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Briefing Sep 25, 2020 03:18 pm EqualOcean

BOE to Acquire Two Display Panel Production Lines at CNY 12 Bn

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Oct 9, 2020 11:46 am · Jiemian

BOE Supplies OLED Screens to iPhone 12 Series

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Sep 11, 2020 02:41 pm · NetEase

China's BOE Is Likely to Be OLED Screen Supplier of iPhone 13

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Analysis EO
Sep 6, 2020 08:00 pm ·

China's Screen Dreams: New Generations, More Fabs and More Tech

► When the leading Korean players Samsung Display and LG Display exit LCD production, BOE will be the most significant player in the LCD market. Though OLED can replace the LCD, it will take years for it to be fully replaced. ► As foreign companies control evaporation material and machines, panel manufacturers seek a cheaper way to mass-produce OLED panels – inkjet printing. ► The transition from LCD to OLED will project huge costs to BOE and the short-term financials will be underperforming. ► Along with OLED technology's maturity, panel fabs can realize better cost control and expect stable growth. ► Panel fab's heavy input asks for a massive launching fund – not many can afford it. The industry will converge to a high concentration. ► 'The bigger the better' is no longer forever true when small screens take the stake. When mainstream consumer electronics brands choose their device panels, the top three choices are Samsung Display, LG Display (LGD) and BOE (000725:SZ) – the first two from Korea and the third from China. From liquid-crystal displays (LCD) to active-matrix organic light-emitting diode (AMOLED), display panel technology has been upgrading with bigger screen products. Panel world is ruled by Korean fabs From the early 1990s, LCDs appeared and replaced cathode-ray tube (CRT) screens, which enabled lighter and thinner display devices. Japanese electronics companies like JDI pioneered the panel technology upgrade while Samsung Display and LGD were nobodies in the field. Every technology upgrade or revolution is a chance for new players to disrupt the old paradigm. The landscape was changed in 2001 when Korean players firstly made a breakthrough in the Gen 5 panel technology – the later the generation, the bigger the panel size. A large panel size allows display manufacturers to cut more display screens from one panel and create bigger-screen products. 'The bigger the better' is a motto for panel makers as the cost can be controlled better and they can offer bigger-size products to satisfy the burgeoning middle-class' needs. LCD panel makers have been striving to realize bigger-size products in the past four decades. The technology breakthrough of Gen 5 in 2002 made big-screen LCD TV available and it sent Samsung Display and LGD to the front row, squeezing the market share of Japanese panel makers. The throne chair of LCD passed from Japanese companies to Korean enterprises – and now Chinese players are clinching it, replacing the Koreans. After twenty years of development, Chinese panel makers have mastered LCD panel technology and actively engage in large panel R&D projects. Mass production created a supply surplus that led to drops in LCD price. In May 2020, Samsung Display announced that it would shut down all LCD fabs in China and Korea but concentrate on quantum dot LCD (Samsung calls it QLED) production; LGD stated that it would close LCD TV panel fabs in Korea and focus on organic LED (OLED). Their retreats left BOE and China Stars to digest the LCD market share. Consumer preference has been changing during the Korean fab's recession: Bigger-or-not is fine but better image quality ranks first. While LCD needs the backlight to show colors and substrates for the liquid crystal layer, OLED enables lighter and flexible screens (curvy or foldable), higher resolution and improved color display. It itself can emit lights – no backlight or liquid layer is needed. With the above advantages, OLED has been replacing the less-profitable LCD screens. Samsung Display has been the major screen supplier for high-end consumer electronics, like its own flagship cell phone products and Apple's iPhone series. LGD dominated the large OLED TV market as it is the one that handles large-size OLED mass production. To further understand Korean panel makers' monopolizing position, it is worth mentioning fine metal mask (FMM), a critical part of the OLED RGB evaporation process – a process in OLED mass production that significantly affects the yield rate. Prior to 2018, Samsung Display and DNP's monopolistic supply contract prevented other panel fabs from acquiring quality FMM products as DNP bonded with Hitachi Metal, the 'only' FMM material provider choice for OLED makers. After the contract expired, panel makers like BOE could purchase FFM from DNP for their OLED R&D and mass production. Except for FFM materials, vacuum evaporation equipment is dominated by Canon Tokki, a Japanese company. Its role in the OLED industry resembles that of ASML in the integrated circuit space. Canon Tokki's annual production of vacuum evaporation equipment is fewer than ten and thereby limits the total production of OLED panels that rely on evaporation technology. The shortage of equipment and scarcity of materials inspired panel fabs to explore substitute technology; they discovered that inkjet printing has the potential to be the thing to replace evaporation. Plus, evaporation could be applied to QLED panels as quantum dots are difficult to be vaporized. Inkjet printing prints materials (liquefied