Vertical Divider
BOE Executives Speak Out on the Display Industry
The BOE responses have been edited to clarify the translation form Chines to English.
“How do you view the future industry landscape? Does periodicity still exist?”
Judging from the past industry development process, the panel industry is cyclical, (often called the crystal cycle). The main reason for the cycle was the concentrated release of production capacity in a short period of time. This led to oversupply, an imbalance between supply and demand, and panel prices fell sharply. As supply and demand close, the system gradually balances, and panel prices gradually return to normal levels. Judging from the background of this round of panel price recovery and the characteristics of the process, it is different from the past. The cyclical rise is different. We believe that the semiconductor display industry will move in the future, cyclical characteristics, and become an industry with certain growth:
The industry’s memory capacity and production capacity gradually withdraw, the total amount of new capacity is limited, the pace of capacity release is slow, and the market share gradually increases. The industry’s leading companies, including BOE are concentrated, the industry concentration has increased significantly, and the supply and demand structure (sees) continuous improvement.
In the future, the rapid development of the LCD industry driven by investment will gradually enter a mature period. A sharp cyclicality dominated by the supply cycle will turn into a narrow wave affected by the low and peak demand seasons. As a leading company in the industry, the company's profitability is expected to remain at a good level.
Simply put, “This time it is different”. We expect that philosophy to hold until he first quarter of panel price declines, at which point it will change to something more historical, “as the industry leader, we are able to withstand those periods when declining panel prices challenge profitability for competitors.”
“How do you view current and future panel price trends?”
According to data from third-party consulting agencies, since June 2020, panel prices continue to rise, and this round of panel price increases has lasted for more than a year. The current supply and demand of IT products, which account for a higher proportion of the company’s revenue, is still very tight. The industry is showing an upward trend, and the price increase trend is expected to continue until the end of the year or even 2022.
In the first quarter, the price increase of TV products, which accounts for the second largest proportion of the company’s revenue, will show (a) divergent trend potential. The supply and demand of large-size LCD panels are still tight, and the prices of 65- and 75-inch TV products are high. It is hoped that it will continue to increase for 1-2 months. Small TV panels such as 32-inch, 43 inches, due to the large increase in the previous period, the next price increase space is limited.
First chink in the panel pricing armor, essentially panel price increases will be specific to certain products rather than across the board. We expect panel buyers to step back a bit if TV panel prices flatten or weaken, but the ability to fill specific inventory gaps will keep panel producers thinking that they are still in the driver’s seat as to pricing. If holiday demand is weak, the refill rate in early 2022 will disappoint and the leverage will shift to the buy side. We believe it will be difficult for some panel producers to recognize this issue, while some have been anticipating such an event already.
“How is the company's flexible AMOLED business progressing? What is the yield, demand and shipment situation?”
The overall shipment volume continues to increase. The current situation is good, and the production line is climbing. The exhibition went smoothly, especially the shipment volume of key customers and key projects exceeded expectations. Currently mature, the yield rate of AMOLED products can reach over 85% (rigid OLED) and the company has provided high-end flexible AMOLED products for many global top-tier brands.
We will continue to develop more product series for brand customers. The future follows the increase in customer demand and the smooth climb of the company’s flexible AMOLED production line. Product shipments are expected to continue to grow rapidly, and the operation of flexible AMOLED production lines will continue (to) improve.
We are skeptical concerning utilization rates at BOE’s OLED fabs, not because we believe they are low, but more as to what they include. BOE currently has two Gen 6 OLED fabs that are in full production, a third which is in the final expansion stage, and a 4th that is under construction. Panel producers have been known to include production lines that help such statistics, while excluding those that are still in low-yield start-up mode. Given that such utilization rate estimates are unqualified, we take such statements with a grain of salt.
“How about the company's depreciation in the next few years?”
In terms of inventory depreciation, there will be multiple LCDs starting from 2021. The depreciation of the production line has expired in terms of increments (the flexible AMOLED production). In the future, the company's overall depreciation scale will still increase, but the growth rate will slow down significantly.
The depreciation of its LCD fabs has ended or is close to, but the expansion of the company’s OLED production will continue to increase depreciation, albeit at a slower rate than in the past when both LCD and OLED fabs were included. Given that at least 1 Gen 10.5 fab reached MP in 2020, it is unlikely to be fully depreciated.
