TV Cost Report Shows LGD Turning the Corner on OLED Profitability
LG Display has had remarkable success in its OLED TV panel business for years, in all areas except one – profits. Based on new analysis in DSCC’s Quarterly Advanced TV Display Cost Report, the combination of higher prices and lower components costs have allowed LGD to turn the corner on this business and become profitable in Q3 2018, and LGD likely has a strong runway of profits in the coming quarters and years.For years, when people ask me about LGD’s OLED TV business, I tell them that LGD is not the leader in OLED TV, LGD is the only in OLED TV, because despite an attractive product, LGD could not turn a profit on the business, and no other company followed their approach.
No one should doubt that LGD’s OLED TV panels have been a technical success. A simple search of “OLED TV Awards” brings up an LG web site with 44 different awards for LG Electronics OLED TVs, including a 2017 CES “Best of the Best” Award, the SID Best in Show Award and many others. In addition to their internal sister brand, merchant TV brands Philips and Sony also highlight the awards for their OLED TVs. The OLED TVs from LG, Sony, and others have arguably the best picture performance on the market (Samsung would certainly argue this).
Nevertheless, LG Display has not managed to make OLED TV panels profitable, for a variety of reasons. The White OLED product architecture chosen by LGD has several elements that make it especially costly to build:
- In the OLED stack, LGD requires as many as 22 layers of material to create white light. Each layer requires a deposition step, with the associated cost in both equipment and material usage.
- Because the fluorescent blue emitter material has low efficiency, LGD requires two emitting layers of blue. Each emitting layer is surrounded by several other layers (charge generation layers, blocking layers, hole and electron transport layers), driving the number of layers in the OLED stack.
- After creating the white light in the OLED stack, LGD manages color by using an LCD-like color filter, adding cost above a simple glass substrate.
- Because the color filter restricts the light output, LGD has added a fourth pixel to boost the peak white light output. The fourth pixel adds cost in driving electronics.
In addition to the cost disadvantages, LGD has tried to boost the growth of OLED TV by using Market Development Funds (MDF) in addition to aggressive pricing to encourage higher sales volumes to its principal customers. These MDFs have helped LGD’s two biggest customers for OLED TV, LG Electronics and Sony, to achieve unprecedented high margins in their TV business, as shown in the figure below and as described several months ago in the DSCM (“A Good Time to Make Money in TV”, DSCM 08.03.2018).
For much of 2016 and 2017, LGD could afford to lose money on OLED TV, as strong profits in its LCD business kept the company overall profitable. With the downturn in LCD panel prices that started in the 2nd half of 2017, though, these profits have disappeared, and the continuing losses in OLED have led LGD operating margins to substantially underperform other display panel makers, as shown below. Where LGD was once one of the most profitable panel makers, LGD has been the least profitable for the past four quarters up to Q2 2018.
Operating Profit Margins of Top Five Panel Makers, 2013-2018
DSCC’s Quarterly Advanced TV Display Cost Report provides in-depth analysis of TV costs for both OLED and LCD products, covering the major products on the market such as White OLED, LCD with QDEF (Samsung’s “QLED”), traditional LCD and LCD with QDOG (quantum dot on glass). Further, the report covers potential new product architectures such as RGB OLED with inkjet printing and 8K LCD and OLED products.
The Q3 update of the TV Cost Report shows a dramatic improvement in OLED TV profitability, based on improvements in both costs and prices. To some extent, the improvement was already foreseen in Q2, as we expected that LGD would end MDF in the 2nd half of 2018 and LGD’s E4-2 fab has become fully depreciated in Q4 2018. In the last three months, though, DSCC has learned of substantial improvements on both cost and price for LGD’s OLED TV business.
- The cost for certain components, such as Driver ICs, Timing Controllers (T-Con), polarizers and other components have dropped sharply in the 2nd half of 2018.
- Besides ending the MDF, LGD has increased prices on 55” UHD and 65” UHD panels in Q3’18.
The picture below from the TV cost report shows the change in outlook for LGD’s 55” UHD product for costs and prices.
55” UHD Cost and Price, Q2’18 Forecast Compared with Q3’18 Forecast
The TV cost report includes a similar picture for 65” UHD TV panels, which also have improved from persistent losses to profitability in Q3’18. The chart below shows the outlook for profitability on 65” UHD TV panels. LGD will shift from a loss of $200 per panel in Q4 of 2017 to profits of more than $200 per panel in Q4 2018.
65” UHD Operating Profit and Margin and Cash Profit and Margin
Beyond the short-term profitability of the OLED TV panel business from LGD’s production base in Paju, Korea, LGD can generate profits from its investment in Guangzhou, China, based on lower production costs there. Government subsidies allow for reduced investment and therefore lower depreciation costs, and lower personnel costs in China help bring overall costs almost 20% lower for production in China, as compared with production in Korea. Thus, even accounting for a 10% lower panel price in China, production of 55” panels there will continue to be profitable for the long term, as shown in the chart below.
55” UHD WOLED Cost / Price for China Production
The DSCC Quarterly Advanced TV Panel Cost Report includes comparisons of the cost structure of a wide variety of OLED product configurations, covering both White OLED and Inkjet Printing, production on Gen 8.5 and Gen 10.5, production in Korea and China, resolution of UHD and 8K, and screen sizes from 55” to 75”.
Beyond the detailed comparison of OLED product configurations, the Q3 report also updates the cost figures for LCD panels, including advanced LCD products like QDEF and QDOG. A comparison of 55” UHD product cost between Korea and China is shown below; the higher costs in Korea for depreciation, personnel, and indirect costs make 55” LCD TV panels unprofitable on Korea fabs, as prices have fallen dramatically in 2018. Even the lower production costs in China yield only slim margins.
55” UHD LCD Panel Production Costs – Comparison Korea vs. China
The biggest push of LCD makers to fend off the threat of OLED will likely be shifting to 8K resolution. The Advanced TV Cost report shows the increased costs associated with 8K, as materials costs increase with lower yields, and costs for driver ICs, other module components, and backlights increase. Still, even with these higher costs, 8K products are likely to be profitable made in China fabs as shown below, which is likely to mean continued supply push from panel makers.
8K LCD Panel Production Cost in China
DSCC’s Quarterly Advanced TV Display Cost Report includes all of the important cost factors to understand the cost structure of LCD and OLED panel makers. With the improved profitability of OLED TV panels, we can imagine that LGD may start to have competition in OLED TV; then we can say they are leaders in the industry.