organic gas or quantum dots) to substrates, saving materials and breaking free from FMM's size restriction. With the new tech, large-size OLED panels can theoretically be recognized with improved yield rate and cost-efficiency. However, the tech is at an early stage when inkjet printing precision could not meet panel manufacturers' requirements. Technology breakthroughs can shift the outlook Display and LGD are using evaporation on their OLED products. To summarize, OLED currently adopts evaporation and QLED must go with inkjet printing, but evaporation is a more mature tech. Technology adoption will determine a different track for the company to pursue. With inkjet printing technology, players are at a similar starting point, which is a chance for all to run to the front – so it is for Chinese panel fabs. Certainly, panel production involves more technologies (like flexible panels) than evaporation or inkjet printing and only mastering all required technologies can help a company to compete at the same level. Presently, Chinese panel fabs are investing heavily in OLED production while betting on QLED. BOE has four Gen 6 OLED product lines, four Gen 8.5 and one Gen 10.5 LCD lines; China Star, controlled by the major appliance titan TCL, has invested two Gen 6 OLED fabs and four large-size LCD product lines. Remembering the last 'regime change' that occurred in 2005 when Korean fabs overtook Japanese' place in the LCD market, the new phase of panel technology changed the outlook of the industry. Now, OLED or QLED could mark the perfect time for us to expect landscape change. After Samsung Display and LGD ceding from LCD TV productions, the vacant market share will be digested by BOE, China Star and other LCD makers. Indeed, OLED and QLED have the potential to take over the LCD market in the future, but the process may take more than a decade. Korean companies took ten years from panel fab's research on OLED to mass production of small- and medium-size OLED electronics. Yet, LCD screen cell phones are still available in the market. LCD will not disappear until OLED/QLED's cost control can compete with it. The low- to middle-end panel market still prefers cheap LCD devices and consumers are satisfied with LCD products – thicker but cheaper. BOE has been the largest TV panel maker since 2019. As estimated by Informa, BOE and China Star will hold a duopoly on the flat panel display market. BOE's performance seems to have ridden on a roller coaster ride in the past several years. Large-size panel mass production like Gen 8.5 and Gen 10.5 fabs helped BOE recognize the first place in production volume. On the other side, expanded large-size panel factories and expenses of OLED product lines are costly: BOE planned to spend CNY 176.24 billion (USD 25.92 billion) – more than Tibet's 2019 GDP CNY 169.78 billion – on Chengdu and Mianyang's Gen 6 AMOLED lines and Hefei and Wuhan's Gen 10.5 LCD lines. Except for making large-size TVs, bigger panels can cut out more display screens for smaller devices like laptops and cell phones, which are more profitable than TV products. On its first-half earnings concall, BOE said that it is shifting its production focus to cell phone and laptop products as they are more profitable than TV products. TV, IT and cell phone products counted for 30%, 44% and 33% of its productions respectively and the recent rising TV price may lead to an increased portion of TV products in the short term. TV and living room are disappearing in alpha cities Except for outdoor large screens, TV is another driver that pushes panel makers to research on how to make bigger and bigger screens. A research done by CHEARI showed that Chinese TV sales dropped by 10.6% to CNY 128.2 billion from 2018 to 2019. Large-size TV sales increased as a total but the unit price decreased; high-end products like laser TV and OLED TV saw a strong growth of 131.2% and 34.1%, respectively. The change in TV sales responded to a lifestyle change since the 4G era: people are getting more and more used to enjoy streaming services on portable devices like tablets and smartphones. The ‘disappearing living room' is a phenomenon common for the young generation in Chinese tier-1 cities. Millions of young white-collars support the co-leasing business in China and breed the six-billion-dollar Ziroom, a unicorn company that provides rental and real estate management services. As apartments can be leased by single rooms instead of the whole apartment, living rooms become a public area while tenants prefer to stay in their private zones – it hints that the bedroom is too small to fit in a TV. Besides the tier-1 cities' 'disappearing living rooms,' the mobile Internet gives another reason to explain the declining TV sale in China. Various streaming services and high-speed networks allow people to watch programs wherever and whenever they would like to. However, the change in life does not imply TV will disappear. For families, the living room is still a place for family members to gather and have fun. The growth of high-end TV sales also tells the 'living room' economy. The demand for different products may vary as lifestyles change and panel fabs need to make on-time judgments and respond to the change. For instance, the coming Olympics is a new driving factor to boost TV sales; 'smart city' projects around the world will need more screens for data visualization; people will own more screens and better screens when life quality improves. Flexible screens, cost-efficient production process, accessible materials, changing market and all these problems are indeed the next opportunity for the industry.

