February 15, 2012 10:23 am

Samsung could spin off LCD business

Samsung Electronics is considering spinning off its lossmaking liquid crystal display division as the world’s largest flat-panel maker by sales seeks to sharpen its focus on more lucrative next-generation panel technology.

The move underlines the dire state of the LCD industry. Samsung’s display panel business posted an operating loss of Won750bn ($669m) last year in the face of falling panel prices and oversupply.

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Sony’s decision in December to pull out of an LCD joint venture with Samsung after eight years of losses for its television unit has increased the urgency for the South Korean group to act.

“We are considering various options to strengthen the competitiveness of the LCD business. Spinning it off and merging it with Samsung Mobile Display is one of the options but no decision has been made yet,” Samsung said on Wednesday.

The South Korean company said this month that it was considering merging the LCD division with Samsung Mobile Display, its unit that makes next-generation organic light emitting diode panels.

Analysts said spinning off the LCD business before merging it with SMD would make sense. It would cost much less than the company absorbing SMD outright, and would help Samsung broaden its customer base and strengthen its competitiveness in OLED panels.

OLED panels are thinner, brighter and more power-efficient, and expected to eventually replace LCD panels.

“The new company, with its independence, would find it easier to sell its panels to competitors while it can actually transfer some of the lossmaking LCD production capacity into more-profitable OLED facilities,” said Jae Lee at Daiwa Securities in Seoul.

Some rivals and potential customers such as Apple have been reluctant to buy panels from Samsung because they compete directly with Samsung’s finished products including smartphones and tablets. Apple has been relying on Samsung’s key competitor LG Display for iPhone and iPad display panels.

Samsung Mobile Display, which supplies small-size OLED panels for smartphones and tablets, reported an operating profit of Won584bn in the first nine months of 2011.

Samsung and LG are both looking to expand OLED production to boost profitability, and plan to introduce large-size OLED TVs exceeding 50 inches later this year. BNP Paribas forecasts that Samsung’s OLED revenues will grow nearly sixfold by 2014 to Won26.3tn.

The LCD industry has been in a slump since the second half of 2010 as LCD panels increasingly become commoditised amid growing competition from low-cost Chinese manufacturers. LG Display has been in the red for past five quarters while Sharp, Japan’s largest LCD panel maker, forecast a record Y290bn (£2.34bn) net loss for the year to March and halved its panel output.

In an effort to better compete, Sony, Toshiba and Hitachi last year agreed to integrate their LCD businesses to create the world’s largest producer of touchscreen liquid crystal displays.

Shares in Samsung rose 5.1 per cent to close at a record high of Won1,135,000 on Wednesday.

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