Japanese companies are forced out, and China dominates this semiconductor field?

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On December 8, TCL Group announced that it plans to divest its home appliance business for RMB 4.76 billion. In the future, TCL Group will focus on semiconductor display and material business. It is worth mentioning that CSOT is a subsidiary of TCL Group that mainly engages in panel business.

On December 20, according to China Business News, TCL Group's Indian module and whole machine integrated intelligent manufacturing industrial park officially started construction in Tirupati, Andhra Pradesh. Unlike in the past, TCL is not exporting products this time, but exporting the industrial chain capabilities from screens to whole machines. This is the first time that Huaxing Optoelectronics' module business has entered overseas.

After the completion of TCL India Industrial Park, TCL will build an integrated intelligent manufacturing base for modules and complete machines in India, and coordinate the supporting layout of upstream and downstream industries to become an enterprise with the ability to integrate the entire semiconductor display industry chain. Obviously, TCL's focus will be on CSOT.

In 2015, TCL Group announced that it planned to purchase 10.04% of the shares of CSOT held by Changjiang Hanyi, Xingyu Limited, Linzhou Xinglan, Linzhou Xingyong, Linzhou Xingyuan and Linzhou Xinglian through the issuance of shares. The transaction price was RMB 4.034 billion. After the transaction is completed, CSOT will still be a holding subsidiary of TCL, and TCL Group will directly hold 85.71% of the shares of CSOT.

In 2017, TCL continued to purchase assets through issuing shares to complete the full ownership of Shenzhen Huaxing Optoelectronics. At the same time, Huaxing Optoelectronics completed the acquisition of Huaxian Optoelectronics, which is engaged in the small and medium-sized TFT-LCD/OLED display module business, in June of the same year. Together with Guangdong Juhua, which is engaged in the research and development of key technologies for printing and flexible displays, and Huarui Optoelectronics, which is engaged in the development of key OLED materials with independent IP, the company has jointly built a semiconductor display industry chain vertically integrated with Huaxing Optoelectronics as the core, and a semiconductor display industry ecosystem driven by next-generation new display technologies and materials.

From a series of business operations, TCL is optimistic about the future development of the semiconductor display industry. Through the acquisition, it further strengthens its control over CSOT, thereby improving the overall profitability of the listed company and strengthening shareholder returns. At the same time, it also enables CSOT's main managers and core employees to hold shares in the listed company, improving the company's equity incentives and talent attraction.

In recent years, CSOT has been the "profit cow" of TCL Group and the largest profit source of the parent company. In 2017, TCL Group's net profit was 2.664 billion yuan, of which CSOT's net profit reached 1.005 billion yuan, accounting for 37.74%, and its gross profit margin reached 27.88%. Both indexes exceeded those of other business departments of TCL.

As one of the top three semiconductor display manufacturers in China, CSOT has relied on its outstanding revenue to allow TCL Group to divest its home appliance business and transform into the semiconductor display industry. So what is the current status of this industry?

With the boom in the semiconductor display industry in 2017, leading companies in the panel industry are enjoying a year of great profits, with outstanding performance. The investment trend of domestic panel factories is still continuing, and OLED production lines are beginning to accelerate production. The domestic panel industry is about to surpass South Korea in terms of output area and become the world's number one.

Source: China Report Network

Source: China Report Network

According to data, the penetration rate of TV panels in China reached 36% in 2017, an increase of three percentage points, making it the largest region in terms of TV panel shipments in the world. South Korea's market share dropped from 38% in 2016 to 34%, ranking second. In terms of shipment area, China's shipment area accounts for 28% of the world, 2 percentage points higher than the third-ranked Taiwanese panel factory.

Compared with foreign-funded enterprises, mainland Chinese enterprises entered the semiconductor display field relatively late. Compared with leading enterprises such as Samsung and LG in South Korea, Sharp, Japan Display Company, Toshiba Semiconductor in Japan, and TSMC, AUO, and Innolux in Taiwan, they face high depreciation and amortization costs and are at a clear disadvantage in cost competitiveness.

According to the depreciation and amortization ratio of corporate assets to revenue disclosed by listed panel companies, in 2015 and 2016, South Korea's LGD's depreciation ratio was only 11.4% and 11.9% of its revenue respectively, AUO's depreciation ratio was only 12.1% and 13.3% of its revenue respectively, Innolux's ratio was 14.4% and 14.7% respectively, while China's BOE's depreciation ratio was 18.0% and 17.6% of its revenue respectively, and CSOT's ratio was 20.7% and 18.7% respectively.

Li Dongsheng, Chairman of TCL Group

At the 12th National People's Congress, TCL Group Chairman Li Dongsheng called on the country to continue to increase its support for the semiconductor display and chip industries in the next five years.

Regarding the two fields of semiconductor display and semiconductor chips, which are related to the development level of China's high-tech industry, Li Dongsheng expressed his opinion that China will become the country with the largest output in semiconductor display around 2019. However, in the fields of semiconductor display and semiconductor chips, Chinese companies still have a large technological gap.

