news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

in the first half of 2023, the panel industry began to heat up quietly, and by mid-2024, mainstream panel companies had submitted remarkable performance reports. but this round of rising cycle is different from the past.

from the outside to the inside, we try to unlock the code for the panel industry to achieve "moderate growth", and perhaps it can also provide some thoughts for the current exploration of a new paradigm for the development of china's manufacturing industry.

01

say goodbye to the involutionary model and turn to profit-first

1. different cycles

previously, the main impression left by the panel industry was that of rapid opening and closing, which was also the case in the previous cycle not long ago.

let’s go back to four years ago. starting from 2020, large-scale mergers and acquisitions have frequently appeared in the panel industry. tcl technology acquired samsung’s lcd production line in suzhou for us$1.08 billion, and boe acquired the equity of nanjing electronics panda for 12.1 billion yuan. the embryonic form of head concentration has begun to emerge.

then, the global electronics industry ushered in a round of demand blowout under special circumstances, which directly caused a pulse in panel prices. at that time, panel companies adhered to the idea of ​​expanding their production and sales in pursuit of market share. however, in the third quarter of 2021, as market demand plummeted after overdraft, panel prices collapsed, and the industry had to swallow the bitter fruit of "expansion and involution": the high growth in performance was short-lived.

this round of rising cycle is different. although the recovery rate of market demand and price is relatively mild, taking the price of lcd tv panels as an example, it has been rising since the second quarter of 2023, with a short correction in the off-season at the end of the year, and has entered a continuous rising channel in 2024. it has been fluctuating moderately at a high level. from the specific data, according to witsview statistics, the cumulative increase in the price of 43-inch, 55-inch and 65-inch lcd tv panels in the first half of this year was 10.2%, 9.7% and 7.7% respectively; the price of medium-sized panels such as monitors and notebooks remained basically stable.

however, the performance of panel manufacturers is outstanding. tcl technology's semi-annual report shows that its semiconductor display business achieved a net profit of 2.696 billion yuan in the first half of the year, an improvement of 6.145 billion yuan year-on-year, especially in the second quarter, with a single-quarter profit of more than 2 billion yuan; another panel leader boe achieved a net profit of 2.284 billion yuan in the first half of the year, a year-on-year increase of 210%; rainbow also achieved a net profit of 910 million yuan, a year-on-year increase of 439%.

2. profit-first strategy replaces involutionary model

there is no doubt that in this round of recovery, the industry's on-demand production has played a key role in optimizing supply and demand.

on the one hand, as the industry's production capacity centers accelerate their convergence towards mainland china, it provides a basic guarantee for leading manufacturers that control most of the production capacity resources to change their business strategies.

after experiencing the ups and downs of past cycles, the panel industry has gradually realized that the ultimate meaning of competition is not to kill the opponent, but to earn a stable and reasonable profit and promote the healthier and more sustainable development of the industry and the upstream and downstream of the industrial chain. as a result, the core pursuit of the industry has naturally changed from "market share first" to "profit first".

in other words, as the supply side rationally invests in production, the industry's supply and demand balance will tend to stabilize, driving the "asymmetric upward fluctuation" in panel product prices. market expectations will be clearer, and the upstream and downstream of the industrial chain will be able to further optimize inventory management, thereby helping panel manufacturers and upstream and downstream companies to achieve stable profits.

on the other hand, in fact, since the end of 2022, the leading companies in the panel industry have begun to set an example and try to produce on demand. by 2023, the results have gradually become apparent, effectively achieving the adjustment of supply and demand balance and stabilization of panel price fluctuations.

taking the price fluctuation of panels in the past year as an example, for example, the price of a 55-inch panel in the 21-year cycle ranged from less than $100 to a maximum of $228, with a fluctuation of 133%. in this cycle, the price ranged from $81 to a maximum of $136, with a fluctuation of only 68%, which is only half of the previous cycle. the relative stability of panel prices has also increased the certainty of the display industry and reduced the operating risks of enterprises.

still waters run deep. with the slow improvement of profitability and the reduction of volatility, under the new macro-background, the panel industry is also expected to become the first industry to solve the problem of deflation and achieve high-quality development.

figure: panel price trend; source: witsview

02

from production capacity to technology, new highlights of the panel industry in the new cycle

when discussing the structure and future development trends of the panel industry, one topic that cannot be avoided is the rise of domestically produced panels.

