Panel manufacturers have been burning money for years and finally have something to gain, but how can the color TV industry get out of the trough?

The longest panel price increase cycle in history has reached its 13th month and finally turned downward. According to Qunzhi Consulting, after a slight increase of US$2 in 50-inch and 65-inch panels in April, panel prices stopped rising across the board in May. The decline in sales and the increase in inventory have reduced the demand of manufacturers. The seesaw between screen manufacturers and terminals is in dynamic balance, and the fluctuation pattern of panel cycles remains unchanged.

In Q2, global panel shipments fell 9.4% year-on-year, and the shipment area fell 4.3%, and the pace of large-size panels slowed down. Considering that the traditional peak season in the third quarter is approaching, the downward turning point will not come soon, and the price of panels above 55 inches will continue to be strong, but from the trend point of view, after the price stabilizes, it will be a new round of downward cycle.

In 2017, the panel industry, which had been booming, entered a long-awaited harvest season. BOE's net profit in Q1 2017 was 2.4 billion, a 21-fold increase, its stock price rose 90% in one year, and its market value jumped to 150 billion. Shenzhen Tianma's Q1 net profit was 230 million, a 148% increase, and Huaxing Optoelectronics' net profit in 2017 is expected to increase by 50%.

Screen manufacturers' profits hit a record high, but color TVs have entered a long winter. Witsview statistics show that global color TV shipments fell 31% in Q1, with the top five manufacturers seeing the highest drop of 47% and the lowest drop of 12%.

According to data from China Market Research, domestic sales of color TVs in Q1 were 11.38 million units, down 14%, and retail sales were 36.6 billion yuan, down 7.3%. During the May Day holiday, color TV sales fell 26% and sales revenue fell 15%, creating the coldest May Day holiday in history. Due to the lagging effect of the property market, it is expected that color TV sales in 2017 will return to 50 million, down 4% year-on-year.

Whether it is panels or complete machines, there are cyclical fluctuations when there is a supply-demand relationship. Upward or downward, sluggish or rebounding, the market is ever-changing. How can companies survive the cycle and increase profits?

The model of any one party making a fortune unilaterally is unsustainable, and the entire industry chain will benefit from the new round of display revolution. With the technological dividend and the large screen trend, screen manufacturers have already made a fortune. Are color TV companies far behind?

01

On April 28, Hisense’s Q1 financial report was released, with revenue of 6.7 billion, a decrease of 6%, and net profit of 270 million, a decrease of 49.5%. The stock price fell to the limit on the same day. On May 9, Skyworth Digital announced its annual profit warning, predicting a 40% decline in profit for the current fiscal year. TCL Multimedia’s revenue increased by 15% to HK$8.48 billion, and its net profit only increased by 1.9% to HK$78 million.

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, from $100 at the beginning of the year to $50, and then rebounded to $80 at the beginning of 2017, a drop of 20%.

Observing the financial reports of major color TV companies from 2009 to 2016, we can find that the gross profit margin and net profit margin have been flat in the three years since 2013. The decline in panel prices, which account for 60% of the cost of the whole machine, has not significantly increased the profits of color TVs. (Skyworth Digital is listed on the Hong Kong Stock Exchange, and the fiscal year is different, so it is difficult to compare)

These three years were the hottest years for Internet brands. New brands such as LeTV, Xiaomi, and Whaley flooded in, exacerbating the fragmentation of the competitive landscape. The low-price route lowered the profitability of the entire industry.

In terms of quarters, except for TCL, which was affected by the price drop of panels, the gross profit margin of color TV enterprises in Q1 2016 was at a two-year high, and the panel price was at its lowest point in the same period. It can be seen that the sharp decline in color TV profits in Q1 2017 has a lot to do with the high profit level in the same period last year. In the past ten years, the pattern of the color TV market has not changed much. The market share of the first place is less than 20%, and there is no real oligopoly. Since 2013, the influx of Internet brands has intensified the fragmentation of the competition pattern, which is an important reason for the poor profitability of color TVs.

Over the past decade, color TV companies have been serving the people by lowering prices, and their cost and efficiency advantages have been transformed into consumer dividends. While increasing the proportion of high-end products, how to strike a balance between profits and market share? This is a great test of the management wisdom of color TV manufacturers.

02

The color TV industry is facing an adjustment in its past strategy of selling in large quantities at the low end and making money at the high end. The key word of competition has changed from price to value. It is not good without cost performance, but it is absolutely not good with only cost performance.

From 4K to 8K, from 55 inches to 65 inches, the evolution of large screens is still the biggest profit cow for color TV manufacturers. In 2016, the average size of global LCD TVs increased by 2.1 inches to 42.7 inches, and continued to grow to 44.1 inches in the first quarter of 2017, setting a record high.

