Will the competition of panel manufacturers in it panel and other segments change the pattern of medium size panel? April 16, 2021


The trend of LCD panel production expansion is coming to an end, and the competition is moving towards subdivision. BOE a (000725, SZ) disclosed the Q & a list of annual performance online briefing. For the planning of the new production line, the company said that there is no new plan for LCD panel at present.

On April 13, a day ago, TCL Technology (000100, SZ) also released a record of investor relations activities. The company said that "the overall industry‘s supply side growth slowed down significantly, the supply and demand structure remained stable" and "there were very strict restrictions on new LCD investment".

Over the past twenty years, the global pattern of panel industry has undergone dramatic changes, with the main production capacity transferred from Japan to Korea and Taiwan, China, and then to the Chinese mainland. Now, the mainland panel production capacity has reached the first in the world. With the gradual completion of LCD panel capacity transfer and the end of production expansion, major manufacturers began to compete in it panels and other segments.

"Dimension reduction strike" of panel capacity replacement

Generally speaking, there are two types of panels: one is LCD panel, which has a long time of development, mature technology and low cost; the other is OLED panel, which has better display effect, light weight and can be bent. It is regarded as a new direction of display technology, but the cost is higher. After nearly 20 years of hard exploration and continuous investment, the mainland has achieved catching up and Surpassing in the field of LCD panel, and the birth of "panel double heroes" BOE and TCL technology. But in OLED, China lags behind South Korea.

Founder Securities used "dimension reduction strike of generation line" in an in-depth research report to explain the process of the mainland LCD panel industry to gain a firm foothold: from 2013 to 2016, the dimension reduction of 8.5 generation line hit Japan‘s low generation line, resulting in Japan‘s withdrawal and South Korea‘s market share reaching a historical peak; from 2018 to 2020, the dimension reduction of 11 generation line and 8.5 generation line hit South Korea‘s 7 generation line, resulting in South Korea‘s capacity withdrawal.

This research report also predicts the next cycle, that is, from 2023 to 2025: the dimensionality reduction of 8.5g it line will hit the 6G it line in Taiwan, China, and the result may be the withdrawal of Taiwan, China.

In general, China‘s panel enterprises have achieved a breakthrough through "large-scale investment + high generation line". According to the calculation of sigmaintell, the production capacity of mainland LCD panel factories will account for more than 60% this year. By 2023, the production capacity will account for more than 70%.

After LCD production capacity leaped to the first place in the world, this round of expansion cycle came to an end. At BOE‘s online performance presentation meeting in 2020, the company made it clear that there is no new plan for LCD panel at present. TCL technology also said that the overall industry supply side growth slowed down significantly. Guosheng securities analysis said that the Chinese mainland led investment gradually began to rise in 2011, and the 10.5 generation line in 2017 ~2018 reached its peak and ended in 2021.

In an interview with the daily economic news, Li Yaqin, general manager of Qunzhi consulting, said that there are two reasons why the LCD panel production capacity is no longer expanding: first, now the LCD panel production capacity is large enough, and the global annual production capacity has exceeded 300 million square meters, which is a record high. At present, due to the impact of the epidemic, the panel market demand is quite good, but if we look at it for a long time, the demand for panel area will not have a big jump. The future panel market will focus on technology iteration. Second, from the perspective of capacity, the Chinese mainland panel factory has dominated the world. In this case, there is no need for mainland manufacturers to continue to expand their production capacity indefinitely. Because unlimited expansion of capacity will only bring repeated capacity construction and overcapacity pressure, and ultimately hurt the profits and competitive ecology of the whole industry.
How do mainland companies control LCD pricing?

Under the background of absolute advantage of production capacity and no potential entrants in the short term, there are more and more discussions about the mainland panel‘s control of pricing power.

"It‘s not a price increase, it‘s a ‘price fixing‘. It‘s the first time that China has gained absolute pricing power in the semiconductor industry worldwide." In April 14th, Chen Hang, chief analyst of technology and electronics, founder of Securities Research Institute, wrote this sentence on the WeChat official account of "semiconductor vane".

it happens that there is a similar case. At the performance presentation meeting of BOE on April 13, some investors raised the same question to Chen Yanshun, chairman of the board of directors of the company: "in the LCD field, China‘s" two heroes "have occupied a considerable share. Does that mean that we have mastered the pricing power?"

Chen Yanshun did not directly answer this question, but stressed that the industry pattern will tend to be stable and the cycle attribute will be weakened.

There are also profound practical factors for the outside world to talk about pricing power: last year and the first quarter of this year, the performance of BOE and TCL technology increased significantly. Among them, TCL technology‘s net profit attributable to shareholders increased by 470% to 520% in the first quarter.

Cheng Lili, deputy general manager of AVC Revo, told the daily economic news that the panel bargaining power has shifted from overseas manufacturers, and mainland manufacturers have gradually grasped the price initiative.

Li Yaqin believes that Chinese mainland manufacturers have adequate price leadership on the LCD TV panel, but in the IT market, the mainland manufacturers have an advantage in the low and middle end market, and are still relatively weak in the high-end market. Moreover, in the middle size market, the market share of the Chinese mainland‘s panel production capacity is less than 50%, so from the perspective of market share and market structure, we can not say that there is a strong pricing power.

However, the reporter also noted that the core of pricing power lies in the relationship between supply and demand. LCD panel for Japan and South Korea and other enterprises, there are no technical barriers, so the mainland enterprises do not have much freedom to raise prices. Because once the profits are good, the lost capacity will come back.
The battle of subdivision

After the mainland enterprises have the advantage in the TV panel, the next bastion is the medium size panel used in the IT field. The latest news is that TCL technology has increased its weight.

On the evening of April 9, TCL technology announced that it will invest 35 billion yuan to build a new 8.6 generation oxide semiconductor display device production line in Guangzhou, which will focus on medium size it panels and other markets.

For mainland panel enterprises, there are two opportunities in this segment: one is the opportunity to further concentrate production capacity, and the other is the opportunity to expand market demand.

It panel market has its own particularity, the proportion of mainland enterprises is not too high, and the production capacity is relatively scattered. "The high-end products of medium size panel are still (controlled) by Taiwan manufacturer Youda and South Korean manufacturer LGD. Mainland enterprises have the opportunity to gradually control the high-end product market after improving the quality." Cheng Lili said.

Recently, when TCL technology communicated with investors, it also mentioned that on the supply side, the oversupply ratio of it is larger than that of TV. This is because it lines are very scattered, and there are still a large number of old lines serving the market, and the overall market competition is not centralized.

In terms of market demand, Li Yaqin said that after the epidemic, it panel market demand is strong, especially the new rigid demand is very strong. Before the outbreak, it was generally believed that laptops and monitors were a saturated market because they entered the era of mobile Internet. In terms of scale, it is also relatively stable. But after the epidemic, people‘s living time is longer, new rigid demand appears, and the new rigid demand for it market demand is very obvious, the overall market is also growing.

In addition, the upgrading speed of IT products is very fast. In recent years, for example, in the field of E-sports displays and games, they are upgrading and iterating in the direction of high refresh rate and high resolution, from FHD (Full HD resolution) to FHD +, and even to UHD (4K resolution). These are opportunities.

Will the increase of weight of mainland manufacturers change the competition pattern of medium size panel?

Li Yaqin believes that each manufacturer has its own competitive advantage and its own strategic customers. It is not easy to judge the trend of pattern remodeling for the time being, but it is still necessary to observe. It also requires every manufacturer to make more efforts in technology, strategy formulation and implementation, and product competitiveness.

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