Fear and Trembling: LG Display faces the axe for OLED burn-in and market squeeze The Release May 29, 2019 LifestyleAfter seven years of ignoring the warning signs, LG Display’s OLED TV panel business is facing a reckoning by LG Group’s leadership and the market as rival Samsung jumps to MicroLED and QD-OLED panels.LG Display has made some big promises for this year. It plans to move 4 million OLED TV panels in 2019, after shipping 2.9 million panels last year. But behind the big boasting, there is now fear. The company is the world’s largest Liquid Crystal Display (LCD) maker, which is still its mainstay, but LCD prices have dropped to a point where it is hitting the firm hard. Then there are the disastrous profits; its annual operating profit in 2018 fell 96.2% from the previous year. It went into the red for the first quarter of this year. And while its OLED TV business made a profit for the first time this year, it was only a meagre one. Sales of the OLED TV have also opened slower than expected, and the general feeling within the company is that it has pushed itself into a corner. Meanwhile, archrival Samsung Electronics has taken advantage of the LCD price drop. Its quantum dot (QD) layered LCD TVs, dubbed QLED by the firm, have performed better than market expectations. This was followed by Samsung in 2018 introducing its MicroLED TV offerings, which are comparable to OLED in terms of black levels. As a nail in the coffin, Samsung Display then confirmed earlier this year that it was developing quantum-dot organic light emitting diode (QD-OLED) panels. When the news of QD-OLED first came out, there was disbelief within LG and then panic, according to LG insiders.LG’s OLED TV has been a near-decade in the making and has already been in the market for seven years. Going forward, LG’s biggest short-term fear is that its rival Samsung will effectively take over the LCD market from the product-end with QLED. In the long-term, LG faces humiliation if Samsung successfully launches its QD-OLED on the OLED ecosystem that LG effectively built on its own. As the old saying goes, one man sows and another man reaps.LG’S OLED BETLG Display and LG Electronics have taken huge bets on large-sized OLED panels since 2012. They needed an edge to surpass rival Samsung Electronics, which has topped TV sales since they beat Sony in 2007. LG, shamefully, has been labelled as the perpetual number two. So when Samsung pulled out of using OLED in 2014, moving to using QD-LCD panels instead for its flagship TVs, LG was eager to win applause for holding its ground and having aspirations to make the technological breakthroughs its biggest rival had failed to do. Samsung’s logic at the time of pulling out of OLED TV panels was one influenced by technology and profits. The leadership had ultimately concluded the “blue pixel problem” — OLED pixels have a shorter light span than others that cause the infamous permanent image retention, or “burn-in” — couldn’t be solved in the short-term. Samsung believed OLED was deemed more suitable for smartphones, which have smaller screens, shorter product life-cycles, and consume less power, as it did not face the same issues faced by TVs. Additionally, the LCD industry, which Samsung and LG built together by surpassing Japanese and Taiwanese rivals over the span of 20 years, was still profitable. The decision was fiercely debated, even among the top brass, before it was ultimately made.LG, meanwhile, took a different route. While it couldn’t solve the blue pixel problem, the company introduced white OLEDs. By using a grid comprised of white OLEDs, LG could overlay a series of colour filters to produce four subpixels: red, green, blue and white. The aim behind using white OLEDs was to protect blue pixels from aging. Samsung lampooned its rival, saying a panel with white pixels was not “true OLED” as it broke the sacred triumvirate of RGB: red, green, and blue. But the move by LG Display had the full backing of the leadership of LG Corp at the time, the holding company of the business group. LG was falling drastically behind in the smartphone race. It needed a win. The decision to hang onto OLED was due to pride just as much as it was for taking the long-view. For LG, OLED in TVs was deemed the future. LG Electronics’ OLED TVs from 2015 onward would receive rave reviews, and deservedly so. LG Display was making record profits — though not because of its OLED TVs, but because of the still robust LCD market. OLED was in fact a detriment to profits until early this year, with the South Korean display giant having invested billions into improving the yield rate of large-sized OLED panels.THE 4TH GENERATION SHAKE-UP BEGINSThen, LG Chairman Koo Bon-moo, aged 73, passed away in May last year. His son, Koo Kwang-mo, would shortly take over as chairman and CEO of LG Corp, becoming the fourth-generation leader of South Korea’s fourth largest business