A few days ago, according to foreign media reports, due to BOE's unauthorized change of the screen specifications set by Apple, it may be cancelled by the latter to cancel its iPhone 14 OLED screen order.
After several days of fermentation, the situation seems to be more and more unfavorable to BOE - Cook, who has always had strict requirements and strong control over the supply chain, is unlikely to accept the supplier's private decision to change the parameters.
However, this business failure will have a completely different impact on both sides. From Apple's point of view, to face the fact that Samsung failed, I believe cook is not good. According to The LEC's breaking news, BOE's 30 million iPhone 14 screen orders, 20 million will be handed over to Samsung, 10 million to LG, apple and these two big manufacturers of the game may continue for a long time.
From BOE's point of view, the economic and reputational damage is visible to the naked eye. According to the current market, the total price of the 30 million screens of the iPhone 14 is close to 10 billion yuan.
However, BOE's efforts to join the "fruit chain" will not be in vain: years of saturation investment have helped BOE build the most mature and most mass-produced OLED production line in China, even without Apple, they do not lack new customers.
Compared with Apple, which may be missed, the rise of domestic competitors, the potential crisis such as price cuts and overcapacity faced by the OLED panel market are also worth boe's attention.
(Image from UNsplash)
Apple and BOE fell out, Samsung fisherman profitable?
After several days of fermentation, the tug-of-war between BOE and Apple still sees no hope of a peaceful solution.
Prior to this, according to foreign media reports, due to BOE's unauthorized change of the screen specifications set by Apple, it may be cancelled by the latter to cancel its iPhone 14 OLED screen order. According to previous public information, BOE has undertaken more than 30 million iPhone 14 screen orders from Apple, which is of great significance to its performance.
The wind may not be without cause. Based on the reports of various sources, the root cause of this controversy is already clear - BOE privately changed the width of the TFT circuit to achieve the purpose of reducing resistance and improving yield rate. After this set of operations, BOE's profit margin will undoubtedly increase significantly, but the side effect is that the brightness and power consumption of the panel are different from Apple's design, which may adversely affect the final quality of the finished product.
More importantly, Cook, who has always had strict requirements and a strong desire to control the supply chain, is unlikely to accept the supplier's private decision to change the parameters.
Another well-known fruit chain company, AAC Technology, has previously said, "In principle, except for the equipment and workers are AAC, the other links on the production line are controlled by Apple." "Among them, the control software and computer system are Apple's, the ERP system is also Apple's, and even the production line of engineers has Apple's resident personnel...
In Cook's management philosophy, strengthening supply chain control is the key to ensuring Apple's dominance and product quality, and it is also a bottom line that cannot be challenged.
For Apple and BOE, if they can cooperate seamlessly, it is undoubtedly a win-win situation. But now there is a rift in the cooperative relationship, which is only afraid that it will have different degrees of impact on both sides.
For Apple, this time the failure of the cooperation is a small impact on its supply chain system - especially in the face of the fact that Samsung has failed, I believe Cook is not good.
The LEC, the foreign media that first broke this fierce material, said that Apple will transfer the 30 million iPhone 14 screen orders originally scheduled to be handed over to BOE to Samsung and LG, two major South Korean manufacturers, and there is no shortage of irony about Apple in the report.
As we all know, the reason why Apple originally included BOE in the list of iPhone 14 panel suppliers, in addition to wanting to ensure production capacity, it is also an important reason to compete with Samsung and reduce the supply risk brought by a single supplier.
According to a previous report by Bloomberg, Samsung Display Company and LGD, a panel maker owned by LG, have supplied Apple with a total of 110 million OLED panels in the past year, mainly in the iPhone 12 and the newly released iPhone 13 series models last fall. You know, in the past year, Apple has only purchased a total of 170 million panels, and Samsung and LG have undertaken 64% of orders.
Among them, the high-end version of the iPhone 13 Pro and iPhone 13 Pro Max model panels are exclusively supplied by Samsung, and the role and status of the latter can be seen.
In view of this, Apple has been committed to expanding the list of panel suppliers to achieve the purpose of restricting Samsung and improving bargaining power.
But unfortunately, Apple's wishful thinking may be frustrated this time. According to The LEC's breaking news, BOE's 30 million iPhone 14 screen orders, 20 million will be handed over to Samsung, 10 million to LG, apple and these two big manufacturers of the game may continue for a long time.
As for the perspective of BOE, the economic and reputational damage is visible to the naked eye.
According to the current market, the total price of the 30 million screens of the iPhone 14 is close to 10 billion yuan. In the previous fiscal year, BOE's revenue reached 219.31 billion yuan, an increase of 61% year-on-year, and exceeded the 200 billion mark for the first time in history. At first glance, the lack of Apple's 10 billion orders is not a pain for BOE.
But it should be noted that the iPhone 14 order represents far more than 10 billion transactions - behind this is also the long-brewed upgrade and transformation of BOE, as well as the determination to start a war with Samsung and LG.
