Samsung's semiconductor and display divisions provided a significant chunk of the company's profits last year but according to a new report, Samsung expects to make less money from OLED panel sales in 2018. Apparently, that's because the OLED boom that the company was counting on hasn't really materialized.
It has been reported multiple times over the past few weeks that in light of low demand for the iPhone X, Apple has halved its OLED panel orders from Samsung. This means that Samsung Display will now ship fewer OLED panels to Apple and subsequently make less money.
No smooth sailing for the OLED business
Bloomberg reports that the iPhone X didn't sell as well as Wall Street had anticipated and that according to people familiar with the matter, Samsung is now going to ship half the units planned to Apple. The report also mentions that Samsung sees its 2018 operating profit from displays coming in short of analysts' forecasts.
Some market analysts had predicted that Chinese vendors who are rapidly expanding their foothold in the market will switch to OLED panels and that would greatly benefit Samsung since it has a near monopoly in the small to medium-sized OLED panel market. That has yet to happen.
The people mentioned in the report claim that Samsung is committed to OLED and doesn't feel the pressure yet to cut OLED panel prices. It's hoping that the successful launch of the Galaxy S9 will keep things moving along in the interim while a planned foldable smartphone could provide growth in the future.
Apple is also going to launch another iPhone this year with an OLED display and while Samsung Display might win some orders, LG Display is also believed to be courting OLED panel orders from Apple.
That being said, most major Chinese vendors aren't expected to switch to OLED this year. Manufacturers like Huawei, Oppo, Xiaomi, and Vivo appear to be in no rush to ditch LCD in favor of OLED. That's because they operate on thin margins as it is.
Researcher IHS Market estimates that the 5.5-inch LCD panel in the iPhone 8 Plus costs Apple $52 while the company pays $110 for the iPhone X's 5.8-inch OLED display. Chinese manufacturers try to price out behemoths like Apple and Samsung by aggressively pricing their handsets and they're not really in a position to make a switch to more expensive display panels. They don't have to either, their strategy has been working, with companies like Xiaomi even coming in striking distance of Samsung's lead in key markets.
Bloomberg Intelligence analyst Simon Chan rightly points out that LCD displays are “fine enough” for many users and that until the price difference between OLED and LCD remains substantial, it's unlikely that Chinese OEMs will be willing to make a switch.
OLED panel costs will eventually come down in a couple of years but until that happens, Samsung will have to tough it out, and by then it may even have to compete with upstart OLED manufacturers in China who want a piece of the pie as well.
Samsung may have held off further investment in its OLED facilities. It was reported in June last year that the company was going to build a “super OLED factory” in South Korea as it anticipated rising demand. Samsung was going to invest $925 million in this new OLED plant but has reportedly decided against investing in the new facility due to demand uncertainties.
