China's Panel Weights Have Surged. Will There Be A Top Or Two Strong In The Future?

- Jan 26, 2021-

"Lack of cores and fewer screens" has always been a hidden pain buried in the Chinese industry, and this situation is taking the lead in breaking through the display. In 2020, the display panel industry will change. South Korean Samsung and LG will gradually withdraw from LCD and switch to OLED. The global LCD production capacity will be accelerating to concentrate in China. The trio of China, Japan and South Korea will become the only one in China.


After experiencing a decline in the impact of the epidemic in early 2020, the display panel industry turned around in the second half of the year, and the performance of domestic mainstream panel companies also quickly recovered. After three years of long downward winter, the display panel industry returned to the upward cycle.


In a turbulent and rapidly changing market, the market is becoming more differentiated. The "winner takes all" and "Matthew effect" appear in this typical capital and technology-intensive industry. BOE and TCL Huaxing Optoelectronics rely on capital, technology and industrial chain advantages. Through the rapid expansion of new production capacity and expansion of mergers and acquisitions, the domestic display panel market is forming a situation of two powers competing for hegemony. This has also led the industry to heated discussions and reveries. When the production capacity is rapidly concentrated on the giants, the display panel industry may gradually get rid of the traditional cycle of "overproduction-downward-loss elimination-upward".


According to Dong Min, deputy secretary general of the China Electronics Video Industry Association, the global display panel industry is currently undergoing an era of great changes. "China's aggressiveness, South Korea's contraction, and Japan's withdrawal are the general trend. In the future, the Chinese market is likely to form a super or duopoly situation", Dong Min told the reporter of China Business News that China is undertaking global panel production capacity, but more energy should be put on Put it on the next-generation display technology to prevent the acceptance of backward production capacity and the lack of emerging production capacity.


For display panel giants, they are already thinking and planning new growth poles outside of the traditional market. The Internet of Things, smart cities, smart medical and other related emerging industries have become the focus of attention. Previously, BOE Chairman Chen Yanshun said in an interview with our reporter that BOE is committed to the transformation of the Internet of Things and will build 10-15 innovation centers across the country in the future. This will be a huge cake with endless imagination in the future. Accelerating the concentration of production capacity in China


After years of high investment and losses, China's display panel industry has begun to reap the fruits: the global display panel production capacity is accelerating its transfer to China.


In 2020, South Korean display panel giants LG and Samsung have announced their withdrawal from LCD and switch to OLED, which greatly accelerates the transfer process. Samsung Display is expected to close its LCD production line in March 2021, and LG Display plans to shut down its LCD TV panel production line before the end of 2021. The exit capacity is expected to account for 13.2% of the world. Other panel makers are competing for the share vacated by the exit of Korean manufacturers.


According to CCID Consulting's data, my country's LCD production capacity will account for 50% of the global production capacity in 2020, and the future LCD production capacity will continue to gather in China.


In recent years, with the successive commissioning of multiple G8.5/G8.6 and G10.5 generation lines, my country’s LCD production capacity has maintained rapid growth. In 2019, the total LCD production capacity reached 11.34.81 billion square meters, ranking first in the world. In terms of OLED, With the acceleration of the G6 generation production line production capacity, my country's OLED production capacity currently accounts for more than 10% of the world. It is estimated that the production capacity will exceed 10 million square meters in 2022, accounting for nearly 30% of the global production capacity.


Global production capacity is concentrated in China


China's production capacity has begun to concentrate on giants such as BOE. In 2020, the two major mergers and acquisitions that have attracted much attention in the display panel industry are respectively led by BOE and China Star Optoelectronics.


On December 17, 2020, BOE issued an announcement that the company signed a "Capital Increase Agreement" with Chengdu CEC Panda Display Technology Co., Ltd. to increase its capital by RMB 7.55 billion in the form of a non-disclosure agreement. Previously, on November 25, BOE issued an announcement that it planned to acquire 80.831% of the listed shares of Nanjing China Electric Panda.


Chen Yanshun said that after the merger, BOE’s global market share will increase from 22% to 23% to 28% to 29%, and it will maintain its position as the number one in the world.


And China Star Optoelectronics has acquired Samsung's Suzhou production line and module plant, and plans to use part of its production capacity for display panel production in an effort to enrich its panel business portfolio.


But for the two giants, the asset opportunities and risks of huge mergers and acquisitions coexist. It is a trend for the display panel industry to shift to OLEDs. As high-generation LCD production lines are put into production one after another, overcapacity is a high probability event in the next few years, and the industry may re-enter the down cycle. At the same time, most of the acquired assets are at a loss. How to effectively integrate and turn losses into profits will test the integration capabilities of the giants.


Can you get out of the cycle?


The sudden new crown epidemic in 2020 has caused the global economy to press the pause button and cast a shadow over the display panel industry that has experienced the cold winter of nearly three years. However, since the second half of the year, the Korean production capacity has withdrawn and the epidemic has spawned remote homes. Under the influence of multiple factors such as demand, the display panel industry has returned to the growth channel.


