Text: City Elephant
From a small electronics factory in the 90s of the last century to a world-renowned display technology giant, every step of TCL is imprinted with the traces of the times. Once, with the popularity of LCD TV, it has entered thousands of households and become the pride of China's home appliance industry. However, with the price fluctuations and overcapacity problems in the global LCD panel market, coupled with the continuous emergence of new display technologies such as OLEDs, TCL Technology is facing unprecedented challenges.
TCL Technology's earnings data reveals a sense of urgency. In the first half of 2024, TCL Technology achieved operating income of 80.224 billion yuan, a year-on-year decrease of 5.74%. The battle for market share is also becoming more and more intense, Samsung, LG, Sony and other international giants have deployed other more new display technologies such as OLED, and the domestic BOE is also growing in the LCD field.
At this critical moment, TCL urgently needs an acquisition of LCD to save itself, which is not only a response to the past history, but also a layout of the future market.
On September 26, TCL Technology announced that its holding subsidiary, TCL Huaxing Optoelectronics Technology Co., Ltd. (hereinafter referred to as "TCL Huaxing"), intends to acquire 80% of the shares of LG Display Co., Ltd. (hereinafter referred to as "LGD") and 100% of the shares of LG Display (Guangzhou) Co., Ltd. (hereinafter referred to as "LGDGZ"), as well as related technical and support services. The base purchase price is CNY 10.8 billion.
01 Look for the blue ocean in the red ocean
TCL Technology is standing at a crossroads, and the background is a red sea composed of LCD panel price fluctuations and overcapacity.
In the early 2000s, LCD technology quickly replaced traditional CRT (cathode ray tube) displays due to its thinness, low energy consumption, and high-quality image display. At that time, TV and computer manufacturers around the world were investing in the production of LCDs, and the market demand was hungry.
From 2004 to 2007, global LCD TV shipments soared, and the LCD market became synonymous with rapid growth, with major brands such as Sony, Samsung, LG, etc. making a lot of money in this race.
However, with the rapid expansion of production capacity, the market began to show signs of oversupply. In May 2010, the market research agency DisplaySearch released data showing that the prices of monitors, laptops, and LCD TV panels have almost fallen across the board, and the smoke of the price war has spread, causing the profits of many LCD manufacturers to decline sharply. In the case of saturation and excessive competition in the market area, the LCD market has gradually shifted from rapid growth to slow growth, and even shows signs of decline.
Just when the LCD market is in a quagmire, a new display technology - OLED began to emerge. OLED has gradually become the darling of the high-end display market due to its thinner, lighter, more vivid colors and higher contrast. Since then, new technologies such as MiniLED and MicroLED have emerged one after another. Many people believe that the gradual elimination of LCD is a foregone conclusion.
Back in recent years, the stay-at-home trend triggered by the epidemic once stimulated a short-term recovery in the LCD market, prompting many companies to expand their production scale. However, with the gradual weakening of the demand for mobile devices and the decline in market demand for large domestic home appliances, many large-size LCD panels are facing a situation of unsalable.
In 2022, the LCD market has fallen into a trough, and the performance of many LCD panel companies has declined, and some companies have even suffered losses of tens of billions. The Omdia report pointed out that in 2022, the growth rate of panel shipment area will be halved to 3%, and the global panel output value will decline by 15%, which is also the first negative growth in recent years. This low point has undoubtedly brought tremendous pressure to the entire industry, and has also forced many companies to begin to adjust their strategies and turn to new display technologies with more development potential.
However, it should be clear that despite the impact of saturation and emerging technologies, the LCD market has not completely lost its vitality.
According to a report by Lotu Technology, in the first half of 2024, the sales volume of the online market of e-sports displays in Chinese mainland surged by 30% to 2.69 million units, and the sales volume also increased by 10% year-on-year to 3.3 billion yuan. The gaming display market is ushering in unprecedented development opportunities.