group. Many predicted there would be a “honeymoon” period where the younger Koo would hold off on restructuring changes and choose to keep the old guards around for council. These predictions were wrong. The younger Koo swiftly nominated Kwon Yong-soo, then-CEO of the group’s telco subsidiary LG Uplus, to be co-CEO and vice chairman of LG Corp, which made him the official second-in-command of the entire business conglomerate. Kwon’s career speaks for itself. He is known as a keen strategist within LG that makes bold bets with the long-term view in mind. He has also been called competitive and a pragmatist. During his tenure as CEO of LG Display, when Apple and Samsung were at heads over the copycat issues that eventually resulted in lawsuits from 2009 to 2011, Cupertino drastically reduced its purchase of its rival’s components. Kwon used that vacuum to woo Apple into buying LG Display’s LCDs for smartphones instead. He was also the boss who ultimately decided to bet big on OLED panels for TVs — in a way, this is his legacy. LG Display prioritised large-sized OLEDs over small to mid-sized ones with the expectation that OLED would be adopted in TVs faster. It was a sensible decision, at least at the time. Afterwards, he headed LG Chem’s electric battery business for cars. The company’s battery business as of today, is bigger than that of rivals Samsung SDI and SK Innovation. Then, he moved to LG Uplus. Last year, LG Uplus became the first among local telcos to bring Netflix to subscribers. In March this year, Koo, in a statement read out by Kwon in LG Corp’s annual shareholders’ meeting, announced the firm would make “pre-emptive measures to take the lead in the fast-changing market”. On the same day, Kwon was named Chairman of the Board of LG Electronics, LG Display, and LG Uplus. In effect, the measures translate to the CEOs of all three companies now needing to answer to him. All three businesses are considering restructuring changes, but the key among them is LG DisplayWith Kwon at the helm, the group has already used its surgical scalpel to commence changes at LG Chem, after the battery subsidiary blindly allowed third-place SK Innovation to make inroads into China. Earlier this month, LG Chem sued SK Innovation for stealing trade secrets in the US. Despite these setbacks, LG Chem is still the world’s largest electric car battery maker and LG Electronics’ home appliances business has made record profits. Meanwhile, LG Electronics last month announced it would no longer produce smartphones in South Korea and make them in Vietnam, a move designed to cut costs. LG Display, however, faces a serious problem. Over the past three years, its rival Samsung has not only broken even in revenue and profits, but has shown signs of getting ahead. What is more concerning however, is that unlike its sister subsidiaries, it seems the company has no “Plan B” for its display business. The company is facing a chilling deadline from the group’s leadership and market.SAMSUNG RETURNS THE FAVOURSigns of a reversal of fortune back towards Samsung first came in 2016, when Apple signed a mega-deal to order 100 million OLED panels from Samsung for its smartphones. The deal was a symbolic win for Samsung over LG because it showed the former’s bet that the smartphone market would open up first for OLED panels before TVs was correct. Today, Samsung, Apple, and Huawei all use OLED panels for their flagships. In TVs, Samsung was losing the battles but its appears the company is now winning the war. Ultimately, Samsung’s QD-LCD, which was renamed from SUHD to QLED in 2017, proved to be another sound business decision by Samsung over LG as the years have gone by. Since 2017, LCD panel prices have taken a nose dive, thanks to the drastically increased production capacity and quality of Chinese rivals, spearheaded by BOE. Due to the lowered prices, Samsung, which retained its traditional manufacturing facilities for LCDs with little increase in overhead, has been buying LCDs cheaply and selling them at a premium with the addition of quantum dots. LG, meanwhile, has taken a beating from the LCD price drop without gaining any meaningful defence from its OLED TVs due to the latter market not yet hitting scale. Read more: Samsung predicts it own over half of 8K TV market share in 2019Samsung also made a fateful decision in 2017. BOE was investing in a 10.5th generation LCD line that began production in 2018. Around the same time, Samsung Chairman and then-CEO, Kwon Oh-hyun, rejected Samsung Display’s proposal to expand its 8th generation line as there was no guarantee of a return in investment with the drop in LCD prices, according to sources. For displays, the generation reflects the size of the glass substrate: the higher the generation number, the larger the substrate is. Large substrates drastically reduce production costs, especially for large-sized panels, as more panels can