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Aug 29, 2020 12:28 pm · BOE

BOE Sees 1H 2020 Revenue CNY 60 Billion

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Aug 29, 2020 12:19 pm ·

BOE 1H 2020 Profit Shrinks CNY 533 Million at YOY -32%

China’s display manufacturer BOE (00725:SZ) released the first six-month earnings figures for 2020. The company saw a revenue YOY growth of 10.59% to CNY 60.87 billion but the net profit was only CNY 1.14 billion for the period. Dominating over 83% of domestic panel market share, BOE still has a long way to go to optimize its operation. As a supplier for consumer electronics brands like Apple, Huawei and Xiaomi, BOE’s annual earnings have been doubled with five years. The company conducts independent research and inputs heavily on the new-gen panel development. In the first half of 2020, BOE spent CNY 3.24 billion on R&D, accounting for 5.3% of its same-period revenue. BOE is the biggest LCD producer in the world after Samsung and LGD revealed plans to cede from the LCD market. As the two Korean display titans focus on OLED and flexible panel products, BOE is also expanding to three 6th-gen flexible LED production centers in Chengdu, Chongqing and Mianyang in China. The Chinese panel giant faced the same problem that Samsung and LGD had experienced: an LCD panel surplus and intensified market competition that led to low and even no profit. BOE’s profit margin declined from 2015’s 3.3% to 1.65% in 2019. With top players quitting, BOE furthered to monopoly the LCD market – but companies that master the panel technology and realize mass production may restrain the giant’s profit potential even with its dominant position.

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Analysis EO
Aug 24, 2020 12:11 am ·