In addition, despite the gradual shift in the high-end TV market towards OLED and mini LED, LCD still dominates large-format TV screens due to cost-effectiveness and consumer acceptance. According to statistics,In the first half of this year,LCD TV market share remained above 60%,Especially in the low-end market,LCDThe advantage is more obvious。
The forecast of market research agency Omdia provides a more specific market outlook for TCL's future layout. Omdia predicts that once TCL Huaxing's acquisition of LGD Guangzhou is completed, TCL Technology's overall share of the LCD TV panel market is expected to surpass BOE and occupy a leading position in the field of 32-inch, 55-inch and 65-inch TV panels.
The dust settles on this acquisition, which also means that LGD is accelerating the pace of its business transformation and focusing its strategic vision on small to mid-size OLED products for the high-end market. LG Display Chief Financial Officer Kim Seong-hyun said at the 39th Annual General Meeting of Shareholders held in Paju, Gyeonggi-do, "The company is transitioning from liquid crystal displays (LCDs) to a business structure centered on organic light-emitting diodes (OLEDs). ”
Other Japanese and South Korean companies such as Samsung and Sharp have also chosen to gradually withdraw from the LCD market, and the LCD market will be further concentrated in the hands of Chinese manufacturers. According to Lotu Technology data, in August this year, Chinese mainland LCD panel factories accounted for 66.0% of the global shipment market, and the completion of the acquisition and the subsequent withdrawal of Japanese and Korean companies will further increase this proportion, thereby occupying a more favorable competitive position in the global market.
TCL Technology is not only expected to seize the remaining demand in the market and achieve performance growth, but is also more likely to continue to maintain its position in the LCD market for a period of time in the future.
02 Financial self-help
In recent years, TCL Technology's new energy photovoltaic business is facing the challenge of imbalance between supply and demand.
Judging from the 2024 semi-annual report released by TCL Zhonghuan, in the first half of 2024, TCL Technology's new energy photovoltaic and other silicon materials business achieved operating income of 16.213 billion yuan, a year-on-year decrease of 53.54%; The net profit loss attributable to the parent company was 3.064 billion yuan, a year-on-year decrease of 167.53%.
This supply-demand imbalance has also had a significant impact on TCL's overall financial position. In the first half of 2024, TCL Technology achieved operating income of 80.224 billion yuan, a year-on-year decrease of 5.74%; The net profit was a loss of 468 million yuan, a year-on-year decrease of 119.58%. This is the first time that TCL Technology's net profit has lost in the first half of the year since 2014.
Prior to this, Zhonghuan Group was undoubtedly one of TCL's wisest strategic investments.
The story starts with the boom in the photovoltaic industry a few years ago. At that time, with the growth of global demand for renewable energy, the photovoltaic industry ushered in a golden period of development. TCL Technology seized this historical opportunity and acquired Zhonghuan Group in 2020, quickly entering the field of new energy photovoltaics, and then achieved rapid business growth.
Taking 2021 data as an example, the new energy photovoltaic and semiconductor materials business achieved revenue of 41.10 billion yuan, a year-on-year increase of 623.30%, and a gross profit margin of 21.69%. TCL Technology continues to expand its production capacity of photovoltaic cells and modules, and its outstanding performance has made the market look forward to its future.
However, changes in the market are always unexpected. The photovoltaic industry has gradually seen the phenomenon of overcapacity and intensified price competition, and TCL Technology's new energy photovoltaic business has also begun to feel the pressure.
In 2023, TCL New Energy's photovoltaic and other silicon materials business and distribution business revenue will decrease by 11.74% to 59.146 billion yuan. In the first half of 2024, TCL's new energy photovoltaic and other silicon materials business achieved revenue of 16.213 billion, a year-on-year decrease of 53.54%, and a net profit loss of 3.176 billion, a year-on-year decrease of 165.63%.
