BOE's gamble of burning over 70 billion yuan sees light at the end of the tunnel

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Mo Dakang's note: BOE spent 70 billion yuan to build a panel industry, and the industry was talking about it. But my view is that there are too few companies like BOE in China. If China's semiconductor industry can produce one or two, it would be even better. Some opinions in the industry are very pertinent, saying that it spends too much money and the return on investment is not high. Indeed, if it can achieve a high return, is there any need to discuss it? I believe that for China, the development of each emerging industry is very difficult, and "impulsiveness" is almost inevitable. We cannot only calculate the economic account, but also see that it has very positive aspects, such as how much localization rate has been achieved? How many billion dollars of imports have been reduced. The most gratifying thing is that China has established its own panel industry. Therefore, we must have a clear understanding of China's current situation. If we use pure market economic theory to measure it, China does not need to do it at present, just wait for imports! Therefore, we should not be too demanding of BOE, and we should encourage BOE to make progress.

Note: Mo Dakang has no economic relationship with BOE and is definitely not its agent. He only expressed some superficial views on the development of China's emerging industries, including polysilicon, panels, semiconductors, photovoltaics and LEDs .

At the International Consumer Electronics Show (CES) held in the United States on January 6 , Samsung exhibited the world's largest 110- inch 8K ultra-high-definition TV. However, its display screen is not produced by Samsung itself, but a product developed by BOE. This is also the world's first 110- inch 8K ultra-high-definition display screen.

On January 20 , Zhang Yu, vice president of BOE, said in an interview with the media that BOE has entered the first camp of the industry, and at the same time ended the development stage of "strong investment to bring growth" and entered the second cycle of enterprise development, that is, relying on internal value creation to drive growth. The performance report for the first three quarters of this year indicates that BOE, which is called a "money-burning machine" by the media, will usher in another "harvest year" in 2014 after completing two years of profitability. In the second half of 2014 , many domestic securities institutions also gave unprecedented evaluations of "recommended purchase", "strongly recommended" and "increased holdings". BOE's gamble finally ushered in the dawn.

High financing is called a "money-burning machine"

BOE has always been known in the capital market for its high financing, high losses and high subsidies. BOE was founded in 1993 and went public in 2001. In the 14 years since its listing, BOE has raised more than 70 billion yuan in total and received 5.6 billion yuan in government subsidies , but has suffered a total loss of 7.532 billion yuan.

In terms of financing, in 2006 , 2008 , 2009 , 2010 and 2013 , BOE raised RMB 1.9 billion, 2.3 billion , 12 billion, 9 billion and 46 billion respectively. From 2006 to date, the total amount of financing raised by BOE has reached more than 70 billion yuan.

BOE was profitable from 2001 to 2004. In 2005 , BOE lost 1.587 billion yuan, and in 2006 , it lost 1.722 billion yuan, and was eventually labeled as " ST ". In 2007 , it made a profit of 691 million yuan, and in 2008 , it lost 808 million yuan. In 2009 , BOE turned losses into profits with a government subsidy of 699 million yuan, and realized a net profit of 50 million yuan. But in 2010, it fell into a huge loss of 2 billion yuan again , and in 2011 , it lost 700 million yuan . In 2012 , BOE realized a net profit of 250 million yuan, but after deducting non-recurring gains and losses, the net profit was still a loss of 544 million yuan. In 2013 , the net profit increased to 2.35 billion yuan. In the first three quarters of 2014 , BOE realized a net profit of 1.59 billion yuan.

A careful comparison of BOE's financial data reveals that in the past few years, BOE's several difficult turnarounds were all supported by government subsidies. Since 2007 , when the government provided subsidies of 53.27 million yuan, the government provided subsidies of 60.89 million yuan in 2008 , 699 million yuan in 2009 , 76.41 million yuan in 2010 , 666 million yuan in 2011 , 2.62 billion yuan in 2012 , 1.44 billion yuan in 2013, and 514 million yuan in government subsidies included in BOE's current profit and loss in the first half of 2014 .

This kind of subsidy burning money has constantly aroused doubts from the outside world. Even BOE Vice President Zhang Yu admitted that the media's criticism of BOE as a "money-burning machine" in the past did have some basis. But Zhang Yu believes that the process of burning money is necessary, because the panel is a high-tech, high-investment industry with a high threshold and its "capital-intensive" characteristics are prominent. Companies in South Korea and Taiwan have also experienced similar money-burning processes.