1. production capacity increases and decreases, and the leading advantage of domestic products is further expanded

according to omdia's statistics, in 2023, china's mainland panel production capacity, calculated by area, has reached 67.8% of the world's total, an increase of 2.3 percentage points year-on-year. as the advanced panel production lines planned by chinese companies in the early years gradually reach full production, by the end of this year, china's share of global production capacity will be close to 70%.

in the field of lcd tv panels, which is the ballast of demand, the advantages of chinese mainland panel companies will be further highlighted. looking at the world, there are still some large-size tv panel production capacity in taiwan, china, but its process accuracy, technical level, cutting efficiency, etc. are no longer comparable to the competitiveness of chinese panel factories;

at the same time, the production capacity of overseas japanese and korean manufacturers is also being cleared out at an accelerated pace. sharp's 10th generation line in sakai city, japan has been officially shut down, and the sale of lgd's guangzhou factory has accelerated. mainland panel manufacturers such as tcl huaxing, boe, and hkc will eventually have full control over the lcd tv panel market.

after solving the mainstream battlefield of large-size lcd, the panel business of the mainland is also further occupying the medium-size panel market in application fields such as it and automotive. it is understood that a large proportion of the global medium-size panel production capacity is still composed of overseas 6th generation and below production lines, but this part of the production capacity has been difficult to meet market demand. over the past 23 years, overseas manufacturers have closed many 5-5.5 generation old lines, which undoubtedly confirms this trend. the mainland panel companies with more high-generation lines and advanced technologies are rapidly rising and becoming the leaders of medium-size panels.

take tcl technology as an example. according to its semi-annual report and public information, tcl technology invested 35 billion yuan in guangzhou in may 2021 to build the tcl huaxing ultra-high-definition new display t9 production line, entering the it display field and precisely targeting the mid-size market.

the t9 production line has become the world's most advanced oxide semiconductor display panel production line with its independently developed hfs and high-mobility oxide technologies. t9 was put into production at the end of september 2022, and achieved the first phase of capacity ramp-up target as planned at the end of 2023; the oxide technology was successfully mass-produced, and the full launch of the product line and the full introduction of brand customers have been achieved.

as of the first half of this year, tcl huaxing's overall monitor shipments have risen to second place in the world, and its e-sports monitor share remains first in the world; ltps laptops rank second in the world; ltps tablets rank first in the world, and ltps automotive shipments rank third in the world.

it is worth mentioning that in early august, lgd and tcl technology announced that tcl huaxing had obtained the priority bidding right for lgd's guangzhou factory. if the acquisition is successful, the ips technology of lgd's guangzhou panel factory will undoubtedly complement tcl huaxing's technology. moreover, lgd's panel factory and huaxing t9 are both located in zengcheng district, guangzhou. the combination of the two is expected to form an industrial cluster effect, which will increase tcl huaxing's competitiveness in the mid-sized it field.