According to Qunzhi Consulting data, TV panel prices will maintain a large increase in November 2020, and it is expected to continue the upward trend in December; Founder Securities Research Institute estimates that as of December, the price of major size panels will increase by more than 20% on average compared to January at the beginning of the year. For example, 32 inches rose from 30 US dollars at the beginning of the year to nearly 60 US dollars.


In terms of inventory, the channel inventory in North America is basically empty, the channel inventory in Europe has entered a low level, and the channel inventory in mainland China is slightly lower than the normal level. In order to cope with the traditional peak season of the spring market, brand manufacturers have strong replenishment demand. The industry believes that panel prices from the end of 2020 to 2021 will continue to be optimistic.


Cheng Lili, research director of Ovi Revo, told reporters that the changes in Panda Electronics and the exit of Samsung and other LCDs in 2021 will have a great impact on the supply pattern. Mainland panel companies BOE and Huaxing Optoelectronics will shoulder the heavy burden as the main ones to undertake the exit of Korean factories. Manufacturers, their performance next year is highly anticipated.


The industry believes that in addition to factors such as home entertainment and remote office, the wave of replacements brought by large-size HD TVs and 5G mobile phones will push the panel industry into a new upward cycle.


According to statistics from Qunzhi Consulting, the average size of global LCD TV panels has increased from 41.3 inches in Q1 in 2016 to 46.1 inches in Q1 in 2020. Even though global TV shipments have stabilized overall, the demand for production capacity due to changes in the demand structure of larger sizes is still growing.


However, the continued increase in display panel prices will soon affect the demand in the terminal market.


The display panel industry is a typical strong cyclical industry. In the upward cycle, panel prices rebound and strong profits will attract hot money influx and a large number of homogeneous projects into production; while in the downward cycle, excess capacity and fierce competition lead to lower prices Tanhe's losses have increased, and many companies have either voluntarily withdrew or eliminated them. In 2020, Korean manufacturers will take the initiative to withdraw from the most brutal LCD market in the down cycle and turn to lay out new OLED fronts.


This is in sharp contrast with the Chinese display panel giants, which have been continuously engaged in production and mergers and acquisitions against the cycle. Under the background of industry downturn and turmoil, BOE and China Star Optoelectronics, a subsidiary of TCL, have successively consolidated their leading positions in the display panel industry, especially in the LCD field, through massive investment and mergers and acquisitions.


"The production capacity is rapidly concentrated on Chinese companies such as BOE and China Star Optoelectronics, so that they have stronger control over production capacity and market prices." A panel industry analyst told reporters that the result may be that the future display panel industry may change from the past. The cyclical violent rotation of the market has transformed into seasonal fluctuations based on demand.


Display panel companies looking for new growth poles


After three years of sluggishness, the display panel industry is entering an upward cycle. With the rebound of panel prices, the profitability of display panel companies has rebounded rapidly. In the third quarter of 2020, BOE’s revenue reached a record high in a single quarter, with a net profit of 1.34 billion yuan, a year-on-year increase of 629.3%. .


After gaining a foothold in the field of traditional display panels, Chinese panel companies represented by BOE began to look for new growth poles.


"BOE positions itself as'an Internet of Things company that provides smart port products and professional services for information interaction and human health.'" Chen Yanshun told reporters at the BOE Global Innovation Partner Conference held on November 18, 2020. In 1991, BOE has been promoting the transformation of the Internet of Things along the strategy of “opening both ends, core-holding air/devices and harmony”.


The reporter noticed that since 2013, BOE has been seeking transformation. In that year, BOE established a smart system business group and built four major business systems including smart manufacturing, smart retail, smart car and smart energy.


Wang Dongsheng, former chairman of BOE, once said that for BOE, it is difficult for BOE to improve its profitability through the panel industry alone. Based on this consideration, it was proposed from the 2013 Annual Shareholders' Meeting to start looking for new profit growth points for BOE.


In 2016, BOE proposed a transformation strategy for the Internet of Things and began to transform to the Internet of Things. In 2019, BOE established a new industrial cooperation platform, the Smart System Innovation Center.


According to reports, the next BOE smart system innovation business is the focus of planning and development. BOE’s focus on smart finance, smart retail, smart medical engineering, industrial Internet, smart car linkage and smart city public services are the main areas of domestic Internet of Things expenditures. industry.


According to IDC's calculations, the domestic market in these areas will reach 500 billion US dollars in the next five years. In view of this, BOE will plan 10-15 innovation centers nationwide in the future, and focus on six market segments by building five platforms in innovation centers.


However, from the performance of BOE in the first half of the year, port device revenue accounted for 92.6%, while Smart IoT and Smart Medical were 12.8% and 1.2%, respectively. They still rely heavily on the panel-based port device business. However, smart Internet of Things and smart medical workers can become hopes and new growth points for hedging the strong cycle risks of panels in the future.


"From the perspective of the current supply and demand of the display panel industry, from the second half of 2020 to 2021, the panel industry will be in a business cycle. In addition, relying on port devices to obtain more resources from various local governments will be the next transformation of BOE. Form a better support," said the above-mentioned analysts. However, whether it can be recognized by the capital market and truly become a new growth pole for BOE still needs a long period of cultivation and needs to be tested by the market.