https://www.ft.com/content/2caf0bf4-a24e-11e6-82c3-4351ce86813fLG Display sets sights on ultra-thin TV screens despite losses
S Korean group faces challenge to swing lossmaking OLED unit into black
November 7, 2016
by: Song Jung-a in Seoul
LG Display, the world’s largest flat panel maker, is standing by its ultra-thin OLED television screen technology despite slow take-up by consumers and losses estimated at Won60bn ($53m) in the past quarter.
The company says it will convert more of its production lines from traditional LCD screens and predicts that its OLED division will be making money in three years and will account for half of all its revenues by 2020.
While rivals have steered clear of big investments in OLED TVs, Yeo Sang-duk, the president of LG Display’s OLED business, says that the new technology would save the company from a price war that is ravaging LCD manufacturing margins.
“We will focus our new investments on OLED because the LCD market is already saturating amid a worsening price war,” says Mr Yeo. “It is hard to differentiate our products with LCDs. We will lead the market with the OLED technology, to stay ahead of Chinese rivals ramping up their LCD investments.”
OLED, or organic light-emitting diode, panels have been touted as a next generation technology for flatscreen TVs. The screens are lighter, thinner and more flexible than mainstream liquid crystal display panels, promising an array of new options such as curved screens and TVs so thin they can be attached to a wall like wallpaper.
The technology is used widely for smaller screens, such as for smartphones, but it accounts for a fraction of the world’s annual sales of 230m TVs. Analysts estimate LG Display will sell just 800,000 units this year — mainly because manufacturing costs are so high. OLED TVs are three times more expensive than LCD TVs.
In the US, OLED TVs account for more than half of the premium market of 55-inch TVs priced at more than $2,000 and 65-inch versions above $3,000. Mr Yeo has forecast that they would comprise more than half of the premium market globally in a couple of years.
But analysts caution that it will be difficult for LG Electronics, the TV-making affiliate of LG Display, to expand the market beyond the premium niche unless costs come down and rivals such as Sony join the fray to give the technology a marketing boost.
LG’s rival Samsung Electronics has avoided making OLED models, saying the technology is not yet ready for mass consumption. Sony is interested in making OLED TVs for its PlayStation virtual reality business, however, according to analysts.
“It will be difficult for OLED TVs to reach the mass market at this price level,” says Kim Young-woo at SK Securities. “The high price tag remains a drag despite their quality.”
The difficulty was highlighted when LG Display reported a Won323bn operating profit in the July-September quarter, down 3 per cent from a year earlier. Analysts estimate that the company booked a Won60bn operating loss from the OLED business, taking a chunk out of a Won380bn operating profit at its LCD division.
LCD prices have recently rebounded, rising 15 per cent since July after falling about 20 per cent in the previous year.
“We’re now making up for OLED losses with LCD profits but we’re convinced that our future lies in OLED,” Mr Yeo says. “There are no entry barriers for LCD. But there are many technological challenges for large-size OLEDs. It won’t be easy for the Chinese to raise production efficiency without enough experiences and know-how.”
Mr Yeo predicted new uses for the product rolling out of LG Display’s expanding factory capacity. “We see so many future applications for OLED for VR devices, medical equipment, autos and aircraft, because OLED’s flexibility on top of high picture quality makes various designs possible.”
The prediction of profitability in three years is based on expanding a customer base that currently includes Philips, Panasonic, and Chinese companies Skyworth, Konka and Changhong.
The company is also improving production efficiency by reducing manufacturing defects and cutting investment costs by converting LCD production lines rather than building whole new facilities. Its OLED TV panel production capacity will double to 2m units next year.
LG Display has also belatedly turned its attention to the lucrative market for small-size OLED panels, announcing in July a $1.75bn plan to invest in flexible OLED panels for smartphones. Cross-town rival Samsung has dominated the small-screen OLED sector, producing panels for smartphones and other mobile gadgets.