2. technology is overtaking on the curve, and the last bastion of foreign capital is being breached

after 20 years of catching up, domestic enterprises have already taken the lead in lcd technology. now the commanding heights of global display industry technology are concentrated on oled, especially flexible oled panels. related products are mainly used in mid-to-high-end mobile phones. due to the large market space and rapid technological changes, they were once regarded as the last technological bastion of korean factories.

however, starting from 2022, the breakthrough of domestic panel companies in small size has become an irresistible trend. more and more mobile phone manufacturers have switched to domestic panel companies as their main suppliers. in the field of oled, there is even a hot scene where it is hard to get a screen.

according to cinno statistics, domestic panel companies have been making great strides in the multi-billion dollar oled market over the past two years. in the first half of 2024, south korea's share of the global amoled smartphone panel market fell below 50%, while domestic manufacturers' shipment share exceeded 50%, accounting for 50.7%, an increase of 10.1 percentage points year-on-year.

especially in terms of flexible oled mobile phone panels, according to statistics from magillo consulting, in the first half of this year, the global flexible amoled smartphone panel shipments ranked top 5, with chinese companies occupying 4 seats, among which boe and tcl huaxing ranked among the top three in the world.

figure: global flexible amoled smartphone panel shipment ranking in the first half of 2024, source: magirror research

contrary to popular belief, in the small-size replacement trend, what attracts mobile phone brand customers to domestic panel manufacturers is not just the price advantage, but the solid technical strength. from materials to manufacturing processes, it can be seen that domestic companies are leading the industry in technology.

for example, four years ago, the main supplier of amoled panels used by xiaomi 10 was samsung of south korea, and tcl huaxing entered the market but only played a supporting role. however, the xiaomi 14 series, the most popular domestic high-end mobile phones since 2023, all use the flexible oled ultra-narrow frame straight screen exclusively supplied by tcl huaxing.

with the industry-leading c8 luminescent material, ltpo technology, ultra-narrow borders, ultra-high resolution and other advantages, the screen has become a major selling point of this phone: the ultra-high screen brightness reaches 3000nit, which is the highest brightness screen of xiaomi so far, but the power consumption is reduced by 17%. in other words, after four years, domestic oled screen manufacturers such as tcl huaxing have achieved a counterattack against traditional powerhouses such as samsung in products with higher requirements.

picture: tcl huaxing exclusively supplies xiaomi 14ultra screen, picture source: tcl huaxing official account

3. with the advantages of the entire industry chain, domestic panel companies have great potential

from lcd to oled, from catching up in market share to competing in technology, the comprehensive strength and development potential of domestic panel companies have become unstoppable.

just as changes in communication technology have given rise to the prosperity of the internet, and the value created by the internet has also promoted the rapid development of communication technology, the dual leadership of domestic panel companies in production capacity and technology has benefited to a certain extent from the full industrial chain advantages of the domestic display industry, which will inevitably help the collective rise of the domestic consumer electronics industry chain.

from the earliest days when televisions were a symbol of status in the village to today when televisions have become the most popular and affordable home appliances, domestic panel companies are the biggest unsung heroes in this technological popularization. domestic panel companies such as tcl huaxing have taken over the banner of industrial development, and have achieved leading production capacity by leveraging the advantages of high-generation lines. at the same time, they have built the synergy advantages of the chinese display industry chain with strategic partners such as tcl electronics, and are leading the trend of large-size upgrades and high-end tv panels.

a less well-known statistic is that in mainland china, the average size of tvs shipped is close to 60 inches, while the global average size of tvs shipped is only about 50 inches. china leads the world in the trend of large-size tv panels, thanks to the most cost-effective domestically produced panels.

in the booming mobile internet era, infrastructure builders and domestic leaders in communications equipment, huawei and zte, have surpassed foreign companies such as ericsson and nokia to become global giants.

currently, we are seeing the same script playing out in the mobile phone, nb, automotive and other display market segments.

in this new panel cycle, whether lcd or oled, the leading domestic panel manufacturers have become quite powerful, with comprehensive advantages in production capacity, technology and industrial chain leading the world. as the profit-first idea in the new development stage has aroused widespread resonance, domestic panels are expected to continue to reap stable profits. as a leading company, tcl technology will also be one of the biggest beneficiaries of the new trend.