It is worth noting that TCL has maintained a high operating rate in the case of business losses. On August 27, TCL Zhonghuan said at the 2024 semi-annual results briefing, "At present, our operating rate is about 80%, and we may make appropriate adjustments according to the sales situation in the future." ”
In stark contrast to the plight of the new energy photovoltaic business, TCL Technology's semiconductor display business is gradually picking up. In the first half of 2024, the semiconductor display business achieved operating income of 49.877 billion yuan, a year-on-year increase of 40.39%; The net profit was 2.696 billion yuan, an improvement of 6.145 billion yuan year-on-year.
At the bottom of the cycle of the photovoltaic industry, the management of TCL Technology believes that the survival of the fittest in this round of the photovoltaic manufacturing industry will contribute to the long-term pattern optimization and profitability repair of the industry. However, in the short term, in order to alleviate the loss pressure of the new energy business, TCL Technology must increase investment and resource allocation in the semiconductor display business, in order to balance the overall financial position through this more profitable business segment. It is particularly necessary to acquire LGD's Guangzhou factory and tilt resources towards the more profitable semiconductor display business.
03 Whether the whole industry chain can work
For TCL Technology, this acquisition will greatly expand the semiconductor display technology lineup, enhance the synergy effect and scale advantage of the industrial chain, and improve the company's long-term profitability.
Technology integration is a key part of TCL Technology's ability to enhance product competitiveness. With the successful completion of the acquisition of LGD's Guangzhou factory, TCL Technology has been able to integrate LGDCA's IPS (In-Plane Switching) production capacity and technology, and then have a more complete IPS technology system. IPS has a good viewing angle and fast response speed, which is a high-end product in the panel market.
Through technological innovation and integration, TCL Technology is expected to achieve greater breakthroughs in the field of IPS LCD and provide users with more high-quality and high-performance display products. It is worth noting that previously, IPS-type panels only had LG's IPS and BOE's ADS in the world, and TCL did not develop IPS technology.
The integration of the upstream and downstream of the industrial chain is an effective way for TCL Technology to reduce production costs and improve profitability. TCL Technology is not satisfied with a single panel manufacturing business, but adopts a vertically integrated business model and is committed to building a complete display technology ecosystem. TCL Technology's business runs through the entire industrial chain from LCD panels to terminal products, from upstream raw material procurement, to midstream manufacturing, and then to downstream product sales network expansion, TCL has strong control and management capabilities.
The acquisition has brought significant advantages to the upstream and downstream integration of TCL's industrial chain - TCL has not only obtained LGD's advanced technology and production capacity in the panel field, including LGD's semiconductor display technology and the production capacity of large-size LCD panels and LCD modules for TVs and commercial displays, but also obtained the relevant technology and support services required for the operation of LGD's two companies.
TCL Technology also said in the announcement, "This acquisition is conducive to the company's scale and industrial synergy. After the completion of the acquisition, LGDCA will form a 'Gemini' factory with TCL Huaxing t9 production line in Guangzhou, which is conducive to optimizing resource allocation, reducing operating costs, improving operational efficiency, and enhancing the competitiveness of production lines and the company's long-term profitability. ”
However, it should be noted that the choice of technology path in the technology industry is life-and-death for enterprises, such as the transition of cameras from film to digital, burying a generation of Kodak giants; Mobile phones have evolved into smartphones, eliminating 90% of the world's feature phone brands; The shift from gasoline-powered cars to electric vehicles is a case in progress.
At present, in the display industry, Korean and Japanese companies are withdrawing from LCDs and making every effort to forge ahead with OLED, and the semiconductor display technology route competition has come to the OLED and MiniLED era. According to Magirror Research data, in the first half of 2024, the first to sixth places in the global flexible AMOLED smartphone panel manufacturers in terms of shipments are Samsung Display, BOE BOE, TCL Huaxing, Tianma, Visionox and LGD, with market shares of 30.70%, 22.30%, 13.4%, 12.9%, 12.8% and 7.9% respectively.
In the field of display, the main domestic competition is BOE and TCL, at this time Li Dongsheng threw 10.8 billion bets on LCD, he needs to pray that the era of new technology will come slowly.