SEOUL -- LG Electronics group has decided to sell its organic light-emitting diode panels for TVs to more manufacturers, changing its strategy in an effort to foster growth in the market.
LG is the only manufacturer that mass-produces OLED panels for TVs. Last year, LG began supplying OLED panels to Konka and Skyworth of China on a limited basis. But it is now shipping them in much larger numbers and began supplying the high-tech screens to Japan's Panasonic and a few Chinese companies.
The South Korean electronics maker has been reluctant to sell OLED panels to others, seeing the technology as a crucial competitive advantage in a global market dominated by cheaper liquid-crystal displays.
Organic growth
But sales of OLED panels have been weaker than the company had hoped. By offering them to more manufacturers, LG aims to expand the market and lower production costs.
In October, Panasonic began selling a 65-inch OLED TV in Europe that uses an LG panel. The Japanese consumer electronics maker plans to roll out the product in its home market, possibly in the year ending March 2018. The OLED TV will be marketed as the company's top-of-line product and priced above 1 million yen ($8,101).
LG Display, LG group's display unit, has expanded its OLED production capacity to supply other companies. In January, it completed a 700 billion won ($618 million) plant, quadrupling capacity. The company can now crank out more than 100,000 OLED panels for 55-inch TVs a month.
OLEDs work by sandwiching organic thin films between two conductors. Because they emit their own light, OLEDs don't require a backlight, which makes them thinner and more energy efficient than LCDs. They also offer better contrast and brightness, and are pliable.
Yeo Sang-deog, LG Display's executive vice president for OLED, calls the product the "ultimate panel technology in terms of both picture quality and design flexibility," adding, "there is still much room for evolution."
The biggest drawback to OLED panels is their high price tag. But production costs are expected to fall sharply when inkjet OLED printing technology -- which creates the films by spraying organic materials onto glass substrates -- becomes commercially available. The new production technique will replace the evaporation-based method used today, in which the materials are deposited onto a glass sheet using a thin metal stencil. This process wastes a lot of material and results in many defects.
In 2013, LG became the world's first manufacturer to start selling large OLED TVs. But the market for OLED TVs has not grown as fast as LG had hoped. Fewer than 200,000 sets were sold globally in 2014, compared with around 200 million LCD TVs. Its big domestic rival, Samsung Electronics, brought OLED TVs to market in 2013 using its own panels, but has since suspended production.
Chinese challenge
LG's change of tack has been prompted partly by growing competition from Chinese companies. LG has established itself as the world's biggest manufacturer of large LCD panels in the past several years. It has also become the leader in the market for small and midsize LCD panels for devices like smartphones.
It wants to remain top dog in OLED panels, but despite its market supremacy LG's display business is not in great financial shape. LG Display's net profit in the July-September quarter plunged 44% from a year earlier. The company's bottom line was hit hard by oversupply as Chinese competitors ramped up production.
Chinese LCD panel makers have been sharply increasing their capacity and plan to continue. The four biggest Chinese producers, including BOE Technology Group, will spend a total of around 24.5 billion yen over the next three years to boost their output further.
China will overtake Taiwan and South Korea in total LCD capacity in 2018, becoming the world's largest producer, according to estimates by U.S. research company IHS Technology.
Panels made at state-of-the-art plants in China, built with the help of Japanese, South Korean and Taiwanese engineers, can rival those made by leading manufacturers in terms of quality. BOE's new plant in China's eastern Anhui Province, which is slated to come on stream in 2018, will use the world's largest glass substrates to turn out large panels efficiently.
Chinese panel and TV makers have grown rapidly in world markets in recent years. Supported by strong demand from the world's largest domestic market, Chinese TV manufacturers such as TCL and Hisense Group have become top global competitors. Major contract manufacturers like Hon Hai Precision Industry of Taiwan, better known as Foxconn, also operate plants in China.
Many industry executives suspect that aggressive, even excessive, investment in capacity by Chinese producers such as BOE reflects policy support from the government.
Technologically advanced manufacturers in Japan and South Korea are trying to survive the Chinese onslaught by shifting their focus toward higher-end products like 4K TVs, which have four times more pixels than full high-definition TVs. But it is only a matter of time before Chinese manufacturers catch up with Japanese and South Korean competitors in 4K technology as well.
The only way for Japanese and South Korean manufacturers to stay viable is through continuous development of new technologies that offer new value to consumers.
Is LG's OLED technology a solution? The answer will have big implications for Japanese parts and materials suppliers as well, including Idemitsu Kosan, which supplies the organic materials for LG's OLED panels.