Last December we noted that a small Chinese firm Jiangxi Infinitech Optoelectronics (pvt) was looking to enter the display display space and had plans to build an 80,000 sheet/month Gen 6 LCD/OLED fab in Jiangxi province with a budget of $3.52b US.  The company let a number of purchase orders to South Korean equipment suppliers as construction began, with an initial completion date of 1Q 2019.  Unfortunately production progressed slowly, and Infintech requested that a number of its suppliers push out the contractual deadlines for equipment it had ordered.  Given that deadlines are not always met, Korean equipment suppliers Top Engineering (065130.KS), YEST (122640.KS), DMS (068790.KS), and Vessel (177350.KS) all agreed to the initial pushout, but Infintech kept asking for further extensions.
As a number of the companies accumulated materials necessary for the production of the items under contract and generated expenses against delivery, late last year questions began to be raised when word that construction of the factory had been halted and the CEO and top executives had departed from the company.  While we expect the equipment suppliers were a bit suspect, the local Chinese government still considered the project ‘active’ and was still on the books as an operating entity.
The Korean Display Industry Association filed a complaint in July with the Chinese ambassador on behalf of the suppliers but found that the construction company that had been building the fab had filed a lawsuit against Infintech, which is what halted construction.  Jump to today, and one of the suppliers, Top Engineering has taken the bold step to cancel its contract with Infintech, amounting to ~$11m and said it will collaborate with other Korean firms that have signed similar contracts, which together total about $90m.  Unfortunately the Korean Display Industry Association, after the formal complaint, contacting the Chinese Display Industry Association, the Jiangsu government, and a Chinese law firm, has been unable to track down Infintech, which seems to have evaporated into the air in China.  The question is, why everyone waited so long to cancel the contracts, even we saw the handwriting on the wall months ago?  Were they expecting Infintech to suddenly appear with a check or bag of money?.

Guangdong Province (aka Canton) is the most populous in the country and has the largest economy of all of China’s provinces.  With over 100m residents and two of China’s largest cities, Guangzhou and Shenzhen, it is the world’s 4th largest sub economy and borders on Hong Kong and Macau.  Panel producers LG Display (LPL), Sharp (6753.JP), Chinastar (vt), Tianma (000050.CH), and Royole (pvt) all have LCD or OLED fabs in the province and a myriad of other CE companies have manufacturing and assembly capacity as well, particularly in Guangzhou. 
While China does not provide much transparency as to what percentage of the population has been vaccinated and what the cumulative infection rate has been, it seems that an outbreak of ~20 cases was discovered in Guangzhou on Sunday, with all of the cases being local, and while this is a very low number relative to many other countries, the Chinese government has ordered new travel restrictions on anyone leaving the province. 
As of Monday morning the government cancelled many flights out of Guangzhou, the capital of the province, and began testing residents, with one neighborhood being told to stay at home and wait to be tested for the variant that has been spreading across India.   That neighborhood also saw markets and schools shut down on Monday, and the entire city saw schools closed with the only exception being those in their final year of High School.  Nearby cities of Foshan and Shenzhen have also begun a new round of mass testing. 
Anyone leaving Guangzhou, which is 62% larger in population than New York City, is required to show a negative COVID-19 test taken within the last 72 hours, and anyone entering the entire country must quarantine for two weeks as the Central government tries to contain this latest outbreak.  There are many that doubt the accuracy of China’s COVID-19 reporting, so a relative comparison to the US or other countries is hard to make, however the current rate of daily new infections in the US is 6,725, a far cry from one year ago when the number was 18,987.  India has 126,698 new cases on May 31, although down from the peak of 414,433 new cases on May 6 of this year.  China reported 23 new cases on that same day.
Hopefully these restrictions do not last long and would have a minimal influence on actual production in the province, but problems arise with logistics given that Shenzhen is China’s 3rd largest port and is only 17 miles from Hong Kong.  Limited transportation from Shenzhen and Guangzhou could further exacerbated display panel shortages and drive panel prices higher should they be extended.  China has been very aggressive about stemming any outbreaks, but without accurate or trustworthy vaccination data, it is hard to tell the impact of these local breakouts.

​DRAM and NAND Flash prices remained flat in May after a large increase in April, however while that might lead to a more optimistic view of pricing going forward, as contract price agreements are typically reflected in the first month of the quarter, the following two months tend to remain flat with the first.    Expectations for DRAM pricing to jump between 10% and 15% in 3Q have now been toned down to between 3% and 8%, which would be reflected in the July price.