So Samsung has decided to spin-off its LCD business into a wholly-owned subsidiary of Samsung Electronics and to orient its business towards OLED displays.
When I first heard the rumour about the split, I found it hard to believe that the company would let its LCD division float alone. However, it turned out to be a ‘two stage’ process of separating the LCD business from the Electronics group and then combining it with SMD (the OLED group in Samsung) and S-LCD, the company that was a joint venture with Sony, until Sony sold back its share recently.
Part of the reason for a two stage process is that SMD is an ‘affiliated company’ to Samsung Electronics, as it was a joint venture between Samsung SDI, which combined SDI’s AMOLED, module assembly and small LCD business and the OLED group within Samsung’s LCD business. A complication is that Samsung SDI, which also was the recipient of Samsung’s solar panel business last year, has always been a separate listed company and was built up on CRTs, PDPs and batteries. Although its largest shareholder is Samsung Electronics (at just under 20%), it has over 100,000 shareholders in total.
I think the spin-off will be good for the long term future of the LCD market. SMD is currently owned by Samsung Electronics and Samsung SDI, but is not publicly listed, although SDI is. If the LCD plus SMD plus S-LCD company goes ahead to create a single company, it’s not clear to us at the moment that this company will be a separately publicly-listed company, like LG Display, AUO and CMI. If it is publicly listed, then extra discipline would apply to nearly all of the industry and in the longer term, that would be good. While Chinese competitors may have different constraints, with Samsung more independent, the vast majority of the market would be dominated by companies with similar goals and constraints. Interests would be more aligned without meetings that upset competition authorities!
The interesting question is how the relationship between the TV business and the LCD business will develop. At the moment, the Samsung TV business is the biggest customer for the LCD business and after the withdrawal of Sony from S-LCD could be an even larger share of the LCD group’s business than in the past. However, a move to separate the LCD business into SMD, which will have its own financial disciplines, will mean, we expect, a loosening of the tight relationship between the TV and LCD businesses. Our friends at DisplaySearch say that 57% of Samsung Electronics’ TV panels were bought from its own LCD business in 2011, with 53% planned in 2012. A looser relationship might mean even less in group procurement in the future.
TV makers do worry that having an in-house panel supplier means tensions with other panel suppliers and reducing this tension and having wider panel suppliers was one of the reasons behind the sale of its share in LG Philips by Philips. It was also probably a factor in the end of the Sony/Samsung S-LCD deal.
A break with the TV business could also mean a wider potential customer list for the panel business. The break could also mean less support of in-house LCD making when the market for panels is bad – and that could reduce the dominance of the Korean companies. One of the long term weaknesses of the Taiwanese suppliers has been that they haven’t had vertically integrated TV businesses, so when business is bad in TV, it is especially bad for them as purchasing is switched by those that have their own panel businesses to their in-house facilities.
At a very high level, I have argued for some time that Samsung might need to split its component business in general from its system businesses, to make the relationships clearer with key clients of the component businesses that also compete with Samsung’s systems businesses. I’m thinking of the complex relationship between Samsung and Apple, for example.
A separate point is that the speed of the changes has shown once again how quickly Samsung is able to decide and execute. There are few corporations of that company’s size that can move as quickly as it does, one of the key reasons as to why the firm has been so successful over the last couple of decades.
Several years ago, when Samsung clearly made a decision that it needed to develop OLED for the future, a number of the top engineers in the LCD business moved into SMD, so with the merger, they will be available again to the LCD group and that will do no harm, as it looks as though both LCD and AMOLED may need oxide substrates for their transistor arrays to continue to develop.