LG Display and Samsung Display reported Q4'16 earnings on Tuesday, January 24th and each company exceeded expectations.
As indicated in our Quarterly Display Supply Chain Financial Health Report, LG Display had double-digit Q/Q revenue growth to $6.8B as shown in Figure 1, exceeding Samsung Display for the first time in Q4’15 on a 16% sequential increase in ASPs more than offsetting a 1% decline in shipments on area basis. LG Display also enjoyed triple digit Q/Q earnings growth to $711M, the highest in at least 3 years. On a Y/Y basis, revenues and earnings were positive after 5 consecutive quarters of Y/Y declines.
LG Display's results were much better than guidance/consensus as prices rose faster than anticipated:
Shipments were down due to its P8 8.5G capacity conversion from a-Si to oxide backplanes for OLEDs. When asked what kind of capacity loss there is as a result of this conversion, their CFO indicated 41K LCD capacity becomes 26K OLED capacity due to the higher masks in the oxide process. The utilization of their producible capacity on an area basis remained flat at 82%.
On an area basis, ASPs rose 16% Q/Q and 2% Y/Y to $642. ASPs were the highest since Q1'15 and were up Y/Y for the first time since Q2'15. Supporting the area increase in ASPs was a jump in mobile shipments, which rose from 27% of Q3'16 revenues to 31% of Q4'16 revenues on strong iPhone demand.
LG Display also generated a record $1.2B cash from operations and their estimated free cash flow was $389M, their highest since Q2'15. Capex was $870M and over $3B for the year, split 50/50 between LCDs and OLEDs.
LG guided for panel shipments on an area basis to fall by 5% in Q1'17 due to its continued 8.5G a-Si to oxide fab conversion for OLED TV panels as well as allocating production capacity to R&D, increased demand for larger sizes and fewer days of operation in Q1. It expects blended ASPs to continue to rise in Q1'17 on panel price increases, tight supply/demand, low inventory levels and the trend toward larger panel sizes. No meaningful supply growth and demand for larger sizes will reduce panel output.
Regarding OLEDs, LG indicated they intend to strengthen its leadership in OLED TV panels by increasing volumes and focusing on picture quality, design flexibility and embedded sound systems. LG will have 60K 8.5G OLED TV panel capacity in 2H’17. It expects to ship 1.5-1.8M OLED TV panels in 2017. Yields have already hit 80% in OLED TV panels. LG indicated it took 10 years for LCDs to hit 80% yields while OLEDs achieved 80% yields in 2 years, although we believe it has been 4 years. 65”+ OLED TV panels were 30% of 2016 output, but are expected to reach 40% of 2017 shipments. It introduced Crystal Sound OLED (CSO) technology at CES. LG Display management commented that this technology can only be used in OLEDs, where an exciter on the speaker side of the OLED panel enables control of the sound on all 4 quadrants which was developed by LG Display. It solves the speaker problem for set makers, they indicated. LG also indicated it will start flexible OLED production on its 6G line in Q3’17.
Samsung Display's revenues rose 5% in Korean Won, but only 2% in $US due to the impact of the stronger dollar. Revenues were up 14% Y/Y in $US, the first Y/Y increase since Q3'15. We believe LCDs drove the increase, up 9% Q/Q, with OLEDs down 4% Q/Q on modest unit growth offset by shift in product mix towards smaller, rigid panels resulting from the Galaxy Note 7 recall. LCD results benefited from higher prices due to tight supply/demand conditions and a focus on high-end products such as UHD and larger screens. However, TV panel shipments were down high single digits Q/Q and down mid-single digits on an area basis as they closed their L7-1 line optimized for 40" and 46" panels. Operating income rose 27% Q.Q and 352% Y/Y to $1.2B, the highest in at least 3 years. Operating margins rose from 14% to 18%, well ahead of LG at 11%. Operating income was also driven by LCDs, up 483% Q/Q, but down Y/Y. As shown in the Figure below, LCD operating margins jumped from 3% to 15%. OLEDs continued to account for a majority of Samsung's operating income, however, accounting for a 63% share in Q4'16. OLED operating income was down 13%, likely impacted by the Galaxy Note 7 recall potentially leading to some cost write-offs as well as a shift in product mix towards smaller, rigid panels.
For Q1'17, Samsung guided to focusing on higher earnings in OLEDs through more shipments of new products and effectively managing their product mix. In LCDs, they indicated supply/demand will remain tight despite seasonal weakness due to reductions in supply. Samsung will continue to focus their LCD business on expanding sales of high value added products (UHD, larger panels, curved panels) and improving cost competitiveness.
All of this and other data for over 60 companies in the display supply chain is available in Excel Pivot Tables and Powerpoint slides within 48 hours after earnings results. For more information, see our Quarterly Display Supply Chain Financial Health Report.
Figure 1: LG Display and Samsung Display Revenues and Growth
Figure 2: LG Display and Samsung Display LCD and OLED Operating Margins