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LGD Stuck with Falling OLED TV Demand and a Cash Flow Crunch
May 04, 2020
LGD’s intended business model—using cashflow generated with LCD to grow the OLED business—has not materialized, and the current COVID-19 crisis has made the business environment for large panels, both LCD and OLED, increasingly difficult. Management lowered its target for FY20 shipments of OLED panels for TVs by around 10% from 6m units (to around 5.4m units). Since the company depends on internally generated free cash it cannot lower prices dramatically, and therefore it may struggle to boost demand. Management is caught between emphasizing free cash or sacrifice short-term earnings to pursue a strategy focused on market growth and boosting capacity utilization at its new plant in Guangzhou. Another issue is when to adopt a top emission OLED structure, which would be a step toward G10.5, facilitating the production of 8K panels and competing with Samsung’s top emission QD-OLED in 2021. In addition to financing issues, other questions include whether 65”/75” will be its chief OLED strategy in 2023 (Samsung Display is expected to focus mainly on 78”/88” 8K for QD-OLED displays), whether to increase production of 8K models, and whether inkjet will reduce production costs.
LG’s E6 plant (30,000/month), which effectively produces panels exclusively for Apple, finally started mass producing panels in 4Q 2019. In 2020, production of panels for the iPhone 11 Pro Max will be minimal due to weak demand, but LG Display could be the main supplier of panels for Apple’s new model (6.06”) producing about 20m–25m units. As the plant has capacity to produce at least twice that volume, sales could reach a sufficient level for the plant to turn profitable, as almost 30% of the investment cost was written off. LG’s other small/medium OLED fab has a capacity of ~40m panels/year. There is significant potential upside in 2021 if the company is able to ship 20m or more units in 2020.
May 04, 2020
LGD’s intended business model—using cashflow generated with LCD to grow the OLED business—has not materialized, and the current COVID-19 crisis has made the business environment for large panels, both LCD and OLED, increasingly difficult. Management lowered its target for FY20 shipments of OLED panels for TVs by around 10% from 6m units (to around 5.4m units). Since the company depends on internally generated free cash it cannot lower prices dramatically, and therefore it may struggle to boost demand. Management is caught between emphasizing free cash or sacrifice short-term earnings to pursue a strategy focused on market growth and boosting capacity utilization at its new plant in Guangzhou. Another issue is when to adopt a top emission OLED structure, which would be a step toward G10.5, facilitating the production of 8K panels and competing with Samsung’s top emission QD-OLED in 2021. In addition to financing issues, other questions include whether 65”/75” will be its chief OLED strategy in 2023 (Samsung Display is expected to focus mainly on 78”/88” 8K for QD-OLED displays), whether to increase production of 8K models, and whether inkjet will reduce production costs.
LG’s E6 plant (30,000/month), which effectively produces panels exclusively for Apple, finally started mass producing panels in 4Q 2019. In 2020, production of panels for the iPhone 11 Pro Max will be minimal due to weak demand, but LG Display could be the main supplier of panels for Apple’s new model (6.06”) producing about 20m–25m units. As the plant has capacity to produce at least twice that volume, sales could reach a sufficient level for the plant to turn profitable, as almost 30% of the investment cost was written off. LG’s other small/medium OLED fab has a capacity of ~40m panels/year. There is significant potential upside in 2021 if the company is able to ship 20m or more units in 2020.
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