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LG Display Loses its OLED Driving Force
September 23, 2019
 
As expected, Sang-Beom Han, CEO of LG Display and Vice Chairman of LGE, after opening a new Gen 8.5 fab in Guangzhou, has announced his retirement, although he will remain as CEO until the March 2020 board meeting. The President of LG Chem,Chung Ho-young will  step down from his position and become the new CEO of LG Display. Ho-young served as LG Display’s CFO from 2008 to 2014, so he is familiar with the company’s structure and financials. 
 
Han became the CEO of  LG Display in 2012 and faced the dual challenge of an emerging technology shift and the insurgency of the Chinese government into the display industry. He had the foresight and perseverance to develop RGBW OLED TV panels, when all others failed. OLED TV panels have proven to be a major technological and marketing breakthrough that is enabling the company to compete in an environment where large LCD panel capacity has grown without constraint. However, Han’s predecessor left the cupboard bare for small/medium OLEDs, preferring to concentrate of LTPS LCDs for LGE and Apple. The company’s LCD revenue has continued to grow but at negative net income. The shortsighted S/M OLED approach left LGD is a bind, when Apple switched to OLEDs leaving 3 major LCD panel makers to share demand of only 1 new iPhone. The effect was compounded by LGE’s mediocre smartphones that also reduced demand for LGD’s LCDs. Technologically LG has recovered and is now supplying OLEDs to LGE, Apple, Huawei and others, but it could be too late. LG is expected to exit the LCD business as Chinese panel makers BOE, CSoT, CEC Panda and HKC increased capacity using government support causing panel prices to drop below cash cost. As a result, the company’s revenue growth has stagnated, and the market cap has suffered. Regardless,  Mr. Han should be recognized for all his accomplishments, which despite the interim dip in profitability will likely result in a new direction and a major turn-around for the company.
 
Mr. Ho-young, the new CEO, will face the following challenges to increase profitability, while:
 

• Executing the shutdown of the LCD large area fabs, (and likely the s/m LCD fabs), reducing operating expenses, all without a major hit to the top line.
• Assessing the competitiveness of the QD/OLED approach and ink jet printing  of OLEDs vs. LG’s current RGBW approach 
• Balancing available capex decisions on expanding large area and/or small/medium OLED capacity
• Determining if Micro LEDs are an existential threat to OLEDs and developing the appropriate strategy
• Strategizing on the subsidized absorption of OLED technology by BOE and CSoT

 
Welcome back to the display industry, Mr. Ho-young!
 
In a separate report, LGD is considering the closing of one of LG Displays small format OLED fabs, which has been underutilized for some time, and transferring some of the equipment to a more efficient fab. The Paju fab, opened in 2013, is designated E2, and expanded to four lines by mid-2016.  The format is Gen 4.5 (720x920) with the first line producing rigid OLED displays and subsequent lines producing flexible small panel OLED displays.  The initial rigid line was closed in late 2014 and the remaining three lines have been used for smartphone, automotive, and watch display production but in recent quarters only the E2-4 line has been in operation, with E2-2 and E2-3 lines idle. If the Apple watch production were moved to another facility, LGD could close the plant or convert it to large panel OLED TV panel production when needed. The logical place to relocate the LTPO watch line would be in LG Display’s E5 fab in Gumi or the E6 fab in Paju, as E5 has been in operation since late 2017 and has been producing small panel flexible OLED commercial product, and E6 has begun production for customers on at least two of its three lines.  As the backplane process (LTPO vs. LTPS) is different for the Apple watch there would have to be a companion TFT line for the transferred production and the products being produced on the new line would have to be re-qualified, but given that such a transfer has yet to be officially decided, the Apple watch produced on such a line would likely be a new model that would have its own qualification regardless. Closing E2 would leave LG with two Gen 6 small panel OLED fabs and three Gen 8.5 large panel OLED fabs, one of which is in China (Guangzhou), and an ink-jet printing OLED pilot line.  The company is also building a Gen 10.5 OLED fab in Paju, which we believe will start testing the oxide backplane process next year and will be in production in 2022, although there is a chance that could be accelerated if the oxide process testing is successful.