Altered Smartphone Strategy
Samsung Display will reduce the supply of AMOLED panels while significantly increasing that of less expensive LCD panels next year. This is because Samsung Electronics is going to focus on the sale of mid-market LCD handsets in 2014. The mobile phone manufacturer has recently asked Samsung Display to cut the supply price of small to mid-size AMOLED panels, too. The change in business strategy is expected to affect the performance of Samsung Display next year.
According to industry sources, Samsung Electronics is strengthening its lineup of mass-market mobile phones to better penetrate emerging markets such as India and China. The purpose is to shift its business focus amid the saturation of the high-end smartphone market. This is a source of trouble for Samsung Electronics’ partner firms, including Samsung Display, as they cannot avoid a decrease in profit margins.
“We have to increase the supply of cheaper LCD panels instead of OLED panels with higher added value due to Samsung Electronics’ business strategy,” said Samsung Display, adding, “Although the supply volume might become larger than before, it is almost sure that we cannot avoid a drop in profitability.”
Its concerns are becoming a reality already. Samsung Electronics’ record high performance during the first three quarters of this year is attributed to its mass-market products. Only three out of the nine smartphones released by Samsung Electronics this year were high-end ones.
“The monthly sales of the mobile phone component manufacturers associated with Samsung Electronics began to decrease in June, when the company started to release a variety of mid-end phones,” said Samsung Securities analyst Jo Seong-eun. It is said that Samsung Display, which has specialized in the production of small to mid-size OLED panels, is reorganizing the L6 production lines located in Cheonan City, South Chungcheong Province to manufacture small PLS, or plane-to-line switching, LCD panels.
As of the end of Q3, the average price of Samsung Display’s 3.1-inch or larger OLED panels for smartphones was US$49.6, whereas that of LCD panels was US$16.48. Likewise, each of the five-inch, full-HD LCD panels used in the Galaxy S4 was US$44.40 while that of the AMOLED panel was as expensive as US$58.20. The latter’s profitability is four to five times higher than the former’s as well.
Samsung Display has concentrated on the manufacturing of AMOLED panels in most of its production lines and supplied most of its products to Samsung Electronics. Specifically, Samsung Electronics accounts for over 60% of its gross sales. “Besides, Samsung Electronics has recently demanded that the supply price of AMOLED panels be cut by at least 10%, although we cannot reveal the exact number,” an official at Samsung Display added.