be cut out of it with fewer leftovers. Kwon’s rejection was as much of a nod to BOE’s lead as well as a rejection to only sticking to industry standards for LCDs. Samsung Electronics would make profits from the LCD downturn by selling them at a premium price with a QD layer while Samsung Display would be tasked with finding forward-looking solutions, which resulted in QD-OLEDs.LCDs are essentially commodities, not unlike memory semiconductors, so its value will follow an up-cycle and down-cycle pattern, with another up-cycle expected to arrive after an adjustment of the players. But profitability mirroring its golden days, when it bashed out Plasma Display Panels and CRT after the turn of the century is not likely to return. IHS estimates that LCD panel prices will have a global average cost of $508 for the first quarter of 2019. That figure is expected to decline, with the average global price of LCDs for the fourth quarter of 2023 expected to be around $393. In technology, Samsung also took advantage of LCD’s strength: brightness. One of the traditional strengths of OLED over LCD is the aperture ratio, or how much light can actually come of a display area. Because OLED can emit light on its own, it is easier to secure brightness compared to LCDs. But the downside is, to take advantage of the higher aperture ratio and increase the brightness you need more electricity, and the increased power consumption leads to the diode’s life span shortening — another cause of “burn-in”. This is exasperated when you want to increase the picture quality, from Full HD to UHD, to 8K, and so on as it requires more and more power. So Samsung amped up the brightness to its maximum capacity for its QLED TVs, with LCD TVs being able to handle the required power surge without any problems. This is also the reason why Samsung was able to launch 8K resolution TVs earlier than LG. Samsung’s 8K TV are already commercialised, while LG is planning to launch its 88-inch 8K OLED in the second half of this year. These moves by LG and Samsung reflect the market share changes of the past three years. Up until 2017, LG seemed to be closing the gap against its chief rival Samsung in the TV market. In 2016, Samsung controlled 28% of market share in terms of revenue, while LG and Sony had 13.6% and 8.5%, respectively, according to IHS Markit. In 2017, when Samsung introduced the QLED brand, it took a beating and its market share dropped to 26.5%, while LG and Sony clinched 14.6% and 10.2%. But in 2018, Samsung made a huge comeback with 29%, while LG clinched 16.4%, and Sony 10.1%. What at first seems odd is that in terms of quantity, Samsung’s market share dropped from 21.6% in 2016, to 20% in 2017, and then to 18.7% in 2018. LG, meanwhile, flat-lined at 12.2% in 2016, 12.6% in 2017, and 12.2% in 2018. Essentially, this means that both conglomerates have been losing, or rather intentionally giving up, customers who are purchasing LCD TVs in the low-end. But in turn, both companies are making lots of revenue from their premium QLED and OLED line-ups. QLED and OLED may be based on different technologies, but both are clinching high-end consumers, putting the “which is better debate” to rest, at least in terms of profits and consumer interest. Samsung’s profitability in the super high-end market has also been higher than its rivals. Samsung and LG are keen students of history. Though their choices have been drastically different, the business choices from both companies over the past three years have been largely focused on safeguarding against emerging Chinese companies, which is strikingly similar to the way they defeated Japanese titans of old. But unlike Sony, which held onto its CRT legacy a little too longer than it should have, Samsung and LG have reviewed their own histories and are making bold bets to graduate from LCD. Well, at least Samsung has, it seems, but LG faces many tough decisions going forward.THREE HORSES AGAINST ONE: QLED, MICROLED, QD-OLED AGAINST OLEDIn an uncertain future, hedge your bets. Samsung is definitely doing just that, with the triple push of QLED, MicroLED, and QD-OLED technologies. Not only that, the South Korean tech giant is also making this a horse race between its own businesses: Samsung’s Visual Display (VD) business, a part of Samsung Electronics, is pushing QLED and MicroLED, while Samsung Display is investing in QD-OLED. This is a Samsung “tradition” that dates back decades. In the 2000s, when it was unclear whether LCD or PDP would rule the next decade of TV displays, the conglomerate did both. Samsung Electronics headed LCD and Samsung SDI, the group’s component making arm, focused on PDP and later manufactured and sold the TV themselves. These parallel and competitive developments are sound, because the future is extremely uncertain and the display market is fragmented like never before. Apple and Foxconn are reportedly developing MicroLED