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Samsung’s AMOLED gamble: Lead and your worst enemies will follow

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The year 2012 will be a crucial one for Samsung. After pumping billions of dollars into its manufacturing capabilities of AMOLED displays, the company is banking on smartphone, TV and tablet manufacturers to adopt the new technology and stir up demand. Unfortunately, despite Samsung holding a 90-percent market share in production capacity, the market for AMOLED displays is in its infancy. Digital Trends obtained an internal Samsung document that has a few surprising insights into just how Samsung plans to claim its stake in the mobile market. In fact, much of the outcome of its bet on AMOLEDs hinges, ironically, on its competitors using AMOLEDs.

Opening up a market for AMOLED smartphones

In 2010, Samsung was one of only a few smartphone manufacturers to adopt AMOLED displays, as the low supply and high costs kept others from investing in a technology that would decrease margins. “With the exception of SEC (Samsung Electronics), all handset makers gave up on the idea of using AMOLED panels last year (2010) due to supply shortages and high prices. [In 2011], however, they began launching AMOLED phones amid improvements on the supply side,” the document stated.

Samsung estimates a 147 -percent increase in global production of AMOLED displays in 2012. The decreasing price and increasing supply will make AMOLED displays attractive for smartphone manufacturers. Already, we’ve seen them crop up in devices like Nokia’s Lumia 900 and HTC’s One S.

amoled demand trends and forecast

Samsung sells its own line of smartphones, so banking on competitors to introduce competing products with AMOLED displays appears to be counterproductive. But Samsung is thinking big picture. It has put its focus on its manufacturing and research and development. If AMOLED-based devices do saturate the market and become standard, Samsung will remain the largest supplier of AMOLED displays, making money off every one sold.

“We see AMOLED handset shipments doubling [in 2012] to 168m, given [Samsung’s] solid marketing of AMOLED phones and moves by other mobile handset makers to start using AMOLED displays in a big way,” the document states. “We consider the moves by Taiwanese, Japanese, and Chinese players positive for the AMOLED market, which has so far been dominated by [Samsung Mobile Display], for two reasons. First, the market will be able to expand further and should not follow on the heels of the PDP (Plasma Display Panel) market, which was controlled by a few firms and quickly replaced by LCD. Second, the proportion of AMOLED TVs should rise if economies of scale are achieved through the production of larger-sized panels.”

Samsung and LG rely on each other for AMOLED adoption  

During CES 2012, it became apparent that LG and Samsung would be the leading manufacturers of AMOLED TVs this year. But they won’t be mortal enemies. Samsung will rely on LG to help popularize AMOLED TVs.

“AMOLED demand beyond 2012 will depend on how many popular AMOLED tablet PCs and TVs hit the market down the road,” the report states. “SEC and LGE’s (LG Electronics) AMOLED TV product launches and ensuing mass production should have a significant impact on supply-demand dynamics.”

amoled tv lg and samsung comparison

Based on the Samsung report, the production of 55-inch panels is more economical than producing smaller 32-inch displays.

Apple: Samsung’s ticket to AMOLED market dominance

Apple products have dominated the smartphone and tablet market in the United States, but Samsung has begun eroding Apple’s market share and has already overtaken Apple in the Chinese smartphone market.

Like LG, Samsung sees Apple as both a competitor and a vital ally. It has been closely monitoring Apple, and was long aware of the iPad 3 launch (and the allegedly pending launch of the 7-inch iPad mini). The report makes it apparent that there’s a rivalry between Apple and Samsung, but the Korean company’s bet on AMOLEDs will pay off if Apple decides to build its next generation of products with AMOLED displays.

While rumors have recently surfaced that Apple may produce the iPhone 5 using an AMOLED display, the OLED Association is not hopeful. Barry Young, managing director of the OLED Association, and Erich Strasser of OLED-Display, have concluded based on their analysis that Apple’s foray into OLED technology may not come this year due to two inadequacies on Samsung’s behalf.

First, Apple is hesitant to rely on Samsung, which would be the only manufacturer and supplier that could even come close to Apple’s demand for AMOLEDs for its iPhones. (On the other hand, it was recently reported that Samsung was the sole supplier of Retina Display screens for the new iPad, after Sharp and LG Display couldn’t meet Apple’s expectations.)

Second, and more importantly, even Samsung admits that its manufacturing capabilities could fall short despite spending 2011 increasing its manufacturing capacity. The Samsung report bolsters this claim. “We expect tight supply next year, and the shortage could worsen (assuming demand forecasts are unchanged) if production at SMD’s A3 line is delayed beyond 3Q (2012).”

Economically, the use of AMOLEDs is more feasible for Apple’s iPhone line than for the iPad, and in fact may be slightly more affordable. According to Samsung, an LTPS AMOLED screen for its Galaxy S series costs $1.01 per cm2. A LTPS LCD used in an iPhone costs $1.02 per square cm2. On this note, we wouldn’t be surprised if Apple did in fact decide to use the brighter AMOLED display, if Samsung’s manufacturing capability meets Apple’s demand.

amoled price per square centimeter apple vs samsung

The likelihood that a next-generation iPad will use AMOLED panels is lower due to costs. If Apple decided to use the AMOLED panels for its 9.7-inch iPad, the estimated cost would hover around $250 to $290 per unit, which would result in a loss of $100 per unit.

More room for batteries

Samsung hasn’t just been investing in pretty pictures. Its subsidiary, Samsung SDI has also been ramping up its rechargeable battery manufacturing capabilities. Since flexible AMOLED panels will be at least 1mm thinner than current LCD panels and use less power, batteries can get bigger to last longer without recharging.

Supplier or manufacturer?

While Samsung has a burgeoning smartphone, tablet and TV business, its priorities clearly extend past devices that carry the Samsung name. The company’s smartphone and tablet businesses are arguably a means of saturating the market with products that use Samsung components, which in turn set the standard for other tablet and smartphone manufacturers. As Samsung’s own report shows, its latest investments ride on the hope that Apple and other competitors will turn to AMOLED displays. Only time will tell if Samsung’s bet will pay off.