Behind the LCD screens of TVs, mobile phones and computers that can be seen everywhere, there is also a competition between China, Japan and South Korea that has lasted for more than ten years: involving trillions of yuan in import and export trade and hundreds of billions of capital shopping. The latest news is that Samsung will recently close a production line that accounts for about 4% of the world's large-size panel production capacity.
Spending 3 trillion yuan on LCD screens in ten years: Chinese audiences pay for Japanese and Korean companies
After oil and iron ore, what is the product with the largest import volume into China?
The answer surprises many people: it is an LCD screen. In 2015, China's LCD panel import value reached US$39.7 billion, ranking fourth among imported products, second only to the import value of integrated circuits, crude oil, iron ore and its concentrates.
In the ten years from 2005 to 2015, China's LCD panel imports totaled US$457 billion, equivalent to more than 3 trillion yuan, which is equivalent to about 3.4 times China's crude oil imports last year and more than 600 billion yuan more than Shanghai's GDP last year. In 2007, China's LCD panel imports reached US$40.8 billion, which was equivalent to more than half of the crude oil imports at that time, and even exceeded the imports of iron ore that year.
LCD panels (especially large-size panels) have been monopolized by Japanese, Korean and Taiwanese companies for a long time, with Korean companies such as Samsung and LG occupying the dominant positions. On the surface, Chinese TV manufacturers, which appear to be prosperous, are actually "working" for Japanese and Korean companies for a considerable period of time.
According to research by people in the home appliance industry: From 2001 to 2006, the cost of LCD panels accounted for about 80% of the production costs of color TVs. In recent years, this proportion has declined, but it is still about 70%. In 2012, Changhong, the leader in China's color TV industry, had a net sales profit margin of only 0.52%. TCL's net sales profit margin that year was only 1.83%. The net sales profit margin of panel maker Samsung was as high as 11.86% that year.
China’s long-term dependence on imports of LCD panels has forced international LCD panel giants to jointly raise prices, forcing Chinese companies and consumers to foot the bill. The National Development and Reform Commission issued monopoly fines to six large international LCD panel manufacturers, including Samsung and LG, in 2013. The main reason is that when these companies sell LCD panels in mainland China, they manipulate prices based on negotiated prices or mutually exchanged information, seriously damaging the legitimate rights and interests of other operators and consumers. The companies involved were ordered to refund the 172 million yuan overpaid by color TV companies and fined 144 million yuan.
Shareholders pay the bill: Chinese LCD panels "learn from foreigners and develop skills to defeat foreigners"?
The cruel industrial reality has caused Chinese companies to seek a breakthrough in the LCD panel industry. This breakthrough largely started with BOE’s acquisition of South Korea’s Hynix panel production line. In 2003, BOE, a state-owned enterprise, acquired the low-generation LCD panel production line of South Korea's Hynix Semiconductor for US$380 million, and then began to build the fifth-generation line in Beijing. The technical backbone at that time mainly came from more than 120 Korean engineers of Hynix, and Chinese engineers participated as apprentices. In 2005, the first batch of 17-inch LCD screens produced by the Beijing 5th generation line rolled off the production line.
The LCD panel production line is a costly project. BOE has invested more than 100 billion in panels, and the main people paying the bill are actually shareholders. After BOE's A-share and B-share listings, the direct and indirect financing amount exceeded 120 billion yuan, of which the amount raised from the stock market through additional issuance and other methods exceeded 70 billion. In 2014, BOE's private placement of 45.7 billion yuan shocked the capital market.
For a long period of time, BOE was in huge losses. From 2005 to 2010, there was only one year of profit, of which the loss in 2010 exceeded 2.2 billion yuan.
The huge investment has finally brought BOE’s production capacity closer to that of Korean companies such as Samsung and LG. The following picture is the monthly revenue of JD.com and Samsung LCD panels in recent years compiled by Bread Finance (WeChat public account ID: mbcaijing):
According to Wind data: BOE's LCD panel revenue in June 2016 was US$590 million, and Samsung's LCD panel revenue was US$772 million. BOE's revenue has reached 76.42% of Samsung's. Four years ago in June 2011, BOE’s LCD panel revenue was less than 7% of Samsung’s.
Chinese, Japanese and Korean companies spend huge sums of money to buy LCD panels, and the price of LCD panels continues to fall.
The direct result of the fierce competition between Chinese, Japanese and Korean companies is to lower the price of LCD panels.
Market statistics show that, except for a few months when prices increased due to the shutdown of some production lines, the price of LCD panels has continued to decline in the past few years. The following figure is a price chart of LCD panels drawn by Bread based on wind data:
The average retail price of a 42-inch LCD TV in June 2016 was US$356, a year-on-year decrease of 11.66%; in June 2013, the price was as high as US$558. In three years, the retail price of LCD TVs has dropped by nearly $200, a drop of more than 30%.
However, the continued decline in LCD panel prices is also causing China's panel companies to experience a cold winter. Recently, BOE released a performance forecast. In the first half of 2016, BOE's revenue was 25.5 billion to 26.5 billion yuan, an increase from 22.9 billion yuan in the same period last year. However, the net profit suffered a loss, with the loss amounting to 500 million to 600 million yuan, ending the continuous profitability of the past three years.
Japanese and Korean companies are also having a hard time. Sharp, which plays an important role in LCD panels, fell into losses and sold itself to Foxconn. Recently, South Korea's Samsung announced that it will shut down its G7 production line by the end of this year. This production line accounts for 4% of the world's large-size panel production capacity. In addition to Samsung, Sharp also shut down the production of 32-inch panels last year. Panasonic's 8.5-generation line is expected to cease production in August this year.
BOE, which has experienced many huge financings, has a current total market value of only more than 82 billion, which is only slightly more than the total amount of stock financing over the years. Since the stock market crash last year, the stock price has halved significantly.
The shopping story behind a screen is really not simple.
ANNA