panels, but are focusing on small devices, rather than TVs. There are reports that Sharp, now owned by Foxconn, is researching large-sized OLED panels, not just the small-sized ones it wants to woo Apple with. Besides these companies, in the display market, there are BOE, Innolux, HannStar Display, AU Optronics, Japan Display, and Panasonic. On the TV set-side, there is Sony, Philips, TCL, Skyworth, Hisense, Toshiba, Haier, Changhong, Vizio, Sanyo, Hitachi, Pioneer, and Mitsubishi, among others involved in the LCD industry. It’s really hard to tell what innovative solution will become the next-generation TV technology, because, despite LG’s large-sized OLED push, it does not have an ecosystem like the one for LCDs, especially since there are few vendors making them.All-in-all, QLED TVs are doing their job: defending profitability in an uncertain market. It has LG worried enough to launch what it calls the NanoCell TV, which adds colour filters on its LCDs. Samsung’s strategy on MicroLED seems mixed — it has a 219-inch version aimed for enterprise, as well as a 75-inch version aimed at the home market. The 75-inch version showcased this year is significant compared to when it first launched one at 149-inches in 2018, because it means the South Korean tech giant is succeeding in miniaturizing the LEDs. MicroLED uses individual LEDs as pixels, meaning the smaller Samsung can make them, the more pixels it will be able to pack in the same space. The reduction of size also drastically reduces costs — the biggest obstacle of mass commercialisation for the technology. Sony has followed suit by unveiling its own innovative TV screens too, and what is impressive about these are that they can be made at all. CHINA IS THE WILDCARDLG Display, meanwhile, really has no hedge. It is just OLED, and those aimed at TVs. LG Display’s goal of shipping 4 million units in 2019 comes partly from its bet in China. OLED TV panels accounted for 20% of its total panels aimed at TVs last year and its goal is to reach 30% this year. To be fair, this is not an unrealistic goal. The company enjoys having its affiliate LG Electronics as the main supplier which still has growth potential. According to IHS Markit, 3 million square metres in surface area’s worth of OLED TV panels were shipped in total last year, which was an increase of 65.6% year on year. For comparison, the total industry’s LCD TV panel shipment grew 10.7%, but it is considerably larger at 145 million square metres. But for the LG OLED bet to ultimately pay off, Chinese companies will have to be won over. Samsung Electronics, the world’s biggest TV vendor for 13 years now, will never buy them from LG. Philips is buying OLED, but it is a non-contender for the top spots in the Chinese market. Japan’s Sharp, Panasonic, and Sony are also buying OLED panels but these companies are mostly localised players. Chinese companies will be key in this respect, especially the trail-blazing TCL and Hisense.LG Display, despite setbacks caused by the South Korean government in setting up its factory in Guangzhou, China — due to trade secret-leaking fears and opposition from nationalistic citizens — has successfully commenced the development of large-sized OLED panels over there. The move was done largely to appease its local clients who tend to insist that production facilities are built in China for logistics and cost reasons. Over 5 trillion won has been earmarked so far for the factory’s production. LG’s OLED, despite its recent price drop, is still relatively very expensive compared to LCD — especially those made by Chinese companies. Chinese TV manufacturers even put Apple to shame in terms of cutting costs on components and logistics due to the fierce inter-rivalry among compatriot firms. While there are OLED TV models being sold at under $2,000 in the Chinese market, LG has the tricky task of balancing profits with scaling volume in the context that its LCD sales will not contribute as much in profits as before. Additionally, as the rise of BOE has shown, Chinese tech giants are more than capable and willing to conduct their own research and development to become self-sufficient in components. LG Display’s own history is a great example of a company doing this. “Twenty years ago, they bought our TVs. Then, ten years ago, they began buying just the LCD panels and the modules. A few years after that, they no longer needed the modules and bought just the LCD panels. Now the manufacturers there make LCD panels just as competitive as it is made anywhere else,” said a senior executive of the company, who requested anonymity due to the sensitivity of the issue. It also contrasts oddly not just with Samsung, but with most global tech giants moving their production facilities to Vietnam or other emerging economies. One important reason for these moves being made, besides cost-cutting, are technology leaks. Nonetheless, it would be a