LG’s spending billions to make more OLED things

27 Nov 2015 | Author: | No comments yet »

Face it: You can’t beat Apple. So, you might as well join them.

South Korea’s LG Display said it will invest more than 10 trillion won ($8.71 billion) to build a large plant to make panels using organic light-emitting diode (OLED) panels, raising its big bet on the ultra-clear display technology. Not only were its products everywhere—televisions, video game consoles, cameras, headphones, watches—but owning a Sony device was a status symbol.

Shares of Minebea, which supplies backlights for liquid crystal displays currently in use, plunged 7.5 percent in Tokyo trading, the biggest drop since May 2013. Japan’s Nikkei Asian Review reported without identifying sources that LG Display was building a new plant in anticipation of Apple Inc adopting OLED technology for its iPhone in 2018. Though it still had revenue last year of $68 billion (U.S.), its market share in both TVs and smartphones has dropped by over half in the past six years. Apple will have discussions with component manufacturers to secure its supply chain over the next year, the Nikkei newspaper reported, without attribution.

LG Electronics Inc and its affiliate LG Display are investing heavily on OLED for TVs, and LG Electronics recently slashed the prices of TV sets in the United States using OLED in a push to popularise the technology. It only managed to eke out a profit last quarter because it supplies parts for Apple’s iPhone—a competitor to Sony’s own Xperia line of handsets. The shift is a negative for the component sector, as LCDs use more parts than OLED displays, including color filters and backlights, according to Mitsubishi UFJ Morgan Stanley Securities Co. “There are already smartphone suppliers other than Apple that have began using OLED screens in 2015,” Nobuhito Owaki, a Tokyo-based analyst at Mitsubishi UFJ Morgan Stanley, wrote in a report dated Thursday. “We must consider a scenario where the adoption of OLED panels for smartphones rapidly increases in the mid-term.” LG Display Co., a supplier to Apple, rose 1 percent in Seoul. Conventional wisdom states that Sony fell because, as the digital era arose, it simply didn’t understand software; using a Sony MP3 player or DVD player was for years an exercise in frustration. The U.S. company is thus likely to opt for offering OLED iPhones alongside those using LCD screen South Korea’s Samsung Electronics is currently the only company that can reliably mass-produce OLED smartphone screens.

Sony shrank so radically because it couldn’t produce a digital ecosystem—that is, a mix of devices, software and services that work seamlessly together. Apple’s shift to OLED displays will have major implications for two Japanese suppliers — Sharp, which is scrambling to rebuild its faltering operations, and Japan Display, which relies on the technology giant for 30% of its business.

Apple’s demand for the panels will be strong enough to support more than one big maker, said Kim. “I don’t think the P10 plant alone will entirely cover Apple devices only, so Apple has to turn to Samsung to secure stable production,” she said. A group of 200 employees at Samsung Display, which already provides OLED screens for the Apple Watch, created a standalone team working exclusively on screens for Apple products, people with direct knowledge of the matter said in April. The two South Korean makers are the biggest producers of OLED screens, while Universal Display Corp. controls patents on some of the most advanced materials used in the displays. The global OLED market is forecast to climb to $29.1 billion by 2022, from $13 billion this year, the company said in the statement, citing estimates by researcher IHS.

Call it the ecosystem effect: Suddenly, companies that make washing machines have to think about which smartphones their potential customers are carrying around. It has made forays into fashion, with the Watch, and home automation, with its HomeKit platform, which turns Apple devices into controllers for thermostats, smart door locks and more.

It has even made significant investments in the auto sector—for now, just the software for navigation and media in cars, but it’s only a matter of time before it releases its own electric vehicle. All of Apple’s devices run on varying versions of its own software, which means they all work best together, with an iPhone or iPad as the control centre. The beauty of the ecosystem effect, from Apple’s point of view, is that it’s sticky: Once a customer invests in an appliance or auto navigation system that works with her smartphone, she’s much more likely to buy products that function effortlessly with the same system. Of course, this new connected world still holds loads of possibilities—as long as you’re willing to hook your products into these existing ecosystems.

Consider Samsung: Not only has it raked in billions selling smartphones and tablets, it also sells everything from vacuum cleaners to televisions to refrigerators. Yet, its tent-pole smartphones are reliant on Google’s Android software; adding in new capabilities that would allow Samsung to connect all its products digitally means waiting on Google to upgrade its operating system to include those features. When everything runs on software, it is the digital interface that is primary—and Google’s Android and Apple’s iOS control nearly 85% of the computing market.

Even Microsoft—a company that once held a near monopoly, and has both enormous cash reserves and deep software expertise—has found no way to chip away at the Apple/Google duopoly. Now, companies of all stripes are stuck dealing with the implications, and they really have just two options: build their own ecosystem and try to challenge the established players; or rely on someone else’s and be subject to what may be competing interests.

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