Samsung expected to cut OLED investment
As two of the technology world’s fiercest rivals, Samsung Electronics and Apple usually have something to gain from the other’s misfortune.
That logic, however, stops at display panels; specifically the latest generation of organic light-emitting diode, or OLED, screens for mobile phones and tablets.
The South Korean group is a key manufacturer of OLED screens, which Apple has tapped into for its most recent smartphone, the iPhone X.
But sluggish sales of the Apple device have left Samsung swimming in overcapacity, analysts say. The Seoul-headquartered group is now expected to “substantially” cut capacity investment in the leading-edge technology.
“Samsung built a lot of capacity for OLED expecting strong demand from Apple,” said Sanjeev Rana, an analyst at CLSA in Seoul, who expects the group to cut its OLED investment by half this year. “But sales of the iPhone X have been below disappointing, due to its high price tag. This means Samsung's production facility is facing under-utilisation, at least in the first half of this year.”
Unlike liquid crystal displays, which have traditionally been the mainstay of mobile devices, OLEDs do not require backlighting and can instead generate light themselves. This means they consume less power, making mobile phone batteries last longer. OLED displays are also brighter, thinner and lighter.
The sticking point for many smartphone makers, however, is price. Research group IHS Markit says that each OLED screen for the iPhone X sets Apple back about $110 — more than double the cost of LCD displays for the earlier iPhone 8.
“The market had expected Samsung to invest in more OLED capacity, but that plan has now been delayed,” Mr Rana said.
Samsung Display, which makes the OLED units and is 84 per cent owned by Samsung Electronics, said: “We will actively respond to demand from major customers and develop new applications such as IT and automotive to secure new growth engines.”
Lee Seung-woo, an analyst at Eugene Investment & Securities, said sluggish iPhone X sales triggered a sharp decrease in Samsung’s OLED factory utilisation rate, which he says is estimated to now be at 50-60 per cent.
The financial implications were clear, he added: “Samsung’s display business reported Won1.4tn [$1.3bn] of operating profit in the fourth quarter. We estimate it to be between Won200bn and Won300bn during the first quarter of this year.”
The estimate is below that of Chung Won-seok, an analyst at HI Investment & Securities, who forecasts first-quarter operating profit of Won700bn.
Samsung’s woes stemmed from a lack of preparation for “seasonal low demand”, Mr Chung said. “Considering Samsung’s heavy fixed costs, they should have prepared . . . by securing other smartphone makers, not just Apple,” he said.
“But the oversupply situation will normalise come June when new models of smartphones will be released.”
Additional reporting by Kang Buseong
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