To offset rising memory costs, Samsung purchased 15 million OLED panels from CSOT (China Star Optoelectronics Technology).

Industry sources revealed on March 16 that South Korean tech giant Samsung Electronics has officially decided to break down long-standing internal supply barriers and purchase approximately 15 million flexible OLED panels from its Chinese competitor, TCL's subsidiary, CSOT. This order will primarily be used in Samsung's flagship mid-to-low-end models, the Galaxy A57 and Fan Edition (FE) series, and mass production is expected to begin next month.

The catalyst for this major supply chain adjustment is the recent surge in memory chip prices. As Samsung Electronics' two main business pillars, the semiconductor and mobile experience (MX) divisions have always been complementary.

However, with the continued rise in DRAM and NAND Flash prices, Samsung Electronics' mobile division is facing unprecedented cost pressure. Smartphone end-users are price-sensitive and cannot directly pass on the high memory costs, forcing the MX division to find ways to stem the bleeding in other components.

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“Memory prices are a non-negotiable market phenomenon, but there are alternatives for displays,” analyzed an industry insider close to Samsung Electronics. “With everyone striving to cut costs, choosing panels with higher cost-performance ratios has become the only way forward.”

It is estimated that the OLED panels offered by CSOT (China Star Optoelectronics Technology) are at least 20% cheaper than those from Samsung Display, a subsidiary of Samsung itself. For mid-to-low-end models with huge shipment volumes, this 20% cost difference translates to hundreds of millions of dollars in profit margins.

For a long time, Samsung Electronics has adhered to a “vertical integration” strategy, with its high-volume models such as the Galaxy A series almost entirely using panels from Samsung Display to ensure stable quality and keep profits within the company. However, this time, cost logic prevailed over internal protectionism.

It is understood that this decision by Samsung Electronics’ MX division has caused a major upheaval within the group. Samsung Display strongly opposed it and appealed to higher management, attempting to salvage this huge order.

After all, the Galaxy A series accounts for more than half of Samsung's total smartphone shipments (approximately 240 million units last year). Losing supply rights in this key market will be a heavy blow to Samsung Display's revenue and capacity utilization. However, faced with the MX division's firm commitment to cost reduction, Samsung Display's protests ultimately failed.

For CSOT (China Star Optoelectronics Technology), securing an order for 15 million panels from Samsung Electronics is undoubtedly a major breakthrough. This not only signifies that its technological strength and yield rate have been recognized by a top global smartphone manufacturer, but also allows it to successfully lock in a key customer: the world's second-largest smartphone manufacturer.

It is worth mentioning that with the change in panel suppliers, the related chip supply chain will also shift accordingly. It is expected that models such as the Galaxy A57, which use CSOT panels, will increasingly use display driver chips (DDICs) and power management chips (PMICs) from suppliers in mainland China or Taiwan, further driving the synergistic effect across the entire pan-Asian semiconductor ecosystem.

However, this change is by no means good news for Samsung Display. In addition to losing the large order for the Galaxy A series, Samsung Display also faces a shrinking overall market demand. To cope with soaring storage costs, several mobile phone manufacturers, including Samsung Electronics, are scaling back their low-priced smartphone product lines, leading to an overall decline in demand for mid-to-low-end panels. This double blow has cast a long shadow over Samsung Display's profit prospects this year.

Observers point out that Samsung Electronics' decision may not be solely driven by short-term cost considerations, but rather reflects a long-term strategic intent to diversify its supply chain. "They don't want to rely solely on affiliated suppliers, avoiding the inefficiencies and innovation inertia that come with internal monopolies."