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text｜jian feiran

"if you don't go out to sea, you're out."

during the 2024 national people's congress and the chinese people's political consultative conference, a comment made by tcl founder li dongsheng resonated in many industries.

in the past two years, many industries in china have faced similar challenges: market growth has slowed down, and everyone has to compete with their peers, which has finally made everyone almost breathless. what else can be done at this time? according to li dongsheng's observation, if the skills learned in domestic competition are taken to overseas competition, chinese companies are still quite powerful.

he has the confidence to make this judgment. the tcl electronics 2024 interim performance report released recently shows that the persistence in globalization and mid-to-high-end transformation has not only brought tcl electronics a substantial growth that far outperforms the industry, but also made the outside world see that the resilience and room for growth of the tv industry are far higher than we imagined.

perhaps encouraged by this, the technology giant released a new signal at its earnings conference - it will step on the "accelerator" to increase gross profit and accelerate its climb toward the upper part of the industry chain's smile curve.

investors are certainly happy to see this, but for the companies themselves, stepping on the accelerator means escalating competition, which undoubtedly increases the difficulty of the challenge.

01

the three drivers that boost performance

large screen, mid-to-high-end, overseas market

from the perspective of the global tv market, there are two main keywords in the first half of 2024: one is gradual recovery, and the other is the increase in concentration of leading brands.

this is reflected in the financial report of leading company tcl electronics, which shows a significant increase in three key indicators: shipment volume, revenue and net profit.

in the first half of 2024, tcl electronics achieved revenue of hk$45.494 billion, a year-on-year increase of 30.3%; adjusted net profit attributable to shareholders was hk$654 million, a significant year-on-year increase of 147.3%. in terms of business, the main segment - display business including tvs, tablet phones, and smart commercial displays, saw revenue increase by 21.3% year-on-year to hk$30.135 billion. this is mainly due to the strong recovery of the tv business. in the first half of the year, tcl tvs increased in both volume and price, with global shipments reaching 12.52 million units, a year-on-year increase of 9.2%, and the average price increased by 12.8% year-on-year. in the second quarter, its shipments increased by 12.9% year-on-year and 14.3% month-on-month.

everyone in the consumer electronics industry knows what double-digit growth means. in 2023, global shipments of color tvs fell 2.1% year-on-year, hitting their lowest point in nearly a decade. in the first half of this year, the industry finally saw signs of recovery: according to counterpoint data, global tv shipments in the second quarter grew 3% year-on-year to 56 million units.

▲image source: citic construction investment

the industry's single-digit growth rate is hard-won. against this backdrop, tcl electronics is still able to achieve double-digit growth, which is hard not to attract market attention. while many people are worried that television has become a sunset industry, industry giants are bending down to pry open new imagination space.

as for where the growth comes from, based on comprehensive financial reports and industry research information, nonoise found the "three driving forces": large screens, mid-to-high-end, and overseas markets.

constrained by the overall slowdown in demand for the tv industry, leading brands including tcl electronics are concentrating on the mid-to-high-end market. the mid-to-high-end market mainly includes larger display screens and more advanced display technologies.

tcl electronics directly benefits from the "large-screen strategy": in the first half of 2024, the company's global shipments of 75-inch and above tvs increased by 34.5% year-on-year, and the shipment share increased by 2.3 percentage points to 11.8%. the global average size increased from 49.9 inches to 51.7 inches, of which the average size in the chinese market reached 61.7 inches. from the perspective of global market trends, 55 inches has become the dividing point for "positive and negative" growth in shipments. according to data from luotu technology, in the first quarter of this year, global shipments of panels of 55 inches and above rose across the board, while panels below 55 inches shrank across the board. taking tvs below 40 inches as an example, counterpoint data shows that in the second quarter of this year, shipments of this size fell 7% year-on-year.