AVC data shows that in April 2017, sales of 55-inch TVs grew fastest, accounting for 30% of color TV sales, taking over from 42-inch TVs to become the mainstream in the market. Prices of products above 50 inches fluctuated, but the overall trend was upward. In April, prices of 50-inch and 55-inch TVs increased by 7.1% and 2.3%, respectively, and prices of 65-inch TVs increased by 16%. Skyworth OLED prices dropped by 20%, but the wallpaper TV was still priced at 99,999.

Skyworth Digital's announcement showed that in April 2017, Skyworth's 4K TV sales volume increased from 42% last year to 50%, and the average price and gross profit of 4K TVs were the highest in the company. Hisense's sales of 55-inch and above accounted for 64% of the total, and sales accounted for 46%. TCL Multimedia's first quarter report showed that high-end products such as quantum dots, curved screens, and 4K accounted for 76% of total sales.

With the mass production of BOE's 8.5-generation line in Fuzhou in the second quarter, the production capacity of panels larger than 55 inches will continue to increase, and the profits of color TV companies are expected to further improve in the second half of the year.

At the marketing level, the ideological battle between OLED and quantum dots will continue. This is the beginning of color TV companies strengthening their brands and breaking away from homogeneous competition. For terminal manufacturers, OLED and quantum dots are both tools. The real opportunity is not the tools themselves, but using the technology dividend to obtain a higher premium.

03

The biggest moat for consumer goods companies is not technology, but the monopoly of user minds. This is the underlying logic behind the rise of Moutai’s stock price.

The five major color TV manufacturers have all been around for more than 20 years. It is not appropriate to say that their brands are aging, because color TV brands are inherently vague. From Internet TV, smart TV to 3D, curved, AR, and AI, the color TV industry has too many concepts and too weak brands.

A brand cannot exist alone, it must be tied to product attributes to be established. It is difficult to constitute product attributes by quality alone, which is the significance of OLED and quantum dots to color TV companies.

Chinese color TV companies have emerged from the price war and fought back the foreign attack with a group army. Their victory lies in scale rather than brand. Compared with foreign brands, the premium ability of Chinese color TV brands is still very weak, and Internet brands have almost no premium ability.

After many years, foreign brands still have their old capital to rely on, which is an important reason for Sharp's rapid rebound. However, if they only rely on price promotion, the quality cannot be supported, which in turn can easily damage the brand.

Skyworth and Changhong chose OLED, while TCL and Hisense made quantum dots, trying to use technology labels to jump out of homogeneous competition. If the brand premium can be increased through technology bundling, it will be a greater gain than sales.

04

The ROE of the color TV industry is only half of that of the white appliance industry. Why has capital not poured into asset-light white appliances, but instead color TVs with a net profit margin of 5 percentage points have taken over from mobile phones and become the new outlet?

Large screens are still the clearest traffic entrance, which is the greatest empowerment that the Internet brings to color TVs. Skyworth Coocaa, Hisense Juhaokan, and TCL first invested in Huanwang and then in Thunderbird (it is said that Tencent is going to invest again). The logic has not changed, and the platform must always be in their own hands.

The first wave of Internet TV focused on connectivity, while the 2017 wave turned to AI.

What is AI?

User scenarios and usage habits are just the beginning. The bigger gold mine is image recognition and data mining. For color TVs, the direction of AI is not voice, but images and videos. Big data based on text is already overcrowded, while image-based big data is almost blank.

Today’s smart TVs have too many controls but too little intelligence. Big data based on images is just getting started. It is extremely difficult for color TV companies to develop AI on their own. How can they choose partners and integrate it into the big screen? This is a great test of the talent pool and operational capabilities of color TV companies.

The media is not doing well, but the content is popular. The TV station is not doing well, but the live broadcast is popular.

"The medium is the message", McLuhan's prediction 50 years ago has finally come true. Information flows across multiple screens, and the form of expression and distribution channels have never influenced and changed the information itself as much as they do today.

The future of media will be content aggregation and AI presentation based on user needs, a large-screen multimedia version of the circle of friends, or a highly customized, live-broadcasting personal channel. Multi-screen linkage, 4G live broadcast, the imagination space for the future of color TV is far more than the current tens of millions of non-hardware revenue.

Tencent's market value has jumped to 320 billion US dollars, Toutiao's valuation has reached 10 billion US dollars in less than five years, and TCL Group, the color TV enterprise with the highest market value, is 42 billion yuan. TCL Group's PB is 1.77, Hisense Electric is 1.36, Changhong is 1.24, and Skyworth Digital is 0.83. The market value is even lower than the company's net assets, and the stock price is seriously undervalued.

Unit: RMB 100 million (Skyworth Digital's market value is HKD 12.8 billion, equivalent to RMB 11.2 billion)

Small screens have already created too many unicorns, while large screens are far from being as valuable as they should be. Screen manufacturers have spent ten years burning money and finally reaped the rewards. How many more years will color TV companies need?

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.