Is it worth spending huge amounts of money?

BOE was once known as the "money-making king" in the industry because of its huge financing amounts over the years. Its "money-making" methods include redirected additional issuance and syndicated loans, with local governments providing a lot of support.

According to media reports, in 2009 , the Hefei Municipal Government and its government investment platform invested 3 billion yuan in a private placement out of a total investment of 17.5 billion yuan in BOE's Hefei 6th Generation Line project. In 2010 , of the 28 billion yuan required for the Beijing 8.5th Generation Line project , the Beijing Municipal Government's investment platform not only directly invested 8.5 billion yuan in the project company , but also participated in a private placement with more than 4 billion yuan. A similar situation occurred in the subsequent Chongqing 8.5th Generation Line construction.

Some people believe that a BOE production line can drive 30 billion yuan of industrial investment from the beginning of construction, and the annual output value after completion will be in the hundreds of billions of yuan level.

Why is the government so enthusiastic about the BOE project? Industry analysts believe that on the one hand, BOE can boost local GDP , and on the other hand, BOE's investment is in a "strategic" industry, which is an opportunity to break the foreign monopoly in the LCD industry.

According to industry insiders, LCD panels once accounted for 2/3 of the cost of LCD TV sets , and China has long been unable to produce large-size LCD panels. In 2010 , for example, China's LCD panel imports exceeded US$ 40 billion, second only to integrated circuits, oil and iron ore.

This situation was not alleviated until the panel projects of BOE and TCL Group's Huaxing Optoelectronics were completed. As consumers, we can feel that the prices of domestic large-screen LCD TVs have continued to fall since 2010 .

In this regard, Peng Xiandong, an analyst at CMM, believes that it is necessary for the government to invest in the display field, but the way of investment in the future can be more "economical". "Chinese companies lag far behind foreign companies, and the display industry is a high-investment industry. It is very difficult to rely solely on companies to invest in R&D and conduct technical research. Therefore, it is necessary for the government to invest, but the way the government invests, whether it is direct subsidies or setting up funds to allow companies to win through competition, can be considered in the future. "

Peng Xiandong believes that the government regards display equipment as a national government strategy and as a core industry that will have an impact on the future. From this perspective, the government is also very anxious.

The industry is worried about "overcapacity"

In recent years, domestic LCD production lines have been continuously launched. In addition to BOE, TCL 's Huaxing Optoelectronics Company also invested 10 billion yuan and 24.4 billion yuan in 2010 and 2013 respectively to launch two 8.5 -generation lines. In addition, with the successive production of LG and Samsung's panel factories in China, there are about 12 LCD panel production lines in China . "Overcapacity" has always been a concern for industry insiders about BOE's continuous investment in new product lines.

In this regard, Zhang Yu said that in 2014 , BOE's production and sales were fully completed, and there was even a shortage of supply. The company's profitability will get better and better in the future, and there is a lot of room for imagination.

The reporter consulted several LCD TV companies and third-party consulting companies and was told that LCD panels were indeed in short supply in 2014. In particular, small and medium-sized panels were in short supply, and prices have been rising since March 2014 .

According to statistics from CMM, the price of a 32 -inch LCD screen was US$ 79 in April 2014 , but it had risen to US $ 90 by the end of 2014 ; the price of a 42- inch screen also rose from US$ 140 to US$ 145 .

An analyst from another consulting firm said that manufacturers continued to invest in high-generation lines, resulting in sufficient supply of large-size panels in 2014 , even slightly exceeding demand. On the contrary, small and medium-sized panels were in short supply.

BOE's difficult period seems to have really passed. After turning losses into profits in 2012 , BOE has achieved profits for seven consecutive quarters. The company's stock price has also risen in the secondary market, with a growth rate of more than 41.72% in the past year .

However, judging from historical profits, the panel industry often fluctuates between prosperity and recession, with a cycle of three to five years. Has BOE's performance really turned around? How long can BOE's spring last?

Looking back at the losses in previous years, BOE stated in its financial report that the main reason for the loss in 2005 was the continuous decline in product prices, and the company's investment of 50 billion yuan in production lines had not generated any income. Since then, BOE has continued to invest in multiple production lines, including the Chengdu 4.5 -generation line, the Hefei 6 -generation line, the Beijing 8.5 -generation line, and the Ordos 5.5AMOLED production line.

