Screen prices fall to the lowest level in two years. Are good days coming for TV manufacturers?

Panel prices, which have been falling since the second half of 2017, finally hit bottom in May. Data released by Qunzhi Consulting shows that panel prices have now fallen to their lowest point since 2016.

The price of 32-inch screen dropped from US$73 a year ago to US$46, a drop of 37%. The price of 40-inch, 50-inch 4K and 55-inch 4K screens dropped by 44%, 37% and 25% respectively. The price of 65-inch large screen dropped from US$409 to US$257, a drop of 37%.

Industry insiders said that Qunzhi's data is still good, and the actual quotation from the screen factory to the whole machine factory is lower. At present, the quotation of 32-inch Taiwanese factories has been reduced to US$40, which is almost the same as the cost price, and the industry is under great pressure to make profits.

The most optimistic estimate is that with the arrival of the traditional peak season, panel prices will stop falling and stabilize in the second half of the year. However, some commentators believe that judging from the current rush of high-generation lines, it is highly likely that large-screen prices will continue to fall in the future. According to Qunzhi Consulting's model calculation, the global TV panel supply-demand ratio in the second quarter was 9.4%, which is still in oversupply.

The high-generation expansion of China's panel industry continues. On the evening of May 22, TCL Group announced an investment of 42.6 billion to build the second G11 (T7) in Shenzhen, cutting 8K large screens over 65 inches and 65-inch and 75-inch OLED screens. Among them, Huaxing Optoelectronics invested 13.3 billion, Shenzhen Development Fund invested 7 billion, and Samsung, which holds 5% of Huaxing, did not participate in the investment this time. T7 has a designed production capacity of 90,000 pieces, and is expected to be lit in 2020 and mass-produced in 2021.

T7 is the sixth 10.5 (11) generation line confirmed to be put into operation in the world, of which 5 are in China, including BOE's two 10.5 generation lines in Hefei and Wuhan, CSOT's T6 in Shenzhen, Foxconn's 10.5 generation line in Guangzhou, and the only overseas project is LG's 10.5 generation line in Paju, South Korea. Foxconn originally planned to invest in the construction of a second 10.5 generation line in the United States, but the latest news says that Terry Gou has adjusted the plan to 8.5 or 6 generation lines.

After a year of hard work, the whole machine factory finally saw the dawn of victory. Panel prices have dropped and demand has slowly recovered. With only three weeks left before the World Cup, can color TV companies seize the opportunity to win the turnaround battle?

01

Cyclic fluctuations and dynamic balance are the norm in the panel industry. After the price drop in 2015, the price continued to rise for 14 months from the second half of 2016 to 2017, setting a record for the longest price increase period in history, but the downward trend remains unchanged in the long run. According to Wang Dongsheng, chairman of BOE, panel prices fall by half every 36 months, and now it seems that this cycle is shortening.

In 2017, BOE's stock price doubled, and its market value exceeded 200 billion. The "powerful weapon of a great country" successfully turned around. In the first quarter of 2018, BOE surpassed LG to become the world's largest TV panel manufacturer with 12.5 million pieces, while CSOT ranked fourth in the world with 9.4 million pieces. The TV panel shipments of BOE and CSOT are close to the total of the two major Korean manufacturers.

In the next three years, as the production capacity of the six 10.5-generation lines is gradually released, the large-screen substitution effect will intensify, and the lower-generation lines will face transformation. Companies that are unable to invest in new lines will lose competitiveness and may even be eliminated. New factories that lack technical accumulation and follow suit and build cross-border lines will face greater pressure.

With strong investment willingness and government support, China has become the world's largest panel manufacturing base. It was during the years of doubts about "overcapacity" that China gave birth to two giants, BOE and CSOT. The decline in screen prices has promoted the rapid popularization of LCD TVs, from standard definition to the 4K era.

In 2018, the trend of large screen and 8K has become very clear, not only for TV, but also for the advent of the Internet of Things era, which will create more application scenarios. On the other hand, the decline in panel prices is driving the continued upgrade of TV size, and for every inch increase in the average size of LCD TVs, an 8.5-generation line will be consumed.