great short-term coup for LG, because the relative scarcity of OLED TV panels, a mere 3 million-square compared to LCD’s 145 million, means price drops will plateau at a higher price point compared to LCD. Profitability will drop but the ecosystem will grow, possibly even drastically over the next two to three years. AND IT KEEPS BURNINGBurn-in — this is where things can get ugly. Samsung Display is expected to begin QD-OLED production in 2020, with Samsung Electronics expected to launch a commercial product in 2021 that will almost certainly be a flagship model. So even if LG successfully increases its own sales of OLED TVs and woos Chinese clients, its bigger rival will be able to swoop into the ecosystem when it starts to flourish. Another pain-point for LG will be that Samsung’s QD-OLED will actually use the “problematic” blue pixel as its light source and use red and green QD colour filters that in theory, decrease the chance of burn-in. If Samsung’s QD-OLED is able to achieve this, and avoid burn-in, the panels will actually be able to show “true colours” as it will not use white pixel filters. One reason LG’s OLED burn-in is more noticeable is because of the use of different light sources for blue, red, and green. Blue pixels dies quickly as it becomes noticeable from the contrast. Samsung’s QD-OLED will only use blue pixels as light emitters, so there is no anomaly; they all die or live together, at least theoretically. The company will likely capitalise on the quantum dot filters to bring out strong colours while avoiding the blue pixel’s high power consumption as much as possible.But Samsung is in no hurry, according to company insiders, and its investment schedule for QD-OLED is still very flexible. QLED TVs are actually fairing far better than Samsung’s own estimations and internally, the company is projecting new models launching this year and in 2020 that are expected to fair even better than those released in 2018. “We really don’t have plans to launch OLED TVs for the next couple of years,” said a senior executive at Samsung’s VD Business, who declined to be named. “Our own projection for QLED TVs for this year is over 5 million units. We have plenty of time to consider OLED TV panel’s yield rate and address the burn-in problem, that is, if we decide to launch OLED TV at all in the future.” It’s been seven long years since LG first commercialised OLED TVs, and the blue pixel continues to die, causing burn-in, even on the models launched in 2017 and 2018. This indicates two things: firstly, LG cannot solve the blue pixel problem; and secondly, though it may have short-term solutions, any gains in these areas are offset by the fact that TV resolution and feature such as HDR are taxing the TVs for more power, causing the blue pixel to die anyway. If the victim here was solely LG Electronics, it would not be that serious of a problem, but it now has an ecosystem to think about. LG Display has wooed 15 manufacturers to its so-called “OLED alliance”. As more and more of these companies buy OLEDs in bulk, incidents of burn-in will likely rise going forward, and any incident can be a “deal breaker” or a pretext for clients of LG Display to renounce the company for a better deal. LG has put all of its chips into this ecosystem, and it doesn’t have an alternative option. Samsung’s triple technology push meanwhile, gives it a wealth of options to market its TVs; if QD-OLED technology makes a breakthrough before MicroLED, it can push QD-OLED for consumers and the other for enterprise. If QD material prices keep going down, which is likely as the company is extending its application to monitors, it can be relegated to a mid-range technology. Samsung has previously confirmed that it was also researching QD-MicroLED. The worst case scenario for LG would be if Samsung commercialises QD-OLED just as OLED panel prices start to drop to a manageable level.LG Display has pushed itself into a corner with its OLED one-trick pony. The company’s singular drive to push OLED in TVs has blinded it from the LCD price drop and burn-in incidents, that in hindsight, has forced it onto a tight-rope for the next few years. According to LG insiders, the company has already commenced cost-cutting efforts since Vice Chairman Kwon became chairman of the board in March. Unless the innovative rollable version of OLED showcased at CESbecomes massively cheap within a few years, the OLED conundrum will keep burning. Share this:Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on Google+ (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on WhatsApp (Opens in new window)Click to email this to a friend (Opens in new window)Leave a Reply Cancel ReplyYour email address will not be published.CommentName* Email* WebsiteSave my name, email, and website in this browser for the next time I comment. This site uses Akismet to reduce spam. Learn how your comment data is processed.