TCL Li Dongsheng: In the second half of the year, the shortage of panel supply will ease

Per reporter: Guo Rongcun Per editor: Song Siyan

On August 10, Li Dongsheng, founder and chairman of TCL, was interviewed by the media including the Daily Economic News in Shenzhen and talked about his views on the performance of the entire group in the first half of the year, the price trend of the panel, and the future layout direction.

Li Dongsheng said that the shortage of panels in the second half of this year will ease, but the cycle fluctuations of this industry will be significantly weakened in the future.

<h2>Talking about the first half of the year results: affected by three major factors</h2>

TCL (Group) is divided into two major sectors: TCL Technology and TCL Industry. The main body of TCL technology sector is listed company TCL Technology (000100, SZ) and its Central shares (002129, SZ), etc., the core main business is semiconductor display (ie panel), semiconductor photovoltaic and semiconductor materials; TCL industrial sector includes intelligent terminal business group (including Hong Kong listed company TCL Electronics (01070, HK), TCL white electricity, Omar Electric Appliances (002668, SZ), TCL air conditioning, TCL Health Appliances) and emerging business groups (including TCL Financial Holdings, KONE Electronics, Environmental Technology, etc.).

According to the data provided by TCL, in the first half of 2021, TCL (Group) achieved operating income of 115.24 billion yuan, an increase of 89% year-on-year; net profit of 10.72 billion yuan, an increase of 460% year-on-year. Among them, TCL Technology achieved operating income of 74.30 billion yuan and net profit of 9.25 billion yuan; TCL Industry achieved operating income of 50.79 billion yuan and net profit of 3.35 billion yuan.

Li Dongsheng, founder and chairman of TCL Image source: Courtesy of the enterprise

For the performance of TCL (Group), Li Dongsheng is more excited. He analyzed three reasons:

The first is rising demand. He said that after the epidemic this year, the global economy has gradually recovered. The core industries of TCL Technology are semiconductor displays, semiconductor photovoltaics and semiconductor materials, and the market demand is growing rapidly. From the second half of last year to the present, the market demand for semiconductor display has been very strong, so far, the panel is still in a state of relatively large demand and relatively insufficient supply. So the company's production is at full capacity. Semiconductor photovoltaics are driven by global green energy policies, and the market demand is relatively large.

The second is capacity expansion. Li Dongsheng believes that the growth of the semiconductor display business is also due to the commissioning of new factories, the expansion of production capacity and mergers and acquisitions. Last year, the company acquired Suzhou Samsung, and the T7 production line is in the stage of capacity climbing, and the output of t4 flexible AMOLED is also increasing, bringing about a scale increase.

The third is the enhancement of internal competitiveness. In terms of semiconductor display, we continue to optimize the production line layout, product structure and customer portfolio.

<h2>Talk about panel prices: The shortage of supply and demand in the second half of the year will ease</h2>

The reporter noted that the performance of TCL (Group) is largely due to the continuous rise in panel prices since last year. The subsequent price trend has become a closely watched indicator of the capital market. Li Dongsheng's judgment on this is that the situation of short supply of panels in the second half of the year will ease, but the cyclicality will weaken in the long run.

"From the current trend, the panel industry has experienced a good industry economy for more than a year, and the situation of short supply in the second half of the year will be alleviated." However, from the adjustment of the global panel pattern, the changes in the large industrial pattern, and the adjustment of China's industrial policy, the cyclical fluctuations of the panel industry will be significantly weakened in the future. Li Dongsheng said.

From a historical point of view, the reason why the panel industry has such a strong cyclicality is mainly affected by the supply side. In the short term, a large amount of production capacity has distorted the relationship between supply and demand. Li Dongsheng said that in the past two years and the next one or two years, TCL will add some new production capacity, and the whole world will also add some new capacity. But there have also been some capacity withdrawals during this time in the past. So the overall capacity increase is not as fast as in the previous two years, and demand continues to grow.

Of course, Li Dongsheng also believes that it is unlikely that the supply and demand relationship will be balanced for a long time in this industry, so it must have cyclical fluctuations, but the amplitude of this fluctuation will be greatly reduced. In order to be less affected by cyclical fluctuations, Li Dongsheng believes that TCL Huaxing has several countermeasures:

The first is the orderly growth of production capacity. The company will more accurately judge the market demand and trend to grasp the increase in production capacity; the second is to optimize the layout of the production line. TCL has five large-size panel factories and one medium-sized panel factory under construction. The company will be the best at each production line, the most efficient production varieties to do the allocation, to maintain the efficiency of the production line configuration; the third is to optimize the product structure. That is, to increase the proportion of high-end products, increase the proportion of non-TV screens; the fourth is to optimize the customer mix.

<h2>Talk about the future layout: there will be no more big mergers and acquisitions in the short term, focusing on the field of integrated circuits</h2>

In the development of TCL 40 years, the company has been constantly crossing borders. From the original telephone set, TV business, expanded to the current panel, photovoltaic industry. The outside world is concerned, will the company continue to expand into new tracks in the next step?

In the interview, Li Dongsheng reviewed the cross-border process in these years. He said that in the early years, the company was in the start-up stage, and the demand of the entire market was also very strong, especially in the shortage economy, there was often nothing wrong with decision-making, as long as the effort to do a thing to the extreme, can be successful.

He said that in the new century, many investment decisions will have great risks and uncertainties. In 2004, the big cross-border mergers and acquisitions (the acquisition of Thomson's color TV business and Alcatel mobile phone business), the decision was very thrilling, discussed for half a year, and finally decided to do it, after doing it, there were also great challenges and losses. "A lot of business schools take it as a case of failure, and it doesn't really do it very successfully, but I think it's wrong to define it as failure." Because today, nearly 50% of TCL's business and revenue are from overseas, if it were not for this cross-border merger and acquisition, it would be more difficult for us to establish such competitiveness in Europe and the United States. Li Dongsheng said with emotion.

According to him, when he decided to go to the TCL Huaxing project in 2009, he was also very troubled, because this is a huge investment, and this investment is something that TCL can't afford to lose; but from another point of view, not doing this thing does not mean that there is no risk. Color TV was the core business of TCL at that time, if the upstream core devices and displays could not be controlled, it was difficult to achieve the world's leading operating scale and competitiveness in this field. Therefore, the risk of not doing this project could not be borne by the assessment at that time, and everyone decided to rush forward and fight.

In the context of the acquisition of Central Group, the holding of Omar Electrical Appliances, and the gradual addition of panel production lines, TCL still has a lot of things to do, and Li Dongsheng said that there will be no more large continuous mergers and acquisitions in the short term.

"After we won Central, Central has now made several big investments, and in January this year we opened a 50GW monocrystalline silicon factory in Ningxia, with an investment of 12.7 billion yuan. At the same time, we have planned nearly 10 billion yuan in several bases in China, establishing supporting tile wafers and 210 silicon wafer production bases, and the production investment of silicon wafers is also very large. At the same time, Zhonghuan began to increase its investment in the component side. These investments will also occupy resources, so we will not do large mergers and acquisitions in the short term. Li Dongsheng said.

But he also said that the company has been paying attention to the field of semiconductors, integrated circuits and chips. Some time ago, TCL Microchip Technology was established in Guangzhou, which focused on investment in the semiconductor field.

"In the future, where do you say we are concerned, that is, in the field of semiconductor chips and integrated circuits. But the order of magnitude of these investments is about one billion, so we don't plan to do big mergers and acquisitions in the short term. Li Dongsheng said.

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