"the process of large-size development is really too fast." tcl electronics ceo zhang shaoyong judged in an interview with 21st century business herald last year that the panel industry's production capacity must be fully utilized in the second half of 2024 to meet market demand.

it can be foreseen that the market share gradually given up by small and medium-sized tvs will continue to support the growth space of large-screen tvs.

in terms of display technology, mini led is becoming the fastest growing product segment in the first half of the year, with global mini led tv industry shipments increasing by 74.3% year-on-year. as a pioneer in mini led technology, tcl mini led tv has also reaped more dividends - in the first half of 2024, global shipments of this category increased by 122.4% year-on-year, far exceeding the industry market; overseas markets performed particularly well, with shipments increasing by 124.7% year-on-year.

overseas markets are of great significance to tcl. in the first half of 2024, the overseas revenue of tcl's large-size display business was twice that of the chinese market. however, due to the continuous decline in domestic demand in the industry, the retail volume of the domestic tv industry fell by 10.7% year-on-year, and the importance of overseas layout became more prominent.

by region, tcl tv's overseas efforts have their own characteristics: the north american market is in the stage of adjusting channels and product structure, with the goal of entering more high-end channels and laying out more mid-to-high-end skus, so the overall shipment scale has been stable; in emerging markets such as europe and latin america, the middle east and africa, the company is increasing investment in exchange for high growth.

the most typical example is the european market. by increasing investment in europe's top channels - 48 of the top 50 channels have been entered - and through precise marketing of sports events in the sports year, tcl tv's european shipments increased by 40.1% year-on-year in the first half of the year, and its retail market share ranked top two in france, sweden and poland.

in terms of emerging markets, tcl tv shipments in latin america and the middle east and africa increased by 11.6% and 25.4% year-on-year respectively. in fact, not only tcl, but also industries including home appliances, new energy vehicles, mobile phones, and cross-border e-commerce have begun to increase their layout in emerging markets in the past two years. the rising consumption power and population growth dividends in emerging markets mean greater growth potential for overseas companies, which deserves more attention and research from more companies.

years of global layout continue to bring positive feedback to tcl. from a time perspective, tcl's global tv shipment market share has risen from 5.8% in 2016 to 13.3% in the first half of 2024, jumping to the top two in the world, while samsung and lg's market shares have declined to varying degrees. on the one hand, the tv industry shows a trend of rising and falling market shares of leading brands, and on the other hand, the market share of brands is more concentrated. according to omdia data, the global shipment market share of the top four brands in the first half of 2024 has exceeded 50% in total, which means that more than half of the world's tv shipments come from leading brands.

the boost in tv shipments also boosted the growth of high-gross-margin internet business. in the first half of the year, tcl electronics' internet revenue was hk$1.212 billion, a year-on-year increase of 8.9%, and a gross profit margin of over 50%. among them, through the upgrade of the tcl channel content integration application platform overseas and in-depth cooperation with giants such as google, roku and netflix, the monetization ability of this segment continued to increase, and the overseas internet business revenue in the first half of the year increased by more than 50% year-on-year.

02

the only thing to focus on

although its interim performance is better than the industry's, tcl electronics does not seem to be relieved.

at the interim results conference, du juan, chairman of tcl electronics, said: "we have improved compared to ourselves, but there is still a big gap compared to the benchmark (enterprises), which shows that we still have room for improvement in the future."

the benchmark here is self-evident: samsung, which all chinese home appliance giants want to catch up with. for many years, this korean company has occupied the throne of the world's champion in tv sales.

when answering questions from institutional investors and investment bankers, du juan repeatedly emphasized that the company's most important task in the future is to increase gross profit and open up room for growth. "this is the only thing the company needs to focus on."

in the past few years, the capital market has not paid much attention to black electronics. one reason is that tv companies are easily affected by panel costs and intensified competition. peng pan, executive director and cfo of tcl electronics, also mentioned at the performance meeting that the average price of tcl tv increased by 12.8% year-on-year in the first half of the year, but the average price of upstream panels (32 inches to 75 inches) increased by 17% to 33%, that is, the cost increase was greater than the price increase.

this actually shows that the market bargaining power and brand awareness of chinese home appliance brands need to be further improved. brand power is like the "escape velocity" that overcomes the earth's gravity, which can minimize the impact of panel costs and industry price wars on a company.

judging from the management’s statement, tcl’s response strategy is to continue with the mid-to-high-end strategy and enhance brand power: to compete with international first-line brands, it is necessary to firstly be able to produce good products and secondly to have sufficient terminal channels to showcase them.

