TCL Technology: Medium-sized panels may become the company's performance growth driver in the next 2-3 years

On December 20, TCL Technology Group Co., Ltd. (stock abbreviation: TCL Technology, stock code: 000100) held the fifth extraordinary general meeting of shareholders in 2021, and reviewed and voted on proposals such as "Proposal on increasing capital in Wuhan Huaxing and investing in the "6th Generation Semiconductor New Display Device Production Line Expansion Project", "Proposal on the company's compliance with the conditions for public issuance of corporate bonds and application of the Shenzhen Stock Exchange's optimized review procedures for corporate bonds", and "Proposal on applying for registration for public issuance of corporate bonds". Aijiwei participated in the shareholders' meeting as its institutional shareholder and voted in favor of the above proposals.

After the meeting, Li Lina, director of the TCL Technology Board Office, communicated with several shareholders including Aijiwei on issues such as the construction of the LTPS-LCD production line and the company's development.

Layout of medium size areas

The semiconductor display industry is one of the core components of the electronics industry. After more than a decade of development, Chinese companies have established scale, efficiency and product advantages in the field of large-size liquid crystal displays, are improving the layout of the industrial chain and value chain, and continue to capture the small and medium-sized market to achieve comprehensive competitive advantages in the display field. At the same time, the deep integration of 5G with cloud computing, big data, artificial intelligence, virtual augmented reality and other technologies has accelerated the evolution of information intelligence and also spawned market demand for various smart terminals as the main interface for information flow and interaction. Display devices such as e-sports, car-mounted, laptops and AR/VR are experiencing rapid growth.

It is understood that TCL Technology has achieved catch-up, surpassing and leading in the large-size field by building two 8.5-generation lines and two 11-generation lines, as well as counter-cyclical acquisition of one 8.5-generation line. In the small and medium-sized field, the company's 6th generation LTPS production line (t3) continues to be fully sold and fully produced, the 6th generation AMOLED production line (t4) has completed the second and third phases of construction, and the 8.6th generation OXIDE production line (t9) has begun construction. Through the adjustment of existing production capacity, TCL's medium-sized product share has grown rapidly, LTPS flat panel shipments ranked first in the world, LTPS car-mounted has been introduced to many domestic and foreign leading customers, and monitors and laptops equipped with Mini LED backlights have reached cooperation with brand customers, and VR/AR products are rapidly advancing.

In order to meet customer needs, enhance economies of scale and improve the competitiveness of mid-size business, TCL Technology and its subsidiaries TCL Huaxing and Wuhan Huaxing plan to sign a "6th Generation Semiconductor New Display Device Production Line Expansion Project Cooperation Agreement" with the Wuhan East Lake Management Committee, and plan to expand a 6th generation LTPS LCD display panel production line (t5) with a monthly processing capacity of 45,000 glass panels. It will apply VR, touch screen (Touch Panel + active pen technology), Mini LED backlight display and LTPO technologies to produce small and medium-sized high-end display products such as automotive, laptops, tablets, VR display panels, etc.

Li Lina, director of the board office of TCL Technology, told Aijiwei, "Since last year, we have accelerated the strategic layout of medium-sized products. However, since we did not have production capacity and production lines specifically for medium-sized products, the company has shifted part of the production capacity of the T3 production line to the development of medium-sized products, resulting in the company's market share in mobile phone LTPS falling from the original second place in the world to the fourth place in the first half of this year. Of course, the corresponding achievement is that the company's market share in tablets, laptops and cars has increased."

"In the future, the company's mobile phone market share will continue to rise, and its products and market share in car and tablets will also expand. However, production capacity has now become a limitation for the company's development. The T9 disclosed by the company in the first half of the year is mainly positioned as high-end and some differentiated display products, and this T5 production line is mainly positioned in the medium-sized field. We started to invest in and expand the production line when the demand for medium-sized customers increased and there were continuous orders for medium-sized car-mounted products in the future." He added further.

At present, TCL Technology is catching up in the fast-growing display field in multiple scenarios such as automotive, e-sports, and IT, and has completed the technology, product and customer reserves through the adjustment of existing production capacity. The expansion of the 6th generation LTPS display panel production line can complement the oxide semiconductor display production line (t9) in terms of products and technology, which will help further improve the company's small and medium-sized production line layout.

Talking about the competition in OLED technology, Li Lina said, "Among the current mainstream application markets, the penetration rate of OLED in the mobile phone field is already very high, but in the fields of automotive, laptops, tablets, etc., the market share of OLED products is not high. More than 70% of mainstream products are still LCD products, or mainly silicon-based products. The company's LTPS is positioned between LCD and OLED products, but whether the service life of OLED is sufficient to support the performance requirements of medium-sized products remains to be tested by the market."

Performance growth drivers

As we all know, the price of LCD panels began to rise in the second half of last year, and finally fell after more than a year of rise. Starting from July this year, LCD panels began to drop in price significantly, especially in September and October, showing a cliff-like price drop.

However, the price decline of LCD panels has started to narrow since December. The latest data from market research firm Witsview shows that the price of 32-inch and 43-inch LCD TV panels has stopped falling this month, the first time since the price of TV panels dropped in July. At the same time, the price decline of other sizes of panels has also narrowed to 3%, better than the expected 5%.

Industry insiders pointed out that the price drop of LCD panels in the second half of the year was also expected. On the supply side, panel production capacity has increased significantly, while on the demand side, as the "stay-at-home economy" boom gradually faded, the market demand for display equipment also weakened. The combination of multiple factors led to changes in the supply and demand relationship, and the price of LCD panels fell rapidly.

Li Lina said, "In fact, the entire LCD panel was in short supply in the first half of the year, and product prices continued to rise. For example, 32-inch products basically rose by about US$5 every month, reaching a peak of US$85-87. Starting from the third quarter, due to the export of end customers by sea and the shortage of upstream parts and components, the demand in the third and fourth quarters was no longer as high as in the second quarter, resulting in seasonal adjustments and a drop in panel prices."

In order to cope with changes in panel prices, TCL Technology has always insisted on achieving the ultimate in cost efficiency, including material procurement and operating costs. There will be corresponding reduction assessment indicators every quarter and every year. Regardless of whether the price is rising or falling, internal management work will continue.

Li Lina said, "From the quotations in early December, some products have begun to stabilize and the decline of some products is narrowing. However, January and February are the Spring Festival season, and the production schedules of some end customers may be adjusted, so we cannot give an accurate forecast for the next two months. It happens to be a seasonal intersection and a stabilization intersection. Under the influence of these two factors, what kind of trend will emerge? We are also continuing to pay attention."

"In terms of product structure, LCL Technology's TV panels have already ranked second in the world, and its market share in mobile phones is also gradually increasing. What we want to do in the next round is to quickly fill in the medium-sized panels and make them the driving force for performance growth in the next two to three years," he said at last.