Samsung's LCD panel business unit, which accounts for approximately 80 per cent of revenue of its Display Panel business, is primarily responsible for producing large-size LCD panels for both the TV and IT industry, in addition to some tablets and smaller panels. Prior to 2011, the business unit had predominantly been profitable, buoyed by rising demand for LCD TVs in particular - across 2009 and 2010, the unit recorded an operating profit of $3.1bn, at an operating margin of 6.7 per cent, with annual revenue growing to $23m by the end of 2010. This changed dramatically in 2011, with the division recording four straight quarters of unprofitability, revenues declining to $21m and an overall negative operating margin of 2.6 per cent.

The declining margins faced by Samsung in its LCD business unit are symptomatic of the general malaise which has affected the LCD panel industry in 2011. With the LCD panel production industry largely consolidated into a select group of South Korean, Taiwanese and Chinese suppliers (AUO, CMI, LG Display and Samsung accounted for 85 per cent of all LCD TV panel shipments in 2011), the over expansion of LCD fab capacity in 2010 and the first half of 2011 has led to rapidly declining average selling prices (ASP) and profit margins for supplier, as demand for TV and IT panels slowed down drastically due to the global economy.

In 2011, AUO, CMI, LG Display, Samsung and Sharp all lost money in their LCD panel operations, at negative operating margins of 13.8 per cent, 12.4 per cent, 4.4 per cent, 2.6 per cent and 0.3 per cent respectively. In this case of all five of these panel suppliers, these were significantly down on 2010 margins (in which only CMI were unprofitable), and, with ASPs actually up amongst all vendors, reflect the transition to larger size panels and more advance features such as LED and 3D, but also the below expected adoption and highly competitive nature of the industry. It is notable that Samsung, LG Display and Sharp, all of whom produce significant quantities of LCD panels for their own internalised products or sister companies, fared better than AUO and CMI, who produce purely for other OEMs. This in itself is highly indicative of the issues the panel makers face between supply and demand - those who have been able to largely control their own demand and produce panels accordingly have been damaged less by the disappointing global LCD TV sales in 2011.

Looking forward, the benefits offered by internalised LCD panel production are still advantageous to Samsung from a TV and monitor perspective (allowing it greater control over features such as screen size and backlighting than many rivals), so selling off production facilities would reduce these competitive advantages even if it continues to use the new company's product. However, one advantage to the panel side would be the separation of the LCD panel production from a specific "Samsung brand", giving them the ability to develop partnerships with other brands freely, without bias, opening up more demand opportunity.  The mooted potential merge with the Mobile Display business makes far more potential sense - creating opportunities for synergy amongst the current LCD panel range, whilst also potentially encouraging the production of larger sized OLED screens for TV purposes (based on existing mobile OLED technology), the first of which will be launched by Samsung later in 2012.