED panels, even more, capital investment will be needed than for LCD panels. Compared with Chinese companies, which benefit from government largesse, and Samsung, which is supported by its semiconductor business, LG Display has less money for investment.