Thursday, February 16, 2012
Impacts Of Possible Samsung Spin Off Of Its LCD Panel Division
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Reports on rumors that Samsung Electronics is considering
spinning off its LCD manufacturing division are starting to be
published, and DisplaySearch discussed the possible impacts of
There is speculation that such a spin-off could be the first
step of a restructuring of Samsung?s display business, with
the end goal, a new Samsung Display company consisting of
Samsung Mobile Display (SMD, an independent company that is
the leading manufacturer of AMOLED displays) and Samsung LCD.
This new company could be the biggest display company covering
the key flat panel technologies from small to large sizes.
Samsung Electronics is considering how to make the transition
from LCD to AMOLED in the most efficient way possible, by
holding on to its leading position in each technology while
minimizing losses through manufacturing and procurement, as
well as business synergies, including support of Samsung's
wide array of branded products (TVs, monitors, notebook and
tablet PCs, smartphones) and external sales. What is new is
that the timeline seems to be moving up, and the restructuring
could take place as soon as the middle of 2012.
"However, it is surprising to consider that Samsung might not
merge the OLED business into its LCD business, but rather spin
off its LCD business and then merge it with the OLED business.
This is a subtle but important difference, reflecting a
significant change in Samsung's flat panel strategy, putting
LCD and OLED in an equal position," said David Hsieh Vice
President, Greater China Market at Display Research.
DisplaySearch's research finds that Samsung's LCD division is
the biggest LCD panel maker in terms of revenues, and is a key
supplier for all applications, not only for its own products,
but also to many other brands, including Apple's iPad, Lenovo
and HP's PCs, and many TV makers. A stand-alone Samsung LCD
will mean a change in its sales and component sourcing
strategies, because it?s strategy would need to be focused on
profitability, rather than supporting the broader Samsung
Electronics strategy, so it should maximize its customer base.
In this sense, the new company is likely to care more for
non-Samsung customers, and act as an independent and neutral
LCD and AMOLED supplier. The new company would continue to be
an important supplier of the LCDs and OLEDs needed by the
Samsung group, but it will have to live on its own financials,
which will have an impact on market prices for panels.
Also according to the company's research, Samsung's TV
business sources over half of its LCD TV panels internally
(57% in 2011, and plans call for 53% in 2012). Samsung also
purchases millions of panels internally for its notebooks,
monitors, and tablet PCs. Samsung's TV manufacturing has been
increasing its vertical integration, purchasing more LCD
cells/open cells instead of LCD modules. If the LCD business
is spun off, it could be easier for Samsung to shift panel
purchasing toward competitors in Taiwan, Japan or even China.
In the past, Taiwanese panel makers often had lower
utilization rates than Samsung, because Samsung tended to
prioritize its own LCD production during times of oversupply.
The spin-off may change this dynamic.
Another aspect of Samsung's vertical integration has been in
supporting component, materials, and equipment suppliers. As
an independent, the new company will likely put great pressure
on its suppliers in order to drive down its costs. This could
involve purchasing from non-Samsung suppliers, especially in
semiconductor parts, mechanicals, chemicals, optical films and
possibly even glass substrates.
If Samsung spins off its LCD business and merges it with SMD,
the new company could utilize resources from LCD - including
revenues, cash flows, fabs and engineering - to move toward
large size AMOLED production. "This would be an indication
that the future display direction of the Samsung group is
AMOLED rather than LCD. For Samsung Electronics, spinning off
its LCD business would likely improve its financial metrics,
because the LCD division has been losing money due to ongoing
large capital expenditures and falling panel prices. The flip
side of this is that ? in order to fund investments needed for
AMOLED - the new company will need new funding sources,
including a public listing, since it will be an independent
company without the financial support of Samsung Electronics,"
The LCD market has been in oversupply since Q2'10, and panel
makers have suffered losses during that time. At the same
time, AMOLED has matured and gained market acceptance. Panel
makers are changing their strategies in order to reverse their
losses, and with the most substantial resources in AMOLED, the
Samsung group is moving fast to make big changes. A spin-off
of the LCD division will not be the end, but rather the
beginning of another big transition in the display industry.