At the inaugural meeting of the Korea Display Industries Association (KDIA), held at the Marriott Hotel in Banpo-dong, Seoul on May 14, Samsung Electronics, Samsung SDI, LG Electronics and LG Philips LCD agreed to an unprecedented level of cooperation in conducting their flat-panel display businesses.

Ken Werner
Senior Analyst and Editor

Samsung and LG - not to mention Samsung SDI and Samsung Electronics would not set aside their intense competitive inclinations and long combative history unless much greater issues were at stake. And Lee Sang-wan, CEO of Samsung Electronics’ LCD Business, did not pull any punches in describing those issues when he gave his inaugural address after being elected first president of the association.

"Korean LCD players are facing the sandwich crisis: Japanese companies are swiftly marching into global markets backed by aggressive investments and advanced technologies to preoccupy the next-generation display market; and the latecomers in the business including Taiwanese and Chinese companies are literally on our back, pushing into the market with their competitive prices and ample support from their governments," Lee said, as reported be Sun-young Park in Korea’s Maeil Business Newspaper.

Lee was also forthright about what may be an even more aggravating issue: "It is also dire that Korea LCD manufacturers depend largely on foreign technologies for over 80 percent of key materials, i.e. liquid crystal. And, major equipment is mostly imported too. We (the Korean Display Industry Association) will strive to develop the display industry and all of its related businesses including panels, equipments, parts and materials, by forming cooperation among enterprises of all sizes."

Over 250 companies participated in the meeting, and it was announced that the KDIA would assume the responsibilities and activities of the Korea Display Equipment Material Association (KODEMIA) and the Electronic Display Industrial Research Association of Korea (EDIRAK), Park reported.

Korea’s four major panel makers pledged themselves to engage in "eight win-win cooperation tasks," which include patent exchanges, termination of monopoly agreements with equipment and materials suppliers, and joint R&D on basic technologies. Monopolistic supply agreements are currently the norm. According to Korea’s Ministry of Commerce, Industry and Energy, only 20 of the more than 250 companies that make up Korea’s LCD industry supply materials, components, or services to both LG and Samsung.

Beginning in the second half of this year the association plans to develop cooperative strategies and development roadmaps for different technologies and sectors. Samsung and LG will discuss co-ownership of patents starting in June.

Samsung Electronics and LG Electronics have been importing panels to cover shortfalls instead of buying from each other for large-screen TVs and computer monitors, with 54% of Samsung’s panel imports and 31% of LG’s coming from Taiwan.

The motivation for true industry cooperation in Korea is obviously intense. Taiwan virtually matches Korea’s flat-panel market share, and Japan controls 70-80% of the high-value key components and materials Korean panel makers use in their displays, according to DisplaySearch.

But there may be less here than meets the eye. Although an agreement to buy panels from each other instead of from Taiwan would seem to be a huge win-win, it’s not clear that LG and Samsung have panel sizes in common that would give such an agreement practical value. Famously, Samsung makes large LCD-TV panels in 40- and 46-inch sizes, while LPL makes 37-, 42- and 47-inchers. There may be increasing pressure now to consolidate sizes, but that could be a very hard sell to Samsung, which has been steadfast in going its own way.

The largest short-term impact may be from liberating local suppliers from their exclusive contracts. That would allow them to be more competitive with Taiwanese and Japanese competitors, and might allow a few larger and more efficient companies to form. Longer term, the cooperative development of technology might allow some of those high-margin key components and materials from Japan to be replaced by more homegrown products.