Peng Xiandong, a panel industry analyst at China Market Research, said that the panel industry requires high investment, and each production line has a depreciation period of 3-5 years, during which it is difficult to make a profit. "If BOE did not invest, it would have made a profit earlier, but it would be difficult for the company to have sustainable development. Although BOE's previous approach was radical, it allowed it to catch up with Korean and Taiwanese companies at the fastest speed."

According to those who know the history of the LCD panel industry, BOE continued to expand its production capacity and upgrade its production lines during the period of losses, which was the same strategy adopted by Korean companies before. After the outbreak of the Asian financial crisis in 1997 , Samsung Electronics and LG adopted a counter-trend expansion strategy, investing billions of dollars to build large-size LCD panel production lines. After experiencing losses for many years, in 1999 , Samsung occupied 18.8% of the global LCD flat panel market, ranking first; LG reached 16.2% , ranking second, surpassing the original industry leader, Japan's Sharp.

The future of the “interface war”

Currently, BOE is the world's fifth largest LCD panel manufacturer, after Samsung, LG Display , AUO and Chimei. BOE said that its shipments ranked first in the world in 2014 .

Zhang Yu said that BOE's accumulation of patents has reached the same level as Korean companies. In 2014 alone, BOE's number of patents reached 5,116 . In addition, BOE has invested in transparent display screens, 4K , 8K and other forward-looking technologies. Since 2006 , BOE has continuously invested 7%-10% of the company's operating income in research and development.

"This is also the reason why Samsung's flagship product at this year's CES , the 110- inch 8K ultra-high-definition TV, will use BOE screens." Zhang Yu revealed that Apple is also currently establishing a supply chain relationship with BOE for laptops such as MacBooks .

In an interview with reporters this week, Zhang Yu said that BOE is currently working hard to build Alta into a high-end brand and change BOE's cheap brand image. It is reported that BOE's Alta TV is currently priced at more than 20,000 yuan. As for the market prospects of Alta , Zhang Yu said that it will definitely make money.

Zhang Yu said, "China's overall economy has entered a new normal, changing the previous investment-driven growth model. Downstream companies are also working hard to transform from OEM, copycat brands, and low-end brands to mid-to-high-end brands. BOE must also adapt to this trend."

Regarding the future development prospects of BOE, Zhang Yu believes that "the imagination is endless". "Nowadays, 80% of the way humans obtain information depends on their eyes, and the entrance is various interfaces. Computer interfaces, mobile phone interfaces, tablet interfaces, and now there are various wearable interfaces. These new forms of consumer electronics all need screens, which is BOE's business. From this year's CES exhibition, the concept of cars is likely to be subverted in the future. Car windshields and other screens are likely to become transparent displays in the future, just like what is shown in science fiction movies." Zhang Yu said that this industry has unlimited prospects.

■ Hidden concerns

Direction selection is more important

An industry insider said that LCD screens were initially dominated by Japanese companies, but later on, when choosing between LCD and plasma screens, some Japanese companies chose plasma screens, and with the decline of Japan's electronics industry, Japanese companies gradually faded out of the panel industry. Samsung and LG of South Korea fought over the two 3D screen formats a few years ago , but in the end, 3D was just a concept product and was not popularized in the mass consumer field.

Another industry insider said, "South Korean panel companies are now working hard on AMOLED and promoting bendable screens, bendable mobile phones, and bendable TVs."

Zhang Yu said that he is not optimistic about AMOLED for at least 10 years . Due to technical bottlenecks, AMOLED production is difficult, has a short lifespan, and is expensive. For at least 10 years, LCD panels will be the mainstream product.

The "disruptive innovation" that leads the next wave of market development may very well be those simple technologies and low-performance products that are temporarily rejected by mainstream customers.

For a company like BOE, which has gone through difficulties, finally got rid of losses temporarily, and has just entered an upward period, the choice of direction is more important.

Peng Xiandong said that the good news is that according to the " 2014-2016 New Display Industry Innovation and Development Action Plan" issued by the National Development and Reform Commission and the Ministry of Industry and Information Technology in October 2014 , the government's support for BOE will continue for at least the next three years.

Source: Beijing News

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