Band-Aid on a GSW

Band-Aid on a GSW
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​In April and earlier this month (05/09/22) we noted some of the issues that were causing Chinese flexible OLED panel producer Royole (pvt) to fight to stay in business, despite being the first company to produce a foldable OLED display, beating OLED leaders Samsung Display and LG Display.  We noted that a possible scenario would be for the Chinese government to bail out the company, particularly the $1.64b flexible OLED fab project started in late 2016 that was only partially completed.  It seems that things have gone from bad to worse for the company as Royole served notice of termination to a large number of employees earlier this week, giving them three options that must be chosen by today.

• Receive a basic salary (40% or normal rate) times the number of years of employment paid out within 6 months
• Receive the same basic salary as above but paid out at the end of this month at a 50% discount
• May stay as an employee but at a salary of $352.

Notifications have been given to marketing, sales, product development and the smartphone divisions, excluding only some employees that have been with the company for at least 4 years, with some departments seeing >50% termination rates.  That said, the company is increasing the salary of those in the “Advanced Technology R&R & Production Platform” division, essentially the area where the displays are produced in order to retain those employees as the company tries to transition away from producing and selling commercial products (smartphones, tablets, etc) and focus on supplying flexible OLED displays to customers.
In mid-2021 Royole has ~1,800 employees but now has <500 and has closed all but one office as available cash declined to $14.9m in April, and the company had previously offered options to employees to raise capital and provide an additional incentive to stay with the company but with the current large layoffs, most will not be participating in the program.  Hopefully a recently announced potential display order will help to keep the company afloat, however based on past financials between 2018 and mid-2020, the company had produced only 18,000 display units so a massive ramp for such an order would be called for, and the utilization rates for those periods never reached above 32%.  Its going to take a very big Band-Aid to fix this wound…