BOE by The Numbers & More…

BOE by The Numbers & More…
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BOE (200725.CH) is China’s largest panel producer and the largest single display panel revenue generator in the display space, so we took some time to read through the company’s recently released 10K to clarify some points that have been in the trade press over the last few months, and a few that we felt important to clarify.  While most US investors are not familiar with Chinese display companies, during a portion of 2021 and in January of this year Chinese panel producers represented over 50% of the industry’s large panel LCD revenue and will likely continue to see that share expand over the next few years.  We do note that the above data only represents the large panel LCD business in China, and as we have noted, Samsung Display (pvt) and LG Display (LPL) have been reducing their capacity exposure to that segment since late 2020 so there is some give and take as to share, but the bottom line is that China is the dominant player in the large panel LCD display space currently.
BOE has been diversifying in order to maintain profitability through the cycles that are part of the display space, and we have broken out the company’s revenue segments below (Sales are in billions).  While product diversity is certainly a goal for BOE, with a 92.2% share of revenue, the display business was certainly the key to the company’s sales and the panel price increases seen in 2020 and 1H 2021 were instrumental in generating the 64.3% display segment growth and substantial increase in gross margins.  That said, we were a bit surprised at the size of BOE’s Mini-LED business, which generated $71m last year, which was a bit larger than we had expected.  BOE’s top 5 major customers represented 37.8% of sales last year, with the largest of the top 5 representing 9.05% of total sales, with 42.8% of total sales being made in China and 43.8% in other Asian regions, while the company’s top 5 suppliers represented only 17.9% of purchases in 2021.

While much of the 10K equivalent was typical boilerplate, there was mention of a number of capacity development projects particular to the display segment, which were and are at various stages of construction and development, however the most significant project that we see BOE embarking on this year is one that was not mentioned in the 10K.  BOE is expected to begin construction of a new Gen 8.5 OLED fab it will use to produce OLED IT products with the goal of mass production late in 2024.  This would put BOE in direct competition with Samsung Display and LG Display who are both working toward building Gen 8.5 OLED capacity in order to supply Apple (AAPL) with tablet and laptop OLED displays.  While the substrate efficiency of such Gen 8.5 OLED lines is similar to that of a Gen 6 line for tablets and laptops, the size of the substrate increases by 2x which means 2x more units per run, making a Gen 8.5 able to produce more units/operating time than a typical Gen 6 line.
The problem with running Gen 8.5 lines for RGB OLED displays has been the fine metal masks used to pattern OLED materials on the substrate, and while these masks are made of a strong alloy that is resistant to heat, even the smallest sag in what looks like a thin screen will create a defective display.  As the masks must be larger for Gen 8.5 lines, they run the risk of sagging and OLED panel producers have been wary of making the move from Gen 6 to Gen 8.5 fabs for RGB OLED displays.  In the case of the three producers mentioned, SDC has taken a new approach, devising a vertical OLED deposition unit, taking out the potential for much of the sagging, while LGD and BOE are working with conventional horizontal deposition tools to try to conquer the problem.

- Fine Metal Masks - Source: SinoGuide

- Fine Metal Mask - Detailed View - Source: SinoGuide

​All three OLED producers are working toward this new IT OLED capacity in 2024 and will likely be supplying test and qualification panels to potential customers as soon as the fabs are able to produce even limited quantities, but we would not expect to see any real product next year.  2024 is more of a realistic timeframe for these new fabs and while they face some difficult challenges, would represent the next step in OLED display production.  As we have mentioned in the past, one of the challenges facing OLED producers is improving brightness, which can be done in a number of ways, by creating new more efficient OLED materials, by stacking OLED emitting layers, and by improving light extraction, so the technology can play a role in who wins this rivalry.  What makes the game a bit more interesting now is that SDC and LGD now have some new competition to deal with and while BOE does not have the OLED expertise that South Korean producers have, they are quite aggressive and already have an established relationship with Apple for OLED smartphone displays, making the field a bit more crowded this time around.