A Small Bet Is Reaping Big Gains for Samsung

By Eun-Young JeongFeaturesDow Jones Newswires

Samsung, one of the world's biggest makers of display panels, is set to reap large rewards this year by betting on the right mobile display technology.

Samsung Electronics Co.'s dominance in this field will be highlighted next week when Apple Inc. unveils three new iPhones, with one model expected to feature organic light-emitting diode, or OLED, displays made by Samsung Display, an affiliate of the South Korean technology giant, as reported earlier by The Wall Street Journal.

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Samsung's decision to focus on small-size OLED screens that go into mobile devices -- a segment where it holds a 97% market share -- has positioned it to become the dominant player in what research firm IHS estimates is a $25 billion industry.

Demand for smaller-size OLEDs has soared with the increasing popularity of Samsung's Galaxy phones, one of the industry's pioneers in adopting OLEDs in mobile devices. Samsung first featured OLED displays in mobile phones in 2009, but had a breakthrough in 2015 with the Galaxy S6 Edge, a device with curved edge screens that expanded the device's screen space and showed consumers how phones could be thinner with wider screens.

"OLEDs really started getting noticed when the phone's external design changed," said Tom Kang, an analyst at Counterpoint Research. "This is something that LCDs can never do," he said, referring to the liquid-crystal displays that has been used in iPhones for a decade.

Invented by Kodak in the 1980s, OLED displays are comprised of millions of tiny pixels that each emit different colors to create images on a screen. The number of pixels can vary by a screen's resolution. A single OLED panel is actually an amalgamation of several layers of materials.

Experts say OLEDs drastically improve image quality in electronic gadgets while being more durable, thinner and energy efficient. The technology also can help improve phone design and battery life, and is better suited for augmented and virtual reality devices.

As Samsung consolidates its position in the small-display screen market, others are racing to catch up, sparking a fierce investment drive.

China's BOE Technology Group Co. has spent at least $17.7 billion (115 billion RMB) in recent years to ramp up its OLED production. IHS estimates that the company will become the world's largest display manufacturer by volume by 2019, but will continue to lag behind Samsung when it comes to smaller-size OLEDs.

In Japan, Apple Inc. supplier Japan Display has also harbored ambitions in OLED, but has found itself stymied by a chronic shortage of cash, and now says it is open to a partnership with a Chinese or Taiwanese company to survive.

The biggest contender by far is Samsung's crosstown rival LG Display Co., which has a monopoly in large-size OLEDs for televisions, a much smaller market segment compared with OLEDs for mobile devices. IHS Markit data shows that the large-size OLED market accounts for less than 1% of smartphone display shipments.

In 2013, Samsung and LG had both recognized that OLEDs were on the cusp of a boom. But the two companies took different tacks when it came to deciding whether OLED would pay off in smaller or larger formats. LG decided to go big. Samsung saw a bigger future in going small.

Samsung's decision to focus on small OLEDs was largely a factor of the company's production technology that was more suitable for making smaller panels, analysts say.

Samsung can make large-size OLEDs with its technology, but it will be "very expensive to manufacture," said Raymond Soneira, president at Amherst, N.H.-based DisplayMate Technologies Corp., a display-technology research company. Mr. Soneira said Samsung had experienced "significant economic loss" when it briefly made OLEDs for TVs, which is likely why the company stopped them.

"The technology that Samsung has isn't ideal for large-size panels, said Jerry Kang, an analyst at IHS Markit.

A Samsung Display spokesman denied that technology issues were behind the company's strategy, adding the decision was based on its market outlook.

In an effort to catch up with Samsung, LG Display said in July it would invest more than $7 billion in OLED production, with about two third of the funds focused on churning out smaller size panels. Between 2013 and 2016, the company has invested 12.6 trillion won to increase its production capacity across all display product lines.

"There's no doubt that OLEDs will set the general trend in smartphone displays from now," said Daniel Kim, an analyst at Macquarie.

--Yoko Kubota contributed to this article.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

September 08, 2017 07:14 ET (11:14 GMT)