03

from output deflation to entering a cash flow high return cycle, setting a new paradigm for china's manufacturing industry

1. after deflation, the panel industry is expected to enter a stage of high cash flow returns

china is transforming from a high-speed development stage to a high-quality development stage, and every industry will have to find its own value anchor again. in the past, the asset-heavy high-tech manufacturing industry relied on capacity deployment, but in the future it will inevitably need to transform into a positive cycle business model that takes into account both high returns and high growth.

from global experience, many industries have gone through this process. for example:

operators, as the infrastructure of ict, have extremely high capital expenditure intensity. however, after each round of capital expenditure cycle, they enter the return period. for example, after the 5g construction cycle, the cash flow of overseas operators has been significantly reversed in recent years and shareholder dividends have been increased.

the semiconductor foundry industry has an annual capital expenditure of hundreds of billions of dollars. however, leading companies such as tsmc and umc can rely on their own operating cash flow to cover the high capital expenditure and return the abundant cash flow, thus leading to rounds of industrial upgrades.

with chinese panel companies making breakthroughs in all sizes, achieving comprehensive reversal from production capacity to technology, and from financing and expanding production to achieving "self-financing", the development stage of the panel industry is entering a more mature period. the industry, especially the leading companies, are expected to enter a positive free cash flow and enter a positive cycle of high r&d and high output.

we can also see clues in tcl technology's financial statements. the company's capital expenditure has gradually declined in the past three years, and operating cash flow has accumulated rapidly. with the arrival of the industry's cash flow improvement cycle, this trend is expected to continue in the future.

taking tcl technology's 2024 interim report and 2023 annual report as examples, the company's net cash inflow from operating activities was 25.3 billion yuan and 12.6 billion yuan, respectively, and fixed asset investment was 29.6 billion yuan and 12.4 billion yuan, respectively. it can be seen that the current situation is the turning point for the company's operating cash inflow and fixed asset investment outflow to achieve a "positive scissors gap".

after saying goodbye to the high capital expenditure cycle, we will hopefully see high cash flow supporting companies to increase their investment in technology and other aspects, further refine their products and increase added value.

for shareholders, positive cash flow will also increase returns. looking ahead, based on the combined effects of orderly capital expenditures and a positive cycle of r&d returns, panel companies such as tcl technology will also have more retained profits to return to shareholders.

source: company financial reports

2. inspiration for china’s manufacturing industry: ineffective internal circulation is no longer the solution

since 2021, as domestic and foreign demand continues to weaken, the problem of overcapacity has become a major problem impacting many of china's manufacturing industries.

according to data from the national bureau of statistics of china, china's industrial capacity utilization rate has continued to decline by more than 4% since 2021. in each round of overcapacity, most companies tend to cut prices and roll back, eventually falling into overall industrial losses.

as the current society enters the era of stock, ineffective internal circulation is no longer the solution, but high-quality development is.

if everyone outputs homogeneous and low-priced products, or even dumps them in the market, no one will be able to escape the deflationary prisoner's dilemma. the fact that the entire panel industry suffered collective huge losses in 2022 is strong proof of this, but this painful lesson is also a milestone for the panel industry to open up a new pattern.

by switching to a high-quality development approach, we see that the entire industrial chain benefits.

for example, the leading position of domestic panel enterprises has fed back to the entire industry. if we take televisions as an observation section, we can see that in the past four years, chinese tv brands represented by tcl electronics, hisense vision, xiaomi, etc. have quickly seized market share in the world.

at the same time, with the implementation of the profit-first strategy and the convergence of panel price fluctuations, panel companies have entered their own return cycle in terms of profits and cash flow after reshaping the global competitiveness of downstream brands.

figure: changes in global tv market share from 2020 to 2023; source: omdia, zhongtai securities

after more than 20 years of exploration and multiple rounds of cyclical baptism, the display industry has finally transformed its historical illness into a new development paradigm of harmony and symbiosis. perhaps more importantly, the new paradigm of the display industry has provided a valuable new perspective for china's manufacturing industry to get out of its predicament.