Apple Watches and LCD screens are propping up LG, not OLED
As OLED tech is still too expensive for the mid-range market, LG Display is reliant on cash from its liquid crystal display tech, and a lucrative partnership with Apple
These days LG is synonymous with OLED – the latest in a long line of incremental developments on the path to higher-contrast and thinner TVs. The Korean giant’s billion-dollar gamble would appear to have paid off, with LG now producing panels for almost every TV manufacturer out there. But although the flashy new technology is the perfect fuel for superlative-laden headlines, behind all the bluster LG is being propped up by screen technology that is several decades old.
OLED was certainly everywhere at this year’s CES. There were TVs from all the major manufacturers with one notable exception, along with LG Electronics showcasing a 77-inch 8K screen, and an eye-catching rollable screen that disappears down into its base when not in use.
Unsurprisingly, that one notable exception, the one manufacturer that has resisted OLED’s charms as a TV technology is arch-rival Samsung, which is banking instead on Micro LED. Although paradoxically the world’s biggest TV manufacturer is more than happy to use OLED in its smartphones, and even makes OLED screens for the Apple iPhone XS.
However, the television business is tough these days, and only last week LG Electronics posted its slowest quarterly profit growth in two years, citing higher marketing costs and increased competition in the high-end TV market. The company’s fourth-quarter operating profit dropped 80 per cent, a precipitous fall that was partly driven by increased losses in the company’s struggling mobile phone business. The outlook is made worse by a global economic slowdown, but it’s the increased competition for high-end TV sales that is most worrying for LG.
Until recently, OLED TVs have been positioned as a high-end product, but the technology has now reached a level of maturity in terms of market penetration and peak performance. That means LG will need to move OLED down to the mid-range if it wants to grow market share: and that means lower prices and finer margins. As a result the company has, as it turns out very sensibly, focused on high-value-added products such as wearable screens, to offset the decline in large screen panel prices due to increased competition from China. And that’s why Apple has found itself in the position of being LG’s unlikely cash cow.
So how did we get here? Back in February 2015, Apple announced that LG had won the contract to be the sole supplier of the screens for the then coming new Apple Watch. At the time, Apple’s wearables division was estimated to be large enough to comprise a Fortune 300 company on its own. Moreover, by Q2 2018 according to Asymco analyst Horace Dediu, the company had shifted more than 46 million units – with all those watch screens supplied by LG alone.
Apple, of course, doesn’t release numbers on Apple Watch sales, but LG has confirmed it shipped some 10.64 million AMOLED smartwatch panels in 2017 to take 41.4 per cent of the market. Its next closest competitor was Samsung, which shipped 8.95 million units. LG Display said that its operating profit in the fourth quarter was £193 million, an increase of 99 per cent quarter-on-quarter and 528 per cent year-on-year respectively. Of that, panels for TVs accounted for 36 per cent of revenue and mobile devices for 28 per cent.
LG Display didn’t break down this amount specifically related to wearables, but made a point of highlighting that this performance was in part driven by the company’s expanded shipments of new products in IT and small and medium-size panel segments, which have a higher average selling price per square meter.
What this all boils down to is that despite all the attention focused on OLED right now, it’s LG Display’s LCD technology, and especially its partnership with Apple, that has been generating increased profits in the last quarter, helping offset poor sales elsewhere. This is especially true of Apple’s iPhone XR, for which LG makes the LCD screens.
Of course, the downturn in the global smartphone market, particularly in China, has affected even the US tech giant. As a result, it has increasingly relied on sales of wearable devices like the Apple Watch to offset struggling smartphone sales.
Even better news for LG Display is that there is still room for plenty of innovation when it comes to LCD. We’ve already seen shaped screens and wearable screens driving sales, and the next trend is likely going to be hole-punch screens.
Samsung may have got this particular ball rolling, but over 2019 we can expect to see many smartphone manufacturers quickly ditch the “notch” in favour of a punch-hole selfie camera. LG will certainly hope to reap further benefits from its relationship with Apple, even as its TV and smartphone businesses face a difficult future. LG’s big investments might have been in OLED, but it’s the comparable older tech of LCD that continues to pay dividends.