Less Demand and Chinese Rivals Depressing Korean Display Makers

Two big problems are facing Korean display manufacturers, a leading Korean export item. One is a steady drop in their prices due to weakened demand and a supply glut, and the other is Chinese companies’ massive investment in the display industry.

A drop in prices of LCDs, a big cash cow for display makers, has reached a serious level. According to WitsView, a Taiwanese display market survey company, in Sept. the average unit price of LCDs for TVs stood at US$178, a fall of 17 percent from US$214 in Dec. of last year. It was the biggest drop since 2010. The average unit price of LCDs for monitors slid to US$67 from US$75 during the same span.

The biggest culprit behind this situation is a supply glut caused by Chinese manufacturers. BOE, the number one display panel producer in China, is lowering LCD prices by running its Chungking factory with a monthly production capacity of 150,000 units. The price drop has come across as a fatal blow to Korean display manufacturers.

It is estimated that the operating income of LG Display in the third quarter of this year dropped to 350+ billion won (US$305+ million), nearly 24 percent down from a year earlier. Samsung Display chalked up good business performances thanks to the expansion of sales of OLED displays for smartphones, but in the TV panel sector saw its profitability fall like LG Display. Moreover, BOE will begin to build a big board factory ahead of Korean companies this Dec. Korean companies must devise countermeasures i this climate.

The 10.5^th generation process will be started in the factory that BOE is building in Hefei, China, with a total investment of 40 billion yuan (US$6.3 billion). The generation means a classification of the sizes of boards. The higher the generation goes, the bigger the board becomes. The 10.5^th generation is a process with 3370×2940 mm boards.

Samsung and LG are staying with the eighth generation (2500×2200mm) at the moment. If a board is bigger, more big TV panels can be produced, and redundant parts of the board can be decreased, cutting production costs. For example, the use of an eighth-generation board can result in production of three 60 inch TV panels. But eight units can be produced through the use of a 10.5 generation board.

The point is that although massive facility investments can build a big factory, at the same time huge losses are risked if demand shrinks. However, BOE is free from the efficiency of investment, since the Chinese government gives financial support to the company. BOE burdens 4 billion yuan (US$632 million), 10 percent of the total investment.

In the first half of this year Korean companies did not care about such a move by BOE, saying, “The eighth process is enough.” At the same time, there were misgivings about China’s implementation of the investment. But since BOE confirmed the investment, Korean companies have been changing their attitudes.

“We will decide whether we will improve our current facilities or begin to make new investments in the 10^th generation by taking market situations into account,” said Han Sang-beom, president of LG Display. The name of the game is time. It will take three years for BOE’s 10.5^th generation factory to become fully operational. But it usually takes more than two years to build a big display line.

Not much time is remaining for Korean companies to make a decision about it.