The cost advantage of high-generation lines, the popularization of smart factories, and the increasing maturity of supporting industries will not make panel manufacturers unprofitable even if panel prices fall. BOE's gross profit margin and net profit margin in Q1 2018 were 20.8% and 9%, while AUO's gross profit margin and net profit margin were 10.9% and 5.4% in the same period. After Hefei's 10.5-generation line is fully produced and sold in 2018, the structural advantages of large sizes will become more obvious. The four high-generation lines of Huaxing Optoelectronics, which is closely following BOE, are all concentrated in Guangming District, Shenzhen. Such high density is rare in the world and greatly improves supporting efficiency.

For Chinese panel companies, the real challenge is not overcapacity, but the uncertainty of technological innovation. Will the advancement of new display technologies such as OLED and Micro LED usher in another upgrade for the LCD industry?

2018 marks the 50th anniversary of the birth of LCD. At the SID exhibition in Los Angeles which opened on May 23, flexible foldable screens were in full bloom. BOE, Shenzhen Tianma, JDI and many other manufacturers displayed new ultra-thin flexible AMOLED products, including a dynamic floating flexible AMOLED screen with a thickness of only 0.03mm, and the world's smallest dynamic bending, foldable flexible AMOLED screen with a bending radius of only 1mm.

It is said that Huawei and many other Chinese mobile phone manufacturers are preparing to launch foldable phones of about 8 inches. Although the sales of Apple iPhone 8 are not as good as expected, the trend of AMOLED replacing LTPS is irreversible.

BOE 5.99-inch dynamic floating flexible AMOLED screen

LG is still the only company pushing large-screen OLEDs, and it seems that OLED has a long way to go to replace LCDs in large-screen applications. LG exhibited the world's first 77-inch transparent OLED screen. Although TCL did not participate in SID, the newly built T7 has clearly proposed the layout of 65-inch and 75-inch OLEDs. Currently, TCL's Juhua Display can only make printed OLEDs up to 31 inches, but by 2021, the situation may be completely different.

LG Display launches world's first 77-inch transparent flexible OLED panel

02

The color TV industry, which survived 2017, has finally recovered. The first quarter report shows that in the first quarter of 2018, Hisense Electric's revenue was 7.811 billion yuan, up 16.5%, Sichuan Changhong's revenue was 18.85 billion yuan, up 13.3%, TCL Multimedia's Q1 revenue was 10.85 billion Hong Kong dollars, up 28%, and LCD TV sales were 6.37 million units, up 35.6%, both revenue and sales hitting the biggest growth in the past five years.

According to AVC data, the domestic color TV market sales volume in 2017 was 47.52 million units, down 6.6% year-on-year, the largest decline in 14 years. After the demand fell to the freezing point, the recovery in 2018 was expected by the industry, and coupled with the decline in panel prices, the whole machine manufacturers have more room for maneuver.

How much correlation is there between the profits of color TV companies and panel prices? Take 32-inch panels as an example. The price of 32-inch panels has fluctuated greatly since 2013, falling from a high of $110 at the beginning of 2013 to a low of $50 in 2016, and then rebounding to $80 at the beginning of 2017. In the long run, the decline is still 27%.

Financial report data shows that except for TCL Multimedia, which suffered losses in 2013, the gross profit margins of mainstream color TV companies in 2017 were lower than those in 2013. The price reduction of panels, which account for more than 60% of the total cost of the whole TV, did not increase the profits of color TV companies. The situation was the same in 2018. Hisense Electric's gross profit margin was 15.2%, an increase of 0.8 percentage points year-on-year, and TCL Multimedia's gross profit margin in the first quarter was 15.8%, an increase of only 0.1 percentage points year-on-year.

The relatively flat gross profit margin curve since 2012 reached a historical high in the first quarter of 2016, which was the low point of panel prices. However, in the long run, the gross profit margin of mainstream color TV companies has not increased in the past six years. One important reason is the fragmented competition landscape.