“How is the company's Mini LED business progressing?”
Mini LED business is an important component of the company’s "1+4+N" business group section. The company has a comprehensive layout in the Mini LED industry, initially focusing on TV products. (Mini)
The use of LED as a backlight with LCD can improve the display effect of LCD. The industry takes the lead in realizing the formal mass production of glass-based active Mini LED products, with a 75-inch COG. Mini LED backlight products achieved mass production and delivery.
While BOE is producing Mini-LED COG (Chip-on-glass) backlights, still a very small part of the company’s overall business and is likely being touted to help the company appear to be a major player in the space, given BOE’s desire to increase its participation in Apple’s (AAPL) supply chain. Right now the company is focused on Mini-LED for large panel TVs, which are easier to produce. If they want to compete for Apple’s Mini-LED business, they will have to focus on bringing Mini-LED panel sizes down to monitor/notebook levels, where they would compete with a number of Taiwanese and Chinese suppliers who have considerable expertise in the space. The company is still quite vague as to where they stand in terms of Mini-LED market direction.
Someone once said, "technology has never moved this fast, and at the same time, will never move this slow again." So true! A partial list of recent technological advances includes messenger RNA (mRNA) gene therapies, 5G wireless, blockchain, the cloud, low orbit communication satellites (Starlink), vertical indoor farming, and much more.
At the same time, the government in the United States has never been larger or more intrusive. This makes economic forecasting and investing a balancing act between the "supply side" of new technology and the "demand side" of government intervention.
Case in point is the Federal Reserve, which meets this week. The Fed is far less concerned than it should be about falling behind the curve on inflation. As a result, we don't expect any significant changes to monetary policy.
Obviously, the Fed is still a long way off from raising short-term interest rates. But, as we explained as far back as mid-June when the 10-year Treasury Note yielded roughly 1.5%, financial markets are much better prepared for an announcement about tapering and the eventual end of quantitative easing than they were back in 2013 under Fed Chair Ben Bernanke, when we witnessed the "taper tantrum." In other words, we think the Fed will continue to kick the can down the road, though it shouldn't.
The BOE responses have been edited to clarify the translation form Chines to English.
“How do you view the future industry landscape? Does periodicity still exist?”
Judging from the past industry development process, the panel industry is cyclical, (often called the crystal cycle). The main reason for the cycle was the concentrated release of production capacity in a short period of time. This led to oversupply, an imbalance between supply and demand, and panel prices fell sharply. As supply and demand close, the system gradually balances, and panel prices gradually return to normal levels. Judging from the background of this round of panel price recovery and the characteristics of the process, it is different from the past. The cyclical rise is different. We believe that the semiconductor display industry will move in the future, cyclical characteristics, and become an industry with certain growth:
The industry’s memory capacity and production capacity gradually withdraw, the total amount of new capacity is limited, the pace of capacity release is slow, and the market share gradually increases. The industry’s leading companies, including BOE are concentrated, the industry concentration has increased significantly, and the supply and demand structure (sees) continuous improvement.
In the future, the rapid development of the LCD industry driven by investment will gradually enter a mature period. A sharp cyclicality dominated by the supply cycle will turn into a narrow wave affected by the low and peak demand seasons. As a leading company in the industry, the company's profitability is expected to remain at a good level.
Simply put, “This time it is different”. We expect that philosophy to hold until he first quarter of panel price declines, at which point it will change to something more historical, “as the industry leader, we are able to withstand those periods when declining panel prices challenge profitability for competitors.”
“How do you view current and future panel price trends?”
According to data from third-party consulting agencies, since June 2020, panel prices continue to rise, and this round of panel price increases has lasted for more than a year. The current supply and demand of IT products, which account for a higher proportion of the company’s revenue, is still very tight. The industry is showing an upward trend, and the price increase trend is expected to continue until the end of the year or even 2022.
In the first quarter, the price increase of TV products, which accounts for the second largest proportion of the company’s revenue, will show (a) divergent trend potential. The supply and demand of large-size LCD panels are still tight, and the prices of 65- and 75-inch TV products are high. It is hoped that it will continue to increase for 1-2 months. Small TV panels such as 32-inch, 43 inches, due to the large increase in the previous period, the next price increase space is limited.
