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How Samsung fell behind Sony and LG in the premium TV market

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At the 2013 annual Consumer Electronics Show in Las Vegas, flashy organic light-emitting diode (OLED) televisions sporting credit card-thin screens were at the front and centre of Samsung Electronics' new gadgets display.

[SEOUL] At the 2013 annual Consumer Electronics Show in Las Vegas, flashy organic light-emitting diode (OLED) televisions sporting credit card-thin screens were at the front and centre of Samsung Electronics' new gadgets display.

Later that year, the South Korean company splurged on marketing the televisions - which then retailed at around US$10,000 for the 55-inch model - to the ultra wealthy.

Among the promotions was a penthouse party for the residents of One Hyde Park in London, labelled the world's most expensive residential block.

But by 2015, it had stopped making OLED TVs, saying the market was not ready to embrace the high costs of the technology - based on thin films of carbon-based modules that light up in response to electric current.

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Instead it decided to focus on developing liquid crystal display screens that are backlit and enhanced with so-called quantum dots, semiconductor nanocrystals that produce colours and can improve picture quality. These are known as QLED TVs.

It appears to have been a costly misstep.

OLED TVs have become a dominant technology in the premium market - that is for a TV of at least 55 inches in size costing more than US$2,500 - as the cost of producing them has dropped dramatically.

Samsung is now the only major TV manufacturer not to produce OLED screens. And while the TV business generates less than 3 per cent of Samsung's profit, which largely comes from its semiconductor and mobile phones businesses, the loss of the leadership of the premium, higher-margin market is a hard blow.

Samsung declined to comment on whether ending OLED TV production was a costly mistake or who made it.

A look at online reviews of both OLED and QLED TVs in the past couple of years indicate that OLED TVs made by South Korea's LG Electronics and Japan's Sony gained fans because of the quality of the picture.

In particular, reviewers cited more realistic colours and high resolution, as well as attractive designs and increasingly reasonable prices.

That doesn't mean the Samsung QLED TVs don't have their supporters. Picture quality has also improved and prices have dropped but they don't tend to be reviewers' top picks.

"OLED TV's jump in premium TV market share is a direct result of its outstanding picture quality," said Ross Young, CEO of research provider Display Supply Chain Consultants. "Samsung may have missteped in their 2017 product by emphasising design over picture performance."

Samsung last year only got an 18.5 per cent share of global sales for premium TVs, based on dollar revenue, down from 54.7 per cent in 2015, according to research firm IHS Markit.

Meanwhile, Sony and LG have leapfrogged Samsung to grab 36.9 per cent and 33 per cent of the market respectively.

To be sure, Samsung remains the biggest maker of TVs in the world - a title it has now held for 12 years. It also claims to be No.1 in premium TVs, with more than a 40 per cent market share, based on data from GfK. These figures include 55-inch TVs that are cheaper than the US$2,500 IHS uses to define the segment.

MORE EFFICIENT MANUFACTURING

Samsung Electronics' decision to base its TV business on LCD technology was made after it took the advice of Samsung Group's now-defunct Corporate Strategy Office, a source with knowledge of the matter said.

"The office made a suggestion that it would be more profitable to focus on LCDs than switching to less-proven OLED,"said the source, who declined to be named due to the sensitivity of the matter.

The reasons: the TV business was battling falling profits and the company felt LCD technology could be more profitable than high cost OLED, the source said.

The only problem was that around the time this decision was being taken, LG was developing a much more efficient manufacturing process to make OLED screens.

The retail price of a mainstream LG 55-inch OLED TV has dropped to just 3 million won (S$3,750) this year from 15 million won in 2013, LG said.

It is not the first time decisions involving Samsung's Corporate Strategy Office have been questioned.

The office, which was led by then Samsung Electronics vice chairman Choi Gee Sung, was closed after it faced criticism during the political scandal that led to the arrest of the group's heir Jay Y. Lee last year on charges of bribery and embezzlement.

Mr Lee, who denies any wrongdoing, walked out a free man in February after an appeals court suspended his sentence.

Samsung told Reuters the biggest reason it is not making OLED TVs is the issue of screen burn-in, referring to a form of image retention when an image has been on the screen for a long time.

LG, though, says on its US website that while burn-in is possible on almost any display, it has addressed the issue through technology that protects against damage to the screen and rectifies short-term problems.

PROFIT FIGURES TELL THE TALE

The struggle's impact on corporate results became clearer last month. LG said on Thursday its TV division recorded a 77 per cent jump in quarterly profit and a record profit margin of 14 per cent in the quarter ended in March.

Samsung reported a 32 per cent quarterly profit decline last Thursday for its consumer electronics division that sells TVs and home appliances, saying that earnings fell from a year ago, partly because it had changed its lineup and stopped selling some lower and mid-priced TVs.

Sony, whose television business incurred losses totalling 800 billion yen (S$9.9 billion) over ten years, swung back to a profit in the year ended in March 2017.

To return to profit, the Japanese company reduced the number of markets around the world in which it sells, diversified suppliers and offered both OLED and LCD screens. It also ditched an LCD joint venture with Samsung.

The strategy paid off. While Sony had just 10.2 per cent share in the global TV market last year in dollar terms, it was No. 1 in the premium market. Its operating profit margin reached 10.7 per cent in the September-December quarter, according to John Soh, analyst at Shinhan Investment.

The outlook for Samsung in premium TVs could worsen as 71 per cent of sales this year are expected to be OLED TVs, up from 51 per cent last year, according to IHS.

And this is all happening with the 2018 Fifa World Cup starting in June.

The month-long soccer competition, which is being held in Russia this year, is consistently the most watched TV event in the world and provides TV makers with a great opportunity to boost sales.

Choong Hoon Yi, head of UBI Research and a former Samsung display engineer, said that it now "looks like Samsung made a mistake" though it did not seem a blunder at the time, as Samsung considered the OLED technology too immature.

When asked about whether it plans to restart OLED TV production and sales, Samsung reiterated its previous stance that it will focus on other more competitive technology.

"There's no change (in our strategy)," Jonghee Han, President of Samsung's TV business told reporters last month.

Some display analysts say all might not be lost as Samsung can fight back on price.

Initially the US price for Samsung's mid-range Q7F 55-inch QLED TV in 2018 was US$1,900, down from US$2,500 last year, according to online channels. Meanwhile the initial price for LG's 55-inch C7 OLED TV was US$3,500 in 2017 but the corresponding C8 started at US$2,500 this year.

"Our goal is not to be No. 1 for x-number of consecutive years, but No. 1 forever," Samsung's Han said.

REUTERS