Samsung Electronics Co. and LG Electronics Inc. (066570), the world’s two biggest TV makers, want to widen their lead over Japanese rivals by using new display technology in 55-inch sets thinner than Apple Inc.’s iPad.
The South Korean companies are developing organic light- emitting diode, or OLED, televisions that are as thin as 4 millimeters (0.16 inches) and produce images 200 times sharper than current liquid-crystal-display models. Both plan to start selling OLED sets as early as this year, while Sony Corp. (005930) and Panasonic Corp. (6752) haven’t set target dates for introducing them.
Samsung and LG (066470) are turning to OLED technology to extend the advantage they gained during the transition from analog to digital TVs. Having been slower in ditching bulky sets and now stuck with growing losses, Sony (6758) and Panasonic are again lagging behind as the OLED market may be the fastest-growing in the $100 billion industry during the next three years.
“OLED TVs could be another game-changer,” said Hyun Park, a Seoul-based analyst at Tong Yang Securities Inc. “The Korean companies are leading the initial development stage. Sony and Japanese companies aren’t really responding.”
Shipments of OLED TVs may grow to 2.1 million sets in 2015 from 34,000 in 2012, according to Englewood, Colorado-based IHS Inc.’s iSuppli.
Samsung shares rose 0.5 percent to 1,180,000 won, and LG gained 0.5 percent to 85,000 won at the close of trading in Seoul. In Tokyo, Sony fell 0.8 to 1,678 yen, and Panasonic dropped 2.1 percent to 711 yen.
Using organically glowing materials, OLED TVs don’t require separate backlights and can be half the thickness of Apple (AAPL)’s iPad 2, which measures 8.8 millimeters. The technology, already used in mobile devices including Samsung’s Galaxy smartphones, uses less power than LCD and has a higher contrast rate, creating more vivid images.
Suwon, South Korea-based Samsung and Seoul-based LG showed 55-inch (140-centimeter) sets at the Consumer Electronics Show in Las Vegas in January. LG’s prototype was 4 millimeters thick, while Samsung declined to discuss dimensions. Both sets have 3-D and Internet capabilities.
The two companies employ different technologies. Samsung uses red, green and blue OLED materials inside individual pixels to create images, while LG uses white light and an extra color filter.
Samsung’s method can be more energy-efficient and show a broader range of colors, said Paul Semenza, senior vice president of analyst services at Santa Clara, California-based DisplaySearch. The technology requires greater accuracy and consistency, making manufacturing harder than LG’s approach, he said.
The downside of LG’s technology is higher power consumption to keep the white layer bright, Semenza said. Google Inc. (GOOG) created a search application with a black background for mobile phones using OLED technology.
Ha Joon Doo, an analyst at Shinhan Investment Corp. in Seoul who saw both technologies at the Las Vegas show, said the OLED sets showed colors better than comparable LCD models. It was difficult to distinguish between the two prototypes, Ha said.
“OLED TVs had a bit of more comfortable and natural feel to colors,” he said.
Japanese manufacturers probably won’t enter the OLED market until after 2013, said Alvin Lim, an associate director at Fitch Ratings in Seoul.
Sony’s incoming Chief Executive Officer Kazuo Hirai pledged “painful” cost cuts as the company forecast its TV business will lose money for the eighth straight year. Tokyo-based Sony more than doubled its companywide loss forecast to 220 billion yen ($2.7 billion) for the year ending March 31 because of a stronger yen and flooding in Thailand that disrupted output.
Osaka-based Panasonic almost doubled its loss forecast to a record 780 billion yen on Feb. 3. Outgoing President Fumio Ohtsubo is eliminating jobs and shifting production abroad as the stronger currency makes domestic manufacturing more expensive.
By contrast, Samsung’s fourth-quarter profit rose 17 percent as its TV unit posted operating profit of 570 billion won ($505 million). The company, which doesn’t give a profit forecast, plans $22 billion of capital spending this year.
“South Korean companies have sizable capital expenditure and cost-competitiveness,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “The Japanese companies don’t have the power” to enter the OLED market, he said.
Sony, which introduced the first OLED TV with an 11-inch screen in 2007, is studying the demand for larger sets and the investment that would be needed to make them, Hirai said in an interview last month.
OLED sets won’t represent the bulk of TV sales “next year, the year after or even the year after that,” said Hirai, who becomes CEO on April 1, replacing Howard Stringer. “The volume is going to be in the LCD TVs.”
Ohtsubo said in January that Panasonic wants to introduce OLED sets “not long after” Samsung and LG.
“Development is steadily progressing,” he said. “While we’ll be releasing it in the market after the two South Korean companies, we’ll also be looking for the best timing to launch a product that’s superior in quality to those two.”
Ohtsubo will be replaced by Kazuhiro Tsuga after shareholders meet in June, Panasonic said Feb. 28.
Manufacturing expenses may favor Hirai’s strategy of focusing on LCD sets. Samsung and LG both face challenges in cutting costs, said Vinita Jakhanwal, a Santa Clara, California- based director for OLED research at iSuppli.
A 55-inch OLED set will be priced at about $8,000 in 2012, more than twice the $3,700 average for an equivalent LCD set, according to iSuppli. Although the price may fall to about $4,000 next year, comparable LCD (WVPR107A) models may cost less than $2,000 by then, Jakhanwal said.
“Price is the most important factor,” said Choi Do Yeon, an analyst at LIG Investment & Securities Co. in Seoul. “Being thinner and lighter, or expressing colors better, may not be enough.”
Samsung has to resolve “some technical issues” before starting mass output of OLED TVs, Kim Hyun Suk, head of the company’s TV operations, said in an interview in Las Vegas.
“You can charge $10,000 and $20,000, but that’s not real volume,” he said. “You can’t do anything without volume.”
LG expects to start selling “more competitively priced” models earlier than rivals, Roh Seong Ho, senior vice president at LG’s Home Entertainment Company, said in an e-mail. Initial investment costs and low output rates pose the biggest obstacles, Roh said.
Production will be low because, for now, both Samsung and LG don’t have enough capacity or enough equipment to mass- produce OLED TVs.
Slowing sales of TVs may accelerate Samsung and LG’s push to overcome OLED’s cost challenges. Global TV shipments may fall 2.8 percent this year to 252 million units, iSuppli estimates. LCD units make up 88 percent of the total.
“Samsung and LG are making a market right now,” Lim said. “Japanese companies aren’t trendsetters any more. They’re just following markets created by the Koreans (KOEXTOT).”
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