The market share of the top player in the color TV industry is less than 20%, and there is no real oligopoly. The entry of Internet brands since 2013 has further fragmented the competition landscape, with low prices in exchange for market share, which has lowered the profitability of the entire industry.

LeEco left, and now Sharp and Xiaomi are here. The price war is still going on in 2018. According to AVC data, the sales volume of China's color TV market in the first quarter of 2018 was 12.15 million units, a year-on-year increase of 3%, and the retail sales volume was 40.2 billion yuan, a year-on-year increase of 3.3%, and the average price increased slightly.

During the May Day holiday in 2018, the price of 55-inch large-screen TVs from mainstream brands fell below RMB 2,000, and the price of 65-inch TVs dropped to RMB 3,499. However, the price cut did not bring the expected popularity. According to data from China Market Research, the retail volume of color TVs during the May Day holiday in 2018 was 3.94 million units, a year-on-year decrease of 12.4%, and the retail sales amounted to RMB 12.5 billion, a year-on-year decrease of 26%. The double-digit decline despite the low base in 2017 shows how bleak the market is.

The World Cup’s ability to bring in sales is lower than expected, and the traditional peak season of 618 is about to begin. How can color TV companies stimulate demand?

After ten years of rapid development, color TVs have moved from incremental to stock market. The penetration rate in first-tier cities has exceeded 100%, and the third- and fourth-tier markets are also close to saturation. Upgrading and replacement has become the main theme of the industry.

From large screens and 4K to voice and AI, color TV companies have been making every effort to provide more reasons to replace their TVs. In 2018, the improvement of the product structure of the color TV industry began to show results. AVC offline monitoring data showed that in the first quarter of 2018, the share of 4K TVs reached 68.7%, a year-on-year increase of 7.2 percentage points, and the share of OLED TVs was 0.7%, a year-on-year increase of 0.4 percentage points, achieving a doubling of sales.

The technological innovation of color TV is faster and more diverse, from quantum dots to OLED and laser TV, but for users, more choices may mean no choice. The newly bought TV will either face an upgrade or a significant depreciation in value after two years, and curved TVs are an example.

The color TV industry is still in the long process of transformation from cost advantage to differentiation advantage. Before the product is differentiated, it is difficult for color TV to establish a brand image and obtain a higher premium. Hisense's ultra-large screen laser, Skyworth's bet on OLED, and TCL's choice of quantum dots are all strengthening the differentiated characteristics of the products and reshaping the brand.

The bigger challenge comes from outside rather than inside. What beats TV is not better TV, but mobile phones and ubiquitous fragmented entertainment. According to Wang Cheng, CEO of TCL Multimedia, color TV companies need to become time solution providers and create more value for users in order to realize their corporate value.

In addition to audio-visual enjoyment, what other high added value can color TV provide? 5G technology, Internet of Things, AI and smart home, the big screen carries too many possibilities and new hopes. At present, the channel between smart TV technology and application scenarios has not been fully opened, and it is still in the trial and error and iteration period, but it has been put on the road after all.

The platformization attempts of color TV enterprises have been recognized by the capital market. Coocaa, a subsidiary of Skyworth, attracted Tencent and Baidu to invest in it, and its valuation has reached 10 billion yuan. TCL Thunderbird, which was established just one year ago, received an investment of 300 million yuan from JD.com after Tencent. In May 2018, TCL Multimedia announced that it would invest 300 million yuan in LeTV's LeEco, holding 2.7% of the shares. The myth of LeTV has been shattered, but the content model it pioneered has attracted a large number of followers.

In the past decade, color TV companies have been serving the people by lowering prices, and their cost advantages have been transformed into consumer dividends. Faced with the great changes of the times, consumption upgrades have become a new outlet, the sharing economy has replaced the search economy, and user demand has changed from "buying cheap" to "buying better." From products to brands, the comprehensive transformation towards smart homes, the challenges of color TV companies have just begun.

The downward cycle of the panel market has begun. Should we go back to the old path of using price wars to grab market share, or seize the opportunity to reshape ourselves and complete a reassessment of our value?

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.