Samsung and LG join forces against Chinese rivals in battle for display dominance

South Korea’s leading display makers LG and Samsung are closing ranks as they cede more ground to Chinese manufacturers of TV and smartphone screens and face being undercut on their leading-edge OLED technology.

In what has become a battle for survival for the once-dominant companies in the sector, Samsung closed its last liquid crystal display factory in China in 2021 and is set to rely this year on its domestic rival to produce more of its panels there.

The unusual level of co-operation comes as LG seeks to sell its remaining LCD plant in the country, according to reports, after a slump in global IT sales following the lifting of pandemic-era lockdowns in China.

Having conquered the market for cheaper mass-market LCD technology, Chinese display manufacturers are now making inroads on the last bastion of South Korean technological superiority, with their leader — state-owned BOE Technology — building a $9bn plant to produce cutting-edge organic light-emitting diode panels in the southwestern Chinese city of Chengdu.

South Korea’s display industry is facing the same fate as Japan’s in the $160bn global market, analysts said, citing the worst-case scenario of JOLED, a Japanese joint venture between Panasonic and Sony’s advanced display businesses, which went bankrupt last year with $250mn in liabilities after struggling to match South Korean investments in the sector.

“Just as Korea overtook Japan as the display industry leader, China is likely to outsmart us on the back of its huge domestic market, abundant capital and technological development,” said Park Chong-hoon, head of research at Standard Chartered in Seoul.

Park added that the display battle was indicative of the wider struggle for South Korea to preserve its technological edge over China in industries ranging from chips and batteries to smartphones and shipbuilding.

“This phenomenon will not be confined to just the display market. China is catching up fast in other capital-intensive industries and will soon overtake Korea in most key manufacturing industries,” he said.

Samsung and LG rose to pre-eminence in the global display market in the 2000s, following a series of aggressive investments that helped them overthrow the Japanese incumbents. They relied on their in-house display businesses to supply panels to their TV and smartphone divisions, but that model was disrupted by the rise of Chinese alternatives supported by generous government subsidies and a giant domestic market, as well as by Taiwanese competitors.

“The massive expansion of Chinese panel production capacity and the resulting price competitiveness led Korean panel makers to exit the LCD supply chain under loss pressures,” said Iris Yu, an analyst at Taiwanese consultancy TrendForce.

The two South Korean companies have focused their investments instead on OLED displays for high-end TVs, smartphones and tablets, as well as next-generation micro OLED displays for virtual and augmented reality devices such as Apple’s Vision Pro headset. LG Display is the world’s only mass producer of large OLED panels, although OLED TVs only make up 3 per cent of the global TV market.

Now the two are finding themselves under pressure in the OLED segment as well. BOE’s new Chengdu plant will produce OLED substrates using the latest 8.6-generation technology — setting up a head-to-head battle with Samsung to supply OLED panels to Apple for next-generation iPads and MacBooks.

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“Korea is far advanced in terms of OLED quality, but China’s OLED panels are much cheaper than Korea’s,” said Yi Choong-hoon, a display expert and head of Seoul-based UBI Research.

“China suffers huge losses, but it still supplies OLED panels at cheap prices to increase its market share, meaning it will kill off competitors as it has done in the LCD market,” he added. “China will overtake Korea in the OLED market, too, if things are left as they are.”

The South Korean companies must also contend with an intensifying Chinese campaign to acquire their display-making expertise. According to South Korean government figures, between 2016 and 2023, Chinese entities were able to steal more technology from the country’s display sector than from any other industry apart from the chip sector.

Last year Samsung Display filed a complaint against BOE with the US International Trade Commission aimed at stopping the Chinese company from selling displays in the US using tech that was allegedly stolen, according to the South Korean company. BOE, which denies the allegations, has responded with a barrage of lawsuits against several Samsung subsidiaries in China.

Having cut ties with BOE, Samsung is now getting more LCD panels from LG Display’s Chinese plant in the southern city of Guangzhou. Yu of TrendForce predicts that Samsung “will significantly reduce its dependency on Chinese panel makers in 2024, dropping its procurement share from 55 per cent to 38 per cent”.

The new partnership between the South Korean companies also constitutes a lifeline for LG, which suffered seven straight quarters of losses before finally reporting an operating profit in the final quarter of 2023.

“Samsung and LG need each other because the all-out display war between Korea and China has spread to the premium market,” said Nam Sang-uk, a researcher at the Korea Institute for Industrial Economics & Trade.

Samsung and LG declined to comment on their co-operation.

Yi of UBI Research said Washington should consider intervening on South Korea’s behalf, arguing that a Chinese takeover of the sector would complicate US-led efforts to enlist Seoul’s assistance in reducing China’s access to more sensitive technologies such as semiconductors.

“China dominating the display sector will undermine US chip strategy because it gives Beijing such leverage over Seoul,” said Yi. “If Korea reduces its chip supply to China, then China can reduce its display supply to Korea. The more dependent Korean IT companies become on Chinese suppliers, the more this kind of retaliation will hurt.”