While the scale of finished smartphones produced within South Korea has decreased significantly, the critical components that determine a smartphone’s performance—such as memory semiconductors, OLED (organic light-emitting diode) panels, and camera modules—remain dominated by South Korean companies in the global market. The analysis suggests that although final assembly plants have largely moved overseas, the competitiveness of South Korea’s domestic electronics industry, centered on high-value-added components, remains robust.
According to a report titled “Production and Supply Chain Map of South Korea’s Major Manufacturing Industries” published by the Bank of Korea on the 27th, domestic production value for wireless communication devices fell 27.7% from 94 trillion won (approximately $64.0 billion) in 2014 to 68 trillion won (approximately $46.3 billion) last year. Over the same period, exports declined 36.3% from $31.1 billion to $19.8 billion, while the number of businesses dropped from 3,226 to 2,543 and the workforce contracted from 171,000 to 135,000.
The primary driver behind this contraction in domestic smartphone production was Samsung Electronics’ (005930.KS) decision to relocate major manufacturing bases to Vietnam, Brazil, and Egypt starting in the mid-2010s. The Gumi plant, which once mass-produced Galaxy smartphones, has been transformed into a “mother factory” responsible for initially establishing new product manufacturing processes and verifying efficiency, as well as producing select flagship models. Compounding this, LG Electronics’ (066570.KS) complete withdrawal from the smartphone business in 2021 led to a sharp decline in South Korea’s smartphone exports.
However, the Bank of Korea assessed that these changes do not signify a weakening of the domestic smartphone industry’s competitiveness. While final assembly occurs overseas, South Korean companies continue to supply the core components that dictate product performance, underpinning the global supply chain. Key players include Samsung Display, LG Display (034220.KS), Samsung Electro-Mechanics (009150.KS), and LG Innotek (011070.KS).
Samsung Display reigns as the largest supplier of OLED panels not only for Samsung Electronics but also for Apple’s iPhones. LG Display has also been rapidly expanding its presence in the mobile OLED panel market. Samsung Electro-Mechanics and LG Innotek are accelerating business diversification beyond smartphone components. LG Innotek is building a production line for automotive AP modules at its Gwangju plant, while Samsung Electro-Mechanics is expanding its advanced electronic component production capacity, centered on its MLCC (multilayer ceramic capacitor) plant in Busan and its semiconductor substrate plant in Sejong.
Simultaneously, South Korea, which once led the global display market, is now striving to maintain its competitiveness by championing OLEDs over LCDs (liquid crystal displays). As China seized the LCD market through price competitiveness, domestic firms shifted strategy to focus on high-value-added products such as OLEDs for smartphones, laptops, and vehicles.
The Bank of Korea report noted that domestic display industry production value decreased from 77.2 trillion won (approximately $52.5 billion) in 2014 to 62.3 trillion won (approximately $42.4 billion) last year. Exports also fell from $32.4 billion to $16.99 billion during the same period, and the workforce nearly halved from 112,000 to 59,000. The Bank of Korea, however, analyzed that this industrial downsizing reflects a restructuring from low-cost LCDs to high-value OLEDs rather than a simple erosion of competitiveness.
Indeed, as of last year, China accounted for approximately 90% of global LCD production, and both Samsung Display and LG Display have successively wound down their low-margin, large-size TV LCD panel businesses. Domestic firms are concentrating on OLEDs instead. OLEDs, which are self-emissive, offer superior picture quality and thinner form factors compared to LCDs, rapidly expanding their application range to include foldable smartphones, laptops, and automotive displays.
Samsung Display produces small and medium-sized OLEDs for smartphones, QD-OLEDs, and next-generation IT OLEDs, centered on its Asan and Cheonan facilities. LG Display is expanding its large-size OLED business in Paju and its automotive and small-to-medium OLED businesses in Gumi.
However, the display manufacturers’ exit from the LCD business has created new supply chain challenges. As panel makers ceased production of TV LCD panels, Samsung Electronics and LG Electronics have increasingly sourced their supply from Chinese panel manufacturers. With the domestic supply chain effectively gone, their price negotiation power has weakened compared to the past, creating a structure where they are directly exposed to the supply conditions of Chinese firms.
For this reason, Samsung Electronics and LG Electronics are focusing on a premium strategy to expand the proportion of high-margin OLED TVs and micro LED TVs. While they continue to sell LCD TVs, the strategy is to reduce price competition pressure by increasing sales of high-end products. However, according to market research firm Omdia, TV OLED panel shipments grew only 1.5% year-on-year last year. While OLED panel growth for monitors, tablet PCs, and laptops is steep, the transition speed in the TV market is relatively slow.
Industry observers believe that while OLED TVs are growing, centered on the premium market, LCD TVs still account for the majority of the market, meaning a complete generational shift will require more time.
In its report, the Bank of Korea explained the need to understand manufacturing from a supply chain perspective, noting that “production bases across the country and various industries are organically connected until a single product is completed.” The assessment is that South Korea’s smartphone industry is being reshaped from a finished-goods manufacturer into a global supplier of critical components, as research and development for core parts and advanced production facilities remain on domestic soil even as final assembly moves overseas.