At present, there are 40 semiconductor display production lines built or under construction in China, including 4 high-generation TFT-LCD production lines and 4 OLED production lines under construction, with a total investment of 200 billion yuan. Chinese companies have invested more than 70 billion US dollars in the semiconductor display industry chain, covering small and medium-sized display screens and large-sized display screens for color TVs.

Against the backdrop of counter-cyclical investments by manufacturers such as BOE and the continued rise of domestic brand terminals, global LCD panel production capacity has continued to shift to mainland China, with mainland manufacturers’ capacity share increasing from 11% in 2009 to 28% in 2016, ranking second in the world, and expected to surpass South Korea to become the world’s first in 2017. It is expected that in two years (i.e., 2020), LCD panels from mainland China will account for half of the capacity distribution.

Domestic panel manufacturers represented by BOE, CSOT, and Shenzhen Tianma have risen strongly and are in a leading position in different segments. For example, BOE ranked first in terms of shipments in the first quarter of this year, and ranked third in terms of shipment area. There is still a lot of room for improvement in the future. It is expected that in 2018-2019, the leading manufacturer BOE will surpass LG in terms of shipment area and become the world's leading panel manufacturer.

Li Dongsheng believes that according to the future development trend, China's semiconductor display industry is confident that it will become the country with the largest output in the world around 2019, but it still needs to work hard to become a world-leading country in technology. "The threshold of these industrial technologies is very high, and the accumulation of many technologies requires time and investment, and companies need to have a long-term strategy." He said that the entire planning and construction cycle of semiconductor display projects is a process of continuous investment, which has no benefits. The improvement of benefits after two or three years is also a gradual process. Everyone knows that the process of climbing the yield is difficult.

For the semiconductor display industry, the trend towards larger sizes is unstoppable. The gradual mass production of the 10.5-generation line will steadily increase the supply capacity of large-size panels and accelerate the popularization of ultra-large-size TVs. At the same time, it will also drive changes in the global production capacity structure and the competition structure of manufacturers. The dominance of the global LCD TV panel market production is accelerating to shift to the 8.5-generation line to the 10.5-generation line, and panel production capacity is more concentrated in China.

With the steady advancement of large-size production, the ultra-large-size market will be the focus of competition among manufacturers in the future. Currently, large-size panels are mainly produced by manufacturers in South Korea, Taiwan, and Japan. In the future, with the release of the production capacity of the 10.5-generation line - Foxconn's Guangzhou 10.5-generation line will also be put into production next year, and BOE has announced that it will build its second 10.5-generation line in Wuhan, the supply capacity of mainland Chinese manufacturers will exceed that of Taiwan and even South Korean companies to become the main suppliers of large-size panels.

As can be seen above, Japan, South Korea, mainland China and Taiwan are the main production bases of the global semiconductor display industry, but the landscape of the global semiconductor display industry has undergone major changes in recent years.

As for Japanese companies, Sanyo Electric withdrew from panel manufacturing in 2006; Japan's NEC closed its panel factory in 2009 and sold 70% of its panel business to China's Shenzhen Tianma Group; Sony reached an agreement with Samsung in 2011 and announced its withdrawal from panel manufacturing; Mitsubishi Electric withdrew from LCD panel manufacturing in 2014. Recently, Japan Display Inc. (JDI) is also seeking financial assistance from China. It is worth mentioning that JDI is a joint venture between Toshiba, Sony and Hitachi.

As for Taiwanese companies, Chunghwa Picture Tubes, a panel manufacturer, recently encountered a debt crisis and its factory stopped production. Huang Shih-chang, CFO of Chunghwa Picture Tubes, said that this year's oversupply of panels, coupled with the impact of the US-China trade war, has caused panel prices to collapse. Chunghwa Picture Tubes still owes about RMB 3.3 billion in payments, of which RMB 2 billion is overdue.

As for Korean companies, although their market share has declined, they continue to actively promote product structure optimization and technology upgrades, and still lead in the field of large-size high-end TV panels. LGD is actively shifting to large-size and high-definition products in the TV panel market, and maintains its lead in ultra-thin, borderless and other high-end products. Samsung's product strategy also focuses on high-end large sizes, actively deploying ultra-large-size products of 65 inches and above, focusing on QD quantum dot technology, and actively planning to invest in QD panel production lines.

With the growth of mainland manufacturers and Japan's withdrawal from the large-size panel field, the global semiconductor display industry will form a "three-legged" pattern of mainland China, South Korea, and Taiwan for a long time.

summary:

The development of the electronic information industry is inseparable from the support of semiconductor chips and semiconductor displays. With the advent of the 5G communication and Internet of Things era, display screens will be everywhere, which brings huge imagination space to the semiconductor display industry. When the development of semiconductor chips becomes the mainstream voice, the development of the semiconductor display industry should also be put on the agenda earlier.

*This article is originally written by Xinshiye. Some of the content is referenced from China Report Network, China Measurement and Control Network, Guanchazhe.com, and Electronics Say. Some pictures are from the Internet, and the copyright ownership has not been verified. It is not for commercial use. If there is any infringement, please contact us at info@gsi24.com