|Samsung Catching the OLED Wave, Spinning Off LCD Business|
By Jennifer LeClaire
February 20, 2012 5:32PM
By making this move, analyst Rob Enderle said Samsung is essentially saying, "OLEDs are the cash cows of the future and LCDs are obsolete." Samsung is keeping the company on the cutting edge with OLEDs. "This move is kind of a nail in the coffin in LCDs," Enderle said, and it's quite a bit earlier than anybody would have thought.
Samsung Electronics is making a bold, competitive move in the TV space. The company plans to spin off its unprofitable LCD business into a newly formed subsidiary called Samsung Display Company. The company's focus will then shift from manufacturing LCD panels to OLED displays.
As Samsung sees it, an independent operation specializing in display panels will give its LCD business a better chance to grow. Samsung expects the move to strengthen it competitiveness by beating competitors to the OLED punch.
"Currently, the display market is undergoing rapid changes with OLED panels expected to fast replace LCD panels to become the mainstream," the company said in a statement. In light of this key change in the industry, Samsung said restructuring its display business will help improve its competitiveness.
The Rise of OLEDs
Samsung may have felt compelled to do something -- and fast. The cost of manufacturing LCD panels is overtaking the profits. Samsung posted an operating loss of nearly $900 million in its LCD business in 2011. DisplaySearch predicts the market for OLED TVs will hit $20 billion by 2018 while the LCD market will decline by 8 percent to $92 billion by 2015.
"Samsung is one of the companies driving this market. By making this move, they are saying OLEDs are the cash cows of the future and LCDs are obsolete. Samsung is keeping the company on the cutting edge with OLEDs," said Rob Enderle, principal analyst at The Enderle Group. "This move is kind of a nail in the coffin in LCDs and it's quite a bit earlier than anybody thought manufacturers would make this call."
LG caught attention in January when it showed off the world 's largest OLED TV panel at 55 inches. LG is betting its innovation will drive forward the popularity of OLED TVs by demonstrating a cost-effective working application of the technology for larger panel sizes.
"LG had the 55-inch OLED showcase and that was probably an early warning. Like Samsung, LG is also a Korean company and the Korean companies are very competitive with each other," Enderle said. "This could be a way for Samsung to steal some momentum from LG."
Disrupting the Market
In December, Samsung announced plans to acquire all of Sony's shares in S-LCD, a joint venture that manufactures LCD screens. Samsung will pay Sony $934 million for the assets. Under the terms of the deal, Samsung and Sony entered into a new strategic agreement that aims to increase the competitiveness of both companies. Specifically, Samsung will provide LCD panels for Sony televisions.
"Sony was the first to market with an OLED set. But the sets were very expensive and very small and they lost half of their brightness in the first year. That showcased the real weakness in OLED," Enderle said. "By spinning off this group and going with OLEDs, Samsung has leveled the playing field again, though now it's going to be a race. You could argue that Sony has more experience in the OLED space because they had product in market first."
Enderle said he would not have expected a market leader like Samsung to make such a bold move. He would rather expect Samsung to protect its market leadership in LCDs. By spinning out a new company, Samsung could put that market leadership at risk -- but it could also make Samsung the first in OLEDs.
"If Samsung guessed right, they are on a stronger path to corner this market," Enderle said. "In terms of risk, this is an unusual level for a company Samsung's size. This could within 24 months result in a major market disruptive."