Apple and China: A Mutually Beneficial Relationship

► Over 380 suppliers to Apple in China cover almost every section of the American tech giant’s smartphone manufacturing industry chain: from expensive components, such as display panels and chip packaging services, to cheaper elements such as acoustic components and printed circuit boards. ► The Pearl River Delta and the Yangtze River Delta have the highest number of Apple suppliers and are the most technology-intensive regions. ► The central and Northern regions are relatively more labor-intensive locales within Apple’s value chain. ► The Chinese capital market is showing high confidence in firms lying in Apple’s upstream, presenting an average 112% price rise during the past 12 months. ► The bargaining power of Chinese Apple suppliers doesn’t seem to be significantly strong. ► We highlight local companies highly related to Apple’s business:  Luxshare Precision, Lens Technology and AAC Technologies. Apple's (AAPL:NASDAQ) recent moves include encouraging Luxshare (002475:SZ), the 'next Foxconn', to expand its business by acquiring Wistron's (3231:TW) iPhone production lines and Cowell Electronics (01415:HK); these show the American tech titan's intention to deepen its network in the vast Chinese market. As US-China tensions might obstruct the transactions between the two countries, the importance of the localized manufacturing of Apple products in China has been pushed to a new peak of significance. And the Chinese companies along Apple's value chain in return will be strongly related to the Apple products' market performance and the escalating geopolitical tension. Firms standing along the industry chain are all exposed to such risk. Chinese firms are in most sectors of Apple's industry chain Apple suppliers based in mainland China did not have a huge share in its upstream structure in 2019, with 19 out of the total 193 companies. Though the quantity of suppliers is not that considerable, the coverage is quite extensive in terms of component costs – running the length of the scale from the most expensive ones (cameras and touch panels) to the cheaper parts (batteries and audio components). In the higher-valued components segment, China's Ofilm (002456:SH), which earlier acquired SONY's (SNE:NYSE) Chinese subsidiary Sony Electronics Huanan, is the supplier of camera models for iPhones and iPads. TechInsight reported that Apple's 2019 flagship iPhone 11 series are all built with SONY camera modules. Ofilm can be reasonably considered the Chinese representative of the Japanese company. Another costly component of Apple products – display panels – also depends on Chinese firms as key suppliers. BOE Technology (000725:SH), as the supplier of one of Apple's strongest rivals (Huawei) is also paid by Apple as a supplier to restrict Samsung's (005930:KR) monopoly in Amoled display supply. Though the Amoled market is still largely occupied by the Korean company with around 80% of the total, BOE could expand and conduct better R&D with Apple's large volume of orders. Besides BOE, Ofilm and BIEL Crystal also stand in the high cost segment with glass lens offerings. In the 'middle-cost' area lies BYD Electronics (00285:HK) which is responsible for the final assembly and testing. It is certain that BYD participated in the assembly procedures for the latest iPhone 11 Pro series – in fact, the company was once and will be in the iPad/iPod Touch assembly lines. Besides, with the recent acquisition of Wistron's iPhone production lines, China's Luxshare will be in the final assembly sector as well. China-based firms are apparently more crowded in the lower-valued components, including batteries, connectors, audio components and other supporting materials. However, the lower cost of the product does not equal lower profitability. Take AAC technology (02018:HK) for example,  the acoustic components provider for Apple's AirPods and audio components in iPhones – their gross profit margin reached 29% in the fiscal year of 2019. As the market of true wireless stereos (TWS) and other IoT-concept consumer electronics blooms, a demand generally involving requirements for audio quality and long battery life, these companies may keep the rising trend for both market cap and the real earnings. Where the mainland’s companies are absent among high-valued components is in the processors and memories sectors, which are currently dominated by US companies such as Apple and Qualcomm (QCOM:NASDAQ) and South Korean companies like Samsung and SK Hynix (000660:KR). Processors and memory as the key performance drivers for device up-grading; Chinese suppliers are not deeply engaged in these key components. Among Apple's top 200 suppliers, which accounted for 98% of the total procurement expenditures for materials in 2019, 19 are based in the mainland of China, while 43 have headquarters in Taiwan. The coverage of Taiwanese suppliers is as broad as that of the mainland, but with better involvement of the higher-valued components – e.g. the chipset foundry business of TSMC (TSM:NYSE). Two Chinese Deltas support Apple the most Though the Chinese companies (including Taiwan) only account for around 30% of companies' total numbers along Apple's supply chain, manufacturing branches /factories are more significant in quantity terms. Among 830 branches related to Apple products, 380 are based in mainland China, weighing in at around 46%. The map above presents the geographic distribution of Apple's manufacturing branches. Among China's 34 provincial-level administrative regions, 19 are involved with the US company's supply chain. Though many of the factories are the suppliers of suppliers along the complex value chain, and are of comparably high fungibility, Apple's business performance or policies that would affect the bilateral transactions and the economies of these regions are still highly correlated. The 380 branches that participate along the supply chain are concentrated in the Yangtze River Delta and Pearl River Delta, which account for 46% and 38% of the total number in China, respectively. The