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Samsung: Could QLED Revive Its Display Segment?

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Oct. 11 2019, Published 2:18 p.m. ET

Samsung Display, a unit of Samsung Electronics (SSNLF), announced an $11 billion investment in QLED research and development by 2025. The company plans to upgrade to QLED or Quantum Dot LED, an advanced next-generation display.

Samsung wants to move away from LCD panel production. In August, The Elec reported that Samsung had shuttered its LCD production line in South Korea in a gradual shift toward large-sized OLED panels.

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Samsung to take display technology a notch higher

Android Central reported that Samsung would receive $336 million from the South Korean government to invest in a quantum-dot display facility. Set to commence in 2021, this quantum-dot production line is set to be built in Asan, which is south of the Seoul metro area.

Gizmo China reported yesterday that the facility would have the initial capacity to manufacture 30,000 panels per month. These panels would be larger than 65 inches. Slowly, production is expected to scale up and result in 81,000 jobs.

The lower demand for smartphones and TVs has led to an oversupply situation, which is pressuring Samsung. As Samsung has grappled with these issues for a while, we believe that an investment in facility upgrades is the best way to overcome this. Moreover, rising competition from its rivals also prompted the move.

Yesterday, Samsung noted, “Our company plans to overcome the crisis of the large-scale display industry through active investments.”

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Challenges for the Samsung Display segment

Samsung is a global leader in displays, memory chips, and smartphones. However, the company is under pressure for macroeconomic and geopolitical reasons.

Despite the new investment, Samsung continues to face challenges amid two major trade wars. On one hand is the South Korea-Japan dispute over the export of components and chemicals for making display panels. On the other hand is the volatility surrounding the US-China trade war. Both the US and China are Samsung’s two largest customers.

Samsung’s mobile display business has begun to see some green shoots. This progress resulted from the strong demand for iPhone 11, Samsung Galaxy Note 10, and Samsung Galaxy Fold. All three devices use OLED screens.

Last month, we saw that Apple (AAPL) bailed out Japan Display. The iPhone maker is making moves to reduce its dependence on Samsung due to the high cost of the display. The revamp in Apple’s supply chain could cause a significant blow to Samsung.

OLED is the driving force behind the foldable smartphone, which we believe is a technology masterpiece. While the Samsung Galaxy Fold is the first one on the market, Chinese rivals should join in soon. The Huawei Mate X, slated to launch in the next few weeks, features OLED panels made by Samsung’s Chinese rival, BOE Technology. If the Huawei foldable phone is a success, Chinese OLED screen makers should gain from it.

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The growing clout of China in LCD

IHS Markit revealed that Chinese display makers would command a 50.2% market share of the world’s LCD panels in the fourth quarter of 2019. China’s share has been continuously increasing since 2017.

At the same time, Korean companies have seen a shrinking share. LG Display and Samsung Display together accounted for 35.9% of the LCD TV panel market in the first quarter of 2017. However, in the fourth quarter of 2019, their combined share stands at 27.6%. Technological advancement, capacity to expand production, and massive state subsidies have made China a global leader in the display market.

QLED gives Samsung the first-mover advantage

Samsung’s brainchild, Quantum Dot LED (or QLED) panel, is a step ahead of the conventional OLED displays. QLED is the company’s secret weapon to take on its Chinese competitors, who are still stuck on OLED technology.

I believe that investment in this next-generation display could re-establish the company’s dominance in the large-scale display market. This opportunity looks promising. According to research performed by Market Study Report, QLED is expected to grow at a CAGR (compound annual growth rate) of about 31.8% over the next five years. Estimates suggest that it could reach $7.46 billion in 2023.

In the second quarter, Samsung’s display business returned to profitability, led by its mobile display performance. However, the large-scale display panels are still under pressure. The company stated that it needs to focus more on premium TV panels, public information displays, and monitors.

Han Jong-hee, president of Samsung’s visual display business, indicated, “We expect to sell over 5 million QLED TVs this year by expanding our 8K lineup and large-screen TVs.” 

In the third quarter, Samsung’s mobile display business is expected to show improvement. On October 8, the company released its profit guidance for the third quarter. The company expects a 50% drop in its operating profit. However, we are awaiting its complete results release to understand the performance of its display business.

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