LX Semicon, Korea's largest fabless (chip design) corporations, is grappling with a double blow as Taiwan's Novatech expands its share after penetrating Apple's supply chain and TV market demand remains sluggish. On top of that, shipments of display driver ICs (DDIs) for mobile devices to Chinese clients have fallen, bringing a "cold winter." In particular, Novatech has been cementing its position as a fabless powerhouse across multiple areas, including not only DDI chips but also application-specific integrated circuits (ASICs), thanks to recent intensive investments.
According to the securities industry on the 16th, LX Semicon posted operating profit of 14 billion won in the third quarter, down about 60% from a year earlier despite a favorable exchange rate and the seasonal peak. Taiwan's Novatech, which began growing its share in the second half of last year, has entered the supply chain of China's BOE, one of LX Semicon's biggest clients, and volumes are rising. Analysts say profitability is deteriorating even as shipments of mobile DDIs increase amid intensifying price competition.
A DDI is a semiconductor that helps deliver sharp, vivid images by controlling each pixel on displays used in smartphones, TVs and tablets. Samsung Electronics leads the DDI market with about a 30% share globally. Novatech and LX Semicon follow. In this context, Novatech is increasing deliveries to LG Display and BOE by cutting component prices and other strategies to take market share from LX Semicon.
This year, LX Semicon is understood to have ceded more than half of the DDI volume for Apple's iPhone series within LG Display's DDI supply chain to Novatech, even though the two once belonged to the same group. LG Display at one time sourced DDIs exclusively from LX Semicon, but it diversified its supply chain last year to cut costs. LX Semicon offset that by increasing deliveries to BOE last year, but starting this year, BOE's broader supplier diversification is expected to make that difficult as well.
Hyundai Motor Securities projected that LX Semicon will also post weak results in the fourth quarter this year. It forecast sales of 411 billion won, down 18.2% from a year earlier, and operating profit of 17 billion won, down 42.3%. Despite year-end discount seasonality, demand for large DDIs for TVs remains sluggish, and a memory crunch is destabilizing IT product supply chains, extending the headwinds.
Kim Jong-bae, an analyst at Hyundai Motor Securities, said, "It appears the competitor (Novatech) is expanding its share in smartphone DDI chips," and added, "Since the competitor entered major clients' supply chains in the second half of last year, a decline in results seems inevitable despite higher shipments of P-OLED chips."
Chinese clients are also moving to diversify or internalize their DDI supply chains. China Star (CSOT), which bought the large liquid crystal display (LCD) plant in Guangzhou from LG Display, is said to be keeping the existing component supply chain for contracted volumes but switching to Chinese suppliers, including for DDIs, for subsequent volumes.
The problem is there is no clear rebound point next year either. Key revenue sources—TVs, IT and mobile—are all in difficult straits, and demand uncertainty is growing. That is likely to directly hit earnings. While the average selling price (ASP) may edge up in some items as OLED panel shipments increase, experts say there are too many headwinds overall.