According to the financial report data, the net profit attributable to BOE in the previous fiscal year was only 25.831 billion yuan, which was a great improvement over the past, but the net profit margin of 13.88% and the gross profit margin of 28.87% were not outstanding. In contrast, the profit margin of Samsung Display has remained above 20% for a long time, and the operating profit margin in the third quarter of last year was as high as 26.8%, almost twice that of BOE.
(Image from BOE financial report)
As we all know, BOE's current revenue still relies on the LCD business, but the profit gap between the former and OLED is obvious. Taking orders from Apple and gradually upgrading business from LCD to OLED is the transformation route planned by BOE for itself. Now that the plan has been disrupted, it is presumably going to have a certain impact on its short-term performance.
How much does the loss of an iPhone order hurt BOE?
It is undeniable that in the past few years, BOE has indeed made many efforts to break into the "fruit chain".
As early as 2017, BOE was expected to join the fruit chain to produce mobile phone screens for Apple, but it failed to make the trip due to technical and capacity problems. After that, BOE reinforced these two weaknesses, expanding production lines while strengthening research and development investment.
According to the data, from 2017 to 2021, BOE's R&D investment was 6.97 billion, 7.23 billion, 8.75 billion, 9.44 billion and 12.436 billion, respectively, and the year-on-year growth rate was also rising. By the end of last year, the total number of BOE R&D personnel reached 19,000, accounting for 24.8% of the total number of employees, and 9,000 new patent applications were filed in the past year, of which 90% were invention patents.
After years of saturated investment, BOE finally has the courage to break the wrist with Samsung and LG.
In terms of production capacity, BOE's investment is also huge.
At the end of last year, the sixth-generation flexible AMOLED production line built by BOE Haohao with a huge investment of 46.5 billion yuan began to enter the mass production stage, and the current production capacity has begun to climb. In addition, according to media reports, BOE also intends to adjust the third phase of the B12 factory production line, in order to undertake Apple's iPad orders.
On the surface, BOE has invested a lot of money to expand production capacity and upgrade technology, and if it is ultimately unable to squeeze into the "fruit chain", it is indeed a loss. But the Value Institute believes that everything should be looked at in two ways: these sunk costs invested in the early stage have helped BOE build a most mature and most mass-produced OLED production line in China, even without Apple, they do not lack new customers.
According to DSCC's statistics, since 2019, the smartphone market has seen a high-end trend, and Xiaomi, OPPO, Vivo and the independent Glory have clearly stated that they want to force the high-end market. Riding on this shareholder wind, the penetration rate of OLED panels has also increased significantly. The report shows that the penetration rate of OLED mobile phone panels in 2021 is 52%, accounting for half of the country, and is expected to reach 57% by the end of 2022.
According to the IHS Markit report, the global OLED display panel market size revenue in 2021 was $68 billion, nearly double the 36.7 billion in 2019. Outside of south Korea, the "panel kingdom", China has grown to become the world's second largest OLED panel supply market.
Set your sights back on BOE. With the gradual improvement of OLED screen production capacity, the operating efficiency of Wuhan BOE Optoelectronics has also improved across the board. In the first quarter of last year, the important subsidiary of BOE achieved positive profit for the first time in nearly five years, achieving a net profit of 360 million yuan, and the single-quarter profit has exceeded the total net loss in the past four years.
When it was announced on June 21 last year that it was set to increase by nearly 20 billion, BOE's layout and future planning in the AMOLED market surfaced. At present, mobile phone manufacturers including Honor, OPPO, Motorola and other mobile phone manufacturers have reached cooperation with BOE, which is also working hard to open up markets such as VR/AR hardware, smart medical care, and car screens.
The broad market prospects have even allowed BOE to continue to launch capacity expansion plans, especially for the upgrading of high-end screen production lines.
The latest development is that in March last year, WUHAN BOE, a subsidiary of BOE, announced that it would expand the capacity of its existing plant. The expansion is expected to invest 3.775 billion yuan in self-financing, mainly for the 10.5th generation thin-film transistor liquid crystal display panel production line.
It is worth mentioning that in response to the news that Apple may cancel the order for the iPhone 14 screen, BOE responded to investors on May 23 that it would "not comment", and stressed that the company's annual goals in the OLED field have not changed, and the related business is still advancing in an orderly manner.
Through the above analysis, the Value Institute believes that BOE's response is not hard or official, they do have their own confidence and considerations.
What's more, compared with Apple, which may be missed, the rise of domestic competitors, the potential crisis of price cuts and overcapacity faced by the OLED panel market may be more worthy of BOE's attention.
With the rise of domestic OLED, BOE should pay attention to two major challenges
According to the statistics of Omdia, a well-known research institute, the share of Chinese manufacturers in the OLED panel market is expected to rise to 27% in 2022, nearly doubling from 15% last year. With the growing shipments of folding screen mobile phones and high-end smartphones, the demand for OLED panels is expected to continue to rise, and the Chinese manufacturer provides a chance to take the upper position.