Yangtze River Delta area, as the country's most important economic region, which contributed around 20% to China's total GDP in 2019, is deeply drenched in the US firm's supply chain as well. With 173 related branches rooted, the region is not only distinguished in quantity, but also in technology advancements as most of the Apple-related products there are technology-intensive. The major categories are display panels, semiconductor components, final assembly and other components related to antenna and acoustic modules. The second most involved region is the Pan-Pearl River Delta, with 144 Apple supplier branches. In this region, Guangdong province contributed the most, as Guangdong and Shenzhen have been engaged with the technology industry since 1978, the period of Economic reform, and have nurtured considerable technology giants such as Huawei, ZTE (00763:HK), Tencent (00700:HK), the BBK group and countless promising startups. As a causal trait, Guangdong harbors the most comprehensive electronic industry chain. Apple's supporters in the PPRD area lie in a similar range of panels and screens, with the Yangtze River Delta, but with fewer assembly lines while more low-valued electronic and non-electronic components. The central region that comprises Shandong, Shanxi and Henan, is comparatively more labor-intensive as Shandong and Henan are the second and third populated provinces in China. Businesses along the Apple supply chain are mainly related to Foxconn's (2354:TW) final assembly lines and Goertek's (002241:SH) audio components. Investors' confidence is high in Apple suppliers in China The chart below presents the financial and stock performances of 11 Chinese public companies that are in Apple's value chain, which are mostly classified in the electronic equipment manufacturing industry. For the most recent year, from August 2019 to 2020, the selected companies achieved an average price rise of 112%. As the US 'tech war' against China rages on, the Chinese government has pushed favorable policies, injecting capital into upstream firms in the technology industry. Consequently, there has been a great deal of hype around technology-related stocks since the beginning of 2020. Though the overall market caps of Chinese public firms are on the rise, companies that are in Apple's value chain delivered particularly eye-catching results. Led by Lens Technology's (300433:SZ) 266% rise in price per share (without changes in outstanding shares), the average percentage change of Apple supplier stocks reached 112%, which is 32% higher than the industry average. The prior reason for the outstanding performance may not be directly related to Apple, as most of the companies listed above also provide components for other consumer electronics vendors such as Huawei and Xiaomi (01810:HK). The investor confidence for the overall electronics market driven by the 5G commercialization is the context. However, Apple, as the highest valued tech firm around the world to some extent endorsed the capacity of its suppliers and empowered them by the considerable volume of orders. Though the market is giving  positive feedback, the profitability of those suppliers is hardly above the average. Over 60% of the suppliers presented gross margin lower than the industry average level at 15.69%, indicating a relatively plain bargaining power. Highlighted companies Luxshare Precision Luxshare (002475:SZ) has been closely working with Apple’s supply chain, providing precision components for Apple's consumer products. In 2019, the company became the biggest manufacturer of Apple’s Airpods. The cooperation with Apple has brought Luxshare a rich margin at 20% and a soaring stock price with a 179% rise. By acquiring 100% equity of the Taiwan-based iPhone manufacturer Wistron Corporation’s (3231:TW) assembly businesses Wistron (Jiangsu) Co., Ltd and Wistron (Kunshan) Co., Ltd, the company becomes mainland's first iPhone assembler. As the conflict between the Eastern and Western intensified, Luxshare is in high possibility to shoulder more of Apple's supply in Asia.  Lens Technology As the company with the highest stock price rise at 268%, Lens Technology (300433:SH) is the provider of cover glass for Apple's iPad, iWatch and possibly the iPhone. With the impact of the pandemic, the rocketing sales of PC and tablets with 26% year-on-year growth in the second quarter of 2020 drove the company's revenue from large-sized glass up by 40%. As the research institution Canalys forecasts, the demand for PC and tablets will increase for the following quarters. The favorable situation is similar for smartphones and smart wearables due to the economic rebound and the 5G rollout, which will simultaneously drive Lens Technology's revenue. AAC Technologies AAC Technologies (02018:HK) has long been cooperating with top vendors like Samsung (005930:KR), Apple, Huawei and Xiaomi within its acoustic components business. Known for its MEMS microphones and speakers, the company has clouted both domestically and overseas as one of the top three companies in the global acoustic component market. In the first quarter of 2020, its revenue shrank by 5.1% year-on-year, affected by the oversaturated smartphone market and the COVID-19 outbreak in China. Nonetheless, its deep roots in China make the firm be greatly supported locally: for one, Xiaomi and OPPO invested in AAC’s optics arm in July 2020, joining the list of its ‘industrial’ backers. 

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Jul 29, 2020 11:14 pm · qianlong.com

BOE's Smart Retail International Standard Approves by ISO/IEC

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Jul 24, 2020 03:25 pm · Yicai

China's BOE to Buy 17% Stake in EHII to Boost IoT Prowess

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Jul 21, 2020 05:57 pm · CLS

Huawei to Cooperate with BOE on Mate 40 OLED

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Oct 16, 2020 04:15 pm · ITjuzi

Beijing-Based AI Startup Vion Closes Series C Financing

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