▲european and american consumers are choosing tvs in stores

in terms of products, mini led and large-screen tvs are still the main focus of tcl electronics. as early as 2016, tcl electronics proactively launched the research and development of mini led technology, and took the lead in launching the world's first mass-produced mini led 8k tv in 2019. since then, tcl has continuously introduced new mini led products, and the leading mini led technology has become an important support for tcl tv to be invincible in the market.

take its flagship product x11h qd-mini led tv released in the first half of this year as an example. this is the only 10,000-zone mini led tv among the world's 100-inch mass-produced models, and is called the new "king of machines" by the industry. the tcl global halo control technology equipped in the x11h has achieved the ultimate in the five key factors affecting halo, namely, light-emitting chip, lens technology, backlight response algorithm, od (mixing distance) and screen, solving the halo problem in the tv industry for many years.

▲tcl flagship product x11h

as for the overseas terminal channel layout, tcl's brand globalization has gone through 25 years of development and currently covers more than 90% of the world's top channels. what needs to be broken through next is to increase the sales of more tcl's mid-to-high-end products in mid-to-high-end channel stores.

"in the future, our expenses for display channels will definitely increase." du juan gave investors a heads-up at the earnings conference. tcl electronics hopes to increase its gross profit by entering more overseas channels and selling more high-end products, thereby creating a greater brand effect and scale effect.

it is obvious that as the industry is experiencing a general trend of recovery, tcl electronics is ready to step on the accelerator and take the initiative to start a new round of "climbing".

in the face of market changes, optimizing business structure and improving profitability are also inevitable choices for valuing shareholder returns. since 2017, tcl electronics has been adhering to a high dividend policy, and the dividend payout ratio in 2023 is as high as 50.0%. if the dividend payout ratio represents sincerity, then earning a higher total profit represents ability.

03

new trend: higher level of globalization

performance growth is far from the whole picture of chinese companies' globalization.

on september 6, the 2024 international consumer electronics show (ifa) in berlin, germany, opened. in this exhibition, which has been held for 100 years and can be regarded as a condensed history of human technological development, the world's top consumer electronics brands compete on the same stage every year.

tcl, which has appeared at ifa for 14 consecutive years, occupied nearly 3,000 square meters of venue area this year, setting a historical high.

▲ifa 2024

large-screen + mid-to-high-end tvs are still the focus of this exhibition. the 115-inch x955 max and x11h qd-mini led tvs, which represent tcl's high-end ambitions, attracted many foreign exhibitors to stop.

product display at top events, together with the expansion of high-end retail channels around the world and marketing display at top sporting events such as the olympics and the america's cup, constitute the "three-in-one" action for chinese companies to enhance their brand influence.

moreover, as the first generation of chinese enterprises to go global, home appliance giants represented by tcl and haier have the courage to expand overseas and gain a foothold in the turbulent geopolitics and the ever-changing international situation. this is not only due to the advantages of domestic manufacturing, but also the upgraded cognition of globalization of supply chain, localization of operations and globalization of talent layout.

the model of just selling products overseas is difficult to sustain. the globalization of chinese enterprises is not only about making money overseas, but also about contributing to the local social economy. for example, tcl has established manufacturing bases in vietnam, poland, mexico, brazil and other places, and many supporting enterprises in the industrial chain have also moved to the local areas.

▲tcl's vietnam factory

moreover, as the company gradually transforms from a china-based operation to a global multi-center operation, each regional branch must recruit local talents. talent localization is also an essential part of globalization. take tcl vietnam base as an example. among the six managers, three are chinese and three are vietnamese. most of the supervisors below the manager level are locals, accounting for between 60% and 70%.

in the words of li dongsheng, "only by taking root in the local area can competitiveness be solid."

perhaps only in this way can chinese companies that are heading overseas "get a little more" for china's manufacturing industry.