Analysis of the Samsung VD and LG Display WOLED supply deals

Rumors surrounding LG Display supplying White Organic Light-Emitting Diode (WOLED) panels to Samsung Visual Display (VD) first started circulating in the TV industry back in April 2021. In fact, negotiations about the so-called “first WOLED deal” had begun between two manufacturers for Samsung VD’s 2022 OLED TV lineup at that time for the first time. 

Prior to Samsung VD’s sudden interest in the OLED TV business, it  was  focusing on high-end Liquid Crystal Display (LCD) TVs, having launched a new product lineup called ‘NeoQLED’ TVs and  invested in mini-LED backlight technology.

Background analysis on the first deal raised in 2021:

• LCD panel prices began to skyrocket as the LCD supply chain collapsed and logistical chaos occurred owing to COVID-19.
• Samsung directly invested in a mini-LED production line and started mass production, but mini-LED price competitiveness was declining due to rising material and component prices. Compared to OLED TVs, the Neo QLED TVs’ cost advantage was greatly reduced.
• Since Samsung Display announced the suspension of its LCD business and implemented to close LCD fabs, Samsung VD’s LCD supply chain became completely dependent on Chinese panel makers, and the quality did not meet Samsung’s expectations.
• In addition to LCD quality issues, LCD supply from Chinese panel makers was neither sufficient nor timely, so an alternative supply chain was desperately needed.
• On the other hand, the OLED supply chain had stabilized, thanks to LG Display’s efforts to date; the price increase has been very small, and as the price gap with LCD has narrowed, demand for OLED TVs in the market has begun to increase.
• As the possibility of mass-producing micro-LED TVs was distant, Samsung required a new internal strategy.

From Samsung’s point of view, adding new WOLED supply would help to make up for the insufficient LCD supply and combat price fixing by Chinese panel makers. Contrary to Samsung’s expectations, LG Display (the sole supplier of OLED panels during rising OLED TV market) did not easily give up on achieving a favorable position in the deal. Moreover, owing to complex interests with LG Electronics, it could not meet the terms of the final agreement. Hence, negotiations with LG Display did not materialize.

The situation in 2023 faces another market change from 2021. Despite the slowdown in the global TV market, LCD panel prices saw an unusual upward trend recently. This phenomenon seems to stem from the efforts of Chinese panel makers to increase their profitability by raising LCD panel prices above the cash cost level while simultaneously being willing to cut production. As a result, the LCD panel price hike and supply chain restrictions are quite similar to what was observed in 2021. In other words, the main factors of the first round of WOLED negotiations in early 2021 and this second round of recent negotiations are the rise of LCD panel prices owing to the power shift in the LCD industry to China.

However, the biggest difference is that as we enter the endemic era, the global TV market is slowing down, and as consumption for premium TVs decreases owing to inflation and interest rate hikes, the OLED TV market is also rapidly cooling. Therefore, the decrease in global OLED TV demand has caused LG Display’s OLED supply capacity to become oversupplied and increases the size of the deficit through intentional production cuts. As a result, LG Display’s bargaining power has weakened. In other words, in Samsung and LG Display’s negotiations, the companies’ strong horizontal confrontation about terms and conditions is now easing and reaching a compromise.

Who benefits more from the deal?

Following the transaction, in the short term, LG Display will gradually be able to increase its reduced OLED panel production and fill its supply capacity, which will primarily help in reducing its deficit. As for the possibility of Samsung’s introduction of WOLED at the end of 2021, LG Display has attempted to maximize its OLED production capacity up to 10 million units of production considering supply volume to Samsung but panel shipments, which rose to 7.39 million units in 2021, fell to 6.37 million units in 2022, and moreover it seems unlikely that they will exceed 6 million units in 2023.

In the long term, Samsung  strengthening its premium lineup. could be beneficial. By diversifying from the LCD supply chain, which was dependent on Chinese panel makers, to OLED, Samsung Display’s QD OLED supply, for which additional investment is uncertain, can be replaced. This enables the possibility to overcome limitations around 55-inch, 65-inch, and 77-inch sizes and launch a full and complete OLED TV lineup, similar to LG Electronics’, enabling a proper OLED TV strategy. Looking back on how Sony (solely focused on LCD) and Panasonic (solely focused on Plasma) gradually lost their market dominance in the past, Samsung and LG Electronics both operated LCD and Plasma Display Panel (PDP) at the same time until Panasonic withdrew its PDP business. Whenever there was a change in LCD the supply/demand cycle, the lack of LCD supply was supplemented with PDP. In the face of LCD supply shortage or restrictions, sticking to LCDs without having alternative technology supply chains (because Samsung’s LCD vertical integration collapsed since Samsung Display withdrew) poses a future threat to Tier 1 brands such as Samsung.

In addition, considering the future possibility of sanctions affecting the display industry (similar to semiconductors) owing to US-China trade tensions with assumption of a worst-case scenario, securing the South Korean supply chain would also be an essential measure for Samsung.