Among the many panel manufacturers in China, in addition to BOE, TCL Huaxing Optoelectronics and Shentianma are also very powerful competitors.
Taking the data of mass production capacity, market share and yield rate, the catch-up behind BOE has made great progress in recent years.
According to public information, BOE has achieved a total of five OLED production lines that have achieved mass production, and the production capacity of Chengdu, Mianyang, Chongqing and Fuzhou can reach nearly 50,000 pieces / month, which is the strongest mass production capacity among domestic manufacturers.
The advantage of Shentianma is that its 4.5-generation line in Shanghai has a single-month mass production capacity of up to 750,000 pieces, which is the strongest OLED panel production line in China, and it is no less than LG and Samsung. But the problem is that its production capacity is too concentrated in Shanghai, and the 4.5 and 5.5 generation lines have more than 95% of the production capacity. Once encountered the last two large-scale epidemics of this magnitude, production capacity will fall off a cliff.
Huaxing Optoelectronics, an OLED manufacturer that has high hopes from industry insiders, has a similar problem. The wuhan 6th generation line put into operation in 2019 has a single monthly production capacity of more than 450,000 pieces, which is the most important production line of TCL Huaxing Optoelectronics at present.
Of course, seeing the gradual rise of the market, these head players are actively increasing production capacity. At the end of last year, TCL announced the preparation of the T8 flexible OLED panel production line in Guangzhou; in January this year, the T5 production line with a total investment of up to 15 billion yuan also completed the capping of the module plant and the integrated power station.
According to the laws of the industry, the OLED production line generally takes about two years from preparation to formal mass production. In other words, the mass production capacity of BOE, TCL and Deep Pegasus will reach a new height around 2024.
However, while expanding production capacity at full capacity, BOE must also be vigilant against two crises: one is the short ups and downs of panel demand, and the other is the defect in core technology.
Although the industry is very optimistic about the application prospects of OLED panels, due to the international situation, economic downturn and other factors, the cyclical off-season has begun to show its power. According to foreign media reports, Apple is expected to reduce iPhone SE and iPad orders in the second quarter of this year, and Samsung also has a similar cutting plan, which is expected to design nearly 10 million OLED production capacity.
At present, Samsung has stopped some panel production lines in Vietnam and is ready to withdraw the production line to South Korea and readjust its layout in Southeast Asia.
In the view of the Value Research Institute, in the case of turbulence in market demand, the manufacturers with the highest yield rate and the most stable production technology can be recognized by upstream customers. From another point of view, after cutting off some of the internal demand, Samsung, LG and other large manufacturers also have the ability to undertake more external customer orders, which is not a good thing for local manufacturers such as BOE and TCL.
According to DSCC's statistics, LG is currently leading the way in oled panel yields, which has been stable at about 90% since 2017, and Samsung has also crossed this threshold in the past two years, and the yield rate of some newly put into production lines once reached the highest level in the industry of 95%.
In contrast, the data announced by BOE is that the yield of mature products in the AMOLED production line is above 80%, which is already the highest level of domestic manufacturers. In terms of production capacity, shentianma, which is closest to BOE, has just crossed the 60% mark in 2021, and TCL Huaxing Optoelectronics has also hovered around 60%.
In the final analysis, the core technology that determines the yield rate is still in the hands of the two giants of Samsung and LG, which is a problem that BOE must solve.
For example, hitachi mastered the best production process, which is an indispensable FMM metal material in the most critical backplane stage evaporation process, and Samsung signed an exclusive agreement with Hitachi early on. Another example is the OLED drive IC market, Samsung LSI and LG LX Semicon monopolize 90% of the market share, and their dominance is unshakable.
BoE, which has overcome the mass production barrier, now is the time to think of a way to overcome the technical difficulties.
Write at the end
With the advent of the iPhone 4 as the dividing point, Apple and even the entire smartphone market have ushered in an incomparably brilliant decade. But after 2020, the outbreak of the epidemic, the global economic downturn, the soaring inflation and the escalating supply chain crisis have accelerated the smartphone market to bid farewell to its golden age.
Apple is undoubtedly still the world's leading consumer electronics giant, and the iPhone order is still the desire of all supply chain companies to get rich, but I am afraid that it will no longer have the influence to determine the life and death of a company and an industry.
It is worth noting that since the second half of last year, BOE supply chain enterprises including Qingyi Optoelectronics, 800 million time and space, Grinda, Shangloo Electronics, Androck and other BOE supply chain enterprises have successfully landed in A-shares, and Companies such as LingyunGuang, Luwei Optoelectronics, and Suzhou Tianlu have also started the IPO process. BOE, which may not have the opportunity to "fruit chain", has quietly cultivated an equally strong supply chain and driven the upstream and downstream of the industrial chain to prosper together.
In the business world, no one who leaves will definitely fall, and orders without Apple are not the end of BOE. As for whether it can minimize losses and impacts, it is necessary to test the hard power of BOE.