Samsung Electronics is taking the official steps to spin off its LCD manufacturing business into a separate firm—Samsung Display Company—as worldwide demand for LCD panels declines and profits from LCD products dwindle. The spinoff still needs to be approved by shareholders, but is expected to be approved no later than April 1.
The move is a dramatic one for Samsung: it is the world’s largest manufacturer of LCD displays, yet it still lost some 750 billion won (about $667 million) on LCD production last year. The company plans to put another 750 billion won into Samsung Display Company to help get it launched.
Making LCD displays would seem to be a slam-dunk for any technology company: LCDs fuel everything from televisions to computers to smartphones to tablets, and seem to be turning up in an enormous range of products: the average consumer these days likely has several LCD displays in their household. However, LCD manufacturers have been struggling in recent years: manufacturing capacity they built earlier in the decade has created a significant increase in supply just as demand for LCD displays—particularly larger units used in televisions and signage—has declined. The result is that instead of being a highly-valued niche product, LCDs are now a commodity product—which means razor thin margins and manufacturers cut their prices in an effort to attract and retain customers.
Industry watchers have Samsung eyeing a possible merger between its new LCD unit and Samsung Mobile Display, which manufacturers displays for phones, tablets, and other portable devices. In the meantime, Samsung is expected to concentrate its larger television display business on OLED technology, which is expected to account for up to $20 billion in sales by 2018. Late last year, Samsung also bought out Sony’s interest in the companies’ S-LCD joint venture.