LG Electronics Inc. is facing a dilemma over its organic light emitting diode (OLED) TV business. The company has managed to secure an advantageous position in the global race to lead the next-generation TV market as an increasing number of TV producers have joined the OLED camp. But the problem is that the increase in the number of OLED TV producers has sharply raised the average selling price (ASP) of large OLED panels, making it difficult for the company to improve the profitability of its OLED TV business.
According to market research firm IHS Markit on September 26, the ASP of large OLED panels increased from US$695.47 (776,492 won) in the first quarter to US$712.48 (795,484 won) in the second quarter. The figure is expected to remain strong in the second half of the year, rising to US$731.90 (817,166 won) in the third quarter and US$729.96 (815,000 won) in the fourth quarter.
The price of panels is rising because supply cannot keep up with soaring demand as the OLED TV market is rapidly growing.
There were only five OLED TV makers in 2015 but 15 companies, including LG Electronics, Japan’s Panasonic Corp. and China’s Hisense Co., has formed “OLED camp” this year in just three years.
The OLED TV market is also growing in size. The global sales of OLED TVs are expected to increase from 2.54 million units this year to 3.6 million units in 2019, 6 million units in 2020 and 9.35 million units in 2022. The share of OLED TVs in the global TV market in terms of sales is forecast to expand from 5.8 percent this year to 9.5 percent in 2022, showing a nearly 10 percent growth in four years.
The OLED camp is gradually expanding, while LG Display Co. actually monopolizes the supply of large OLED panels. The supply of panels is unlikely to meet the demand before LG Display begins operation of its Guangzhou plant in the second half of next year.
The upward trend in the selling price of large OLED panels is good news for LG Display. Although the company posted 228 billion won (US$204.21 million) in loss in the second quarter due to a sales offensive from Chinese liquid crystal display (LCD) producers, it is now aiming to turn into profit-making in the third quarter.
However, TV set manufacturer LG Electronics is under a difficulty. It is desirable that the OLED TV market is expanding for LG Electronics, which has a 70 percent share of the market, but the increase in the production cost of panels, which takes up a large part of TV production, can adversely affect the company’s operating profits.
In addition, LG Electronics is making an effort to popularize OLED TVs by selling its 55-inch OLED TV model at 2.09 million won (US$1,872), which is 300,000 won (US$269) lower than the sales price of the previous model. The company also seems to have difficulty in adjusting the price of products according to market conditions