First chink in the panel pricing armor, essentially panel price increases will be specific to certain products rather than across the board. We expect panel buyers to step back a bit if TV panel prices flatten or weaken, but the ability to fill specific inventory gaps will keep panel producers thinking that they are still in the driver’s seat as to pricing. If holiday demand is weak, the refill rate in early 2022 will disappoint and the leverage will shift to the buy side. We believe it will be difficult for some panel producers to recognize this issue, while some have been anticipating such an event already.
“How is the company's flexible AMOLED business progressing? What is the yield, demand and shipment situation?”
The overall shipment volume continues to increase. The current situation is good, and the production line is climbing. The exhibition went smoothly, especially the shipment volume of key customers and key projects exceeded expectations. Currently mature, the yield rate of AMOLED products can reach over 85% (rigid OLED) and the company has provided high-end flexible AMOLED products for many global top-tier brands.
We will continue to develop more product series for brand customers. The future follows the increase in customer demand and the smooth climb of the company’s flexible AMOLED production line. Product shipments are expected to continue to grow rapidly, and the operation of flexible AMOLED production lines will continue (to) improve.
We are skeptical concerning utilization rates at BOE’s OLED fabs, not because we believe they are low, but more as to what they include. BOE currently has two Gen 6 OLED fabs that are in full production, a third which is in the final expansion stage, and a 4th that is under construction. Panel producers have been known to include production lines that help such statistics, while excluding those that are still in low-yield start-up mode. Given that such utilization rate estimates are unqualified, we take such statements with a grain of salt.
“How about the company's depreciation in the next few years?”
In terms of inventory depreciation, there will be multiple LCDs starting from 2021. The depreciation of the production line has expired in terms of increments (the flexible AMOLED production). In the future, the company's overall depreciation scale will still increase, but the growth rate will slow down significantly.
The depreciation of its LCD fabs has ended or is close to, but the expansion of the company’s OLED production will continue to increase depreciation, albeit at a slower rate than in the past when both LCD and OLED fabs were included. Given that at least 1 Gen 10.5 fab reached MP in 2020, it is unlikely to be fully depreciated.
“How is the company's Mini LED business progressing?”
Mini LED business is an important component of the company’s "1+4+N" business group section. The company has a comprehensive layout in the Mini LED industry, initially focusing on TV products. (Mini)
The use of LED as a backlight with LCD can improve the display effect of LCD. The industry takes the lead in realizing the formal mass production of glass-based active Mini LED products, with a 75-inch COG. Mini LED backlight products achieved mass production and delivery.
While BOE is producing Mini-LED COG (Chip-on-glass) backlights, still a very small part of the company’s overall business and is likely being touted to help the company appear to be a major player in the space, given BOE’s desire to increase its participation in Apple’s (AAPL) supply chain. Right now the company is focused on Mini-LED for large panel TVs, which are easier to produce. If they want to compete for Apple’s Mini-LED business, they will have to focus on bringing Mini-LED panel sizes down to monitor/notebook levels, where they would compete with a number of Taiwanese and Chinese suppliers who have considerable expertise in the space. The company is still quite vague as to where they stand in terms of Mini-LED market direction.
Someone once said, "technology has never moved this fast, and at the same time, will never move this slow again." So true! A partial list of recent technological advances includes messenger RNA (mRNA) gene therapies, 5G wireless, blockchain, the cloud, low orbit communication satellites (Starlink), vertical indoor farming, and much more.
At the same time, the government in the United States has never been larger or more intrusive. This makes economic forecasting and investing a balancing act between the "supply side" of new technology and the "demand side" of government intervention.
Case in point is the Federal Reserve, which meets this week. The Fed is far less concerned than it should be about falling behind the curve on inflation. As a result, we don't expect any significant changes to monetary policy.
Obviously, the Fed is still a long way off from raising short-term interest rates. But, as we explained as far back as mid-June when the 10-year Treasury Note yielded roughly 1.5%, financial markets are much better prepared for an announcement about tapering and the eventual end of quantitative easing than they were back in 2013 under Fed Chair Ben Bernanke, when we witnessed the "taper tantrum." In other words, we think the Fed will continue to kick the can down the road, though it shouldn't.
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