​Large TV sets bring visuals closer to life size and therefore make them more realistic, and, as LCD display manufacturing matures, the ability of producers to increase screen size continues to grow.  While the average screen size across the broad spectrum of TV sets is only a bit above 50”, LCD panel manufacturing has advanced quite significantly from the mid-1980’s when 9” – 10” LCD TV screens were the standard and 30” demos were the talk of the industry.  We have now reached a point where consumer TV sets are almost life-size, with the largest LCD (Mini-LED/Quantum Dot) TV being 115” on the diagonal[1] , the TCL (000100.CH) 115X955.  This 216 lb. behemoth stands 56.4” high, 101” wide and 2.2” thick, with a screen area of 5,651 in2, enough room to fit 345 iPhone 16’s or four 55” TVs within its confines, with a little room left over.  In human terms, the set’s height is roughly that of a 10-year-old child.
Unfortunately, the production of such a large display is extremely inefficient, utilizing only 62% of a Gen 8.6 substrate and 41% of a Gen 10 substrate, although multi-modal fabs, those that are able to cut more than one size panel per sheet, would be more efficient. Yield is also a big issue, as the sunk cost of a defective panel of this size, even at an early stage in the production process, is extremely high.  That said, this TV set has 20,736 zones in its backlight, allowing precise backlight control for every 0.27 in2 of screen area, along with all the bells and whistles that one would expect in a high-end TV.
This all comes at the exceptionally low price of only $20,000 (or 24 easy payments of $833.34 if you make the purchase with your new Best Buy (BBY)/Visa (V) credit card), unless you are one of those who only wants the latest technology.  In that case there is the Samsung (005930.KS) 114” Micro-LED TV, but that will set you back a mere $150,000 (those 24 easy payments will now be $6,250 each), although both sets are 2024 models if that matters to you.  The real issue here is that if you are willing to accept a slightly smaller TV set size (98” to 100”) and a direct lit (No Mini-LED but with Quantum Dots) backlight, you can grab the Hisense (600060.CH) (100QD7N) 100” TV for $2,000, and if you are willing to go down to 98”, you can save another $200 with the TCL 98Q651G for $1,800.  
So while there is still a very big premium for the top of the TV set size triangle, the fact that the competition between the four LCD panel producers that are currently producing LCD panels 98” or larger is extremely intense, as is the competition between TV set brands for high-end customers, causing the price of these very large TVs to continue to decline.  If one times their purchase around Black Friday or after new model announcements, you too can be the talk of the neighborhood.  Your kids will be popular, you will have friends dropping by every time there is a big game, and only a few of the old-timers will say, “Ah, who needs it?  We had a 10” set in the 50s and we loved it!”


[1] There are larger modular Micro-LED sets but they tend to be custom built.

​TV brands are notorius for aggressive marketing, and that sometimes leads to marketing that is on the edge of being deceptive.  Last year Samsung added a number of models to its OLED line that used a technology that was significantly different from Samsung’s own QD-OLED display technology.  These sets were, and still are, based on WOLED technology, and purchased from LG Display (LPL), who has been using that technology for years, while those based on Samsung’s QD/OLED technology function completely differently.  Samsung has said little about the fact that the company markets both technologies as OLED line, but does not specify which technologies are used in each of the company’s three OLED lines and various OLED TV sizes.  In fact, certain models and sizes can have different technologies based on the location where purchased, without the customer knowing which technology they are purchasing., and while Samsung says it guarentees the quality of all of its OLED TVs, if one is looking to purchase a QD/OLED Samsung TV, they could wind up with something else.
Of course, Samsung is certainly not the only one who plays these marketing games and with the announcements of new 2025 TV lines at CES, it seems that LG (066570.KS) has declided that product names do not necessarily mean what they seem.  LG has been marketing its high-end LCD TVs as ‘QNED TVs’ for a number of years, which implies that they are quantum dot enhanced (the Q in QNED), yet it seems that this years QNED TV lines are not quantum dot enhanced but rather use software to enhance color reproduction and contain no quantum dots.  Consumers, who assume that QNED still means quantum dot enhanced, will find no quantum dot films, bars, polarizers, or color converters in their new LG LCD TVs, despite the fact that they continue to be sold under the QNED name.
It seems that in November of last year Hansol (014680.KS), a Korean specialty chemical producer and supplier of quantum dots for displays to both South Korean display producers, filed a complaint with the South Korean FTC alleging that a number of TCL’s (000100.CH) LCD TV sets, which are labeled as ‘QD’ models, do not contain the elements necessary for quantum dots.  While TCL denies the claim, they are being investigated under false advertising statutes. 
All in, every time a TV brand tries to slip something past consumers, it erodes both individual brand trust and trust in the CE space overall, giving consumers another reason to hesitate when making purchases.  With a number of TV technologies available to consumers currently, decision-making has become far more difficult than just a few years ago, and brands that keep things simple for consumers will likely maintain a steady user base that will return in each cycle.  When we spend time in retail stores listening to consumers speak with salespersons about TV buying choices, it becomes evident that most are buying based on price, and are taking the word of the salesperson or something they read on the internet in terms of the technology, so even the hint that they might have made a bad decision once the set is home can cause the consumer to abandon that brand forever.  It is hard to imagine that a salesperson could not make a case for or against quantum dots, WOLED, QD-OLED, or Mini-LED when trying to close a sale, so it would seem that there is little point in trying to hide the facts from consumers, but that’s our opinion, not that of brand executives or marketing teams…

​TCL (000100.CH), the parent of the 2nd largest panel producer in China, Chinastar (pvt), announced this week that it had taken orders for 2.806 billion new shares at 3.42 yuan each (current price 3.85) in a non-public offering, raising just under 10b yuan, or $1.378b US.  Institutional buyers will be required to hold the stock for a 5 month lock-up.  The capital will be used to fund the build-out of Chinastar’s T9 Gen 8.5 LCD fab in Guangzhou, which began production in September, and will be China’s first Gen 8+ LCD fab that is devoted to the production of IT products, rather than TV panels, according to the company.  When completed, the fab wilkl have capacity for 180,000 Gen 8.5 panels/month and will compete directly with BOE, who currently is the country’s largest panel producer.  Ample capital seems to remain available for the Chinese display industry…
 
 

​We have mentioned that several LCD and OLED panel producers have slowed or postponed decisions or plans to expand capacity over the last few months, a result of the macro inflationary environment and the concurrent lack of consumer spending.  While Chinese panel producers still have groundbreaking ceremonies and sign both letters of understanding and form new entities with local governments to build out existing or add local LCD or OLED capacity, the realities of the current situation tell a somewhat different story.  Chinastar (pvt), a subsidiary of TCL (000100.CH) has been building its T5 fab since the middle of last year, originally to be a Gen 6 OLED fab, with the possibility that it could change to an LCD fab for IT products and a micro-LED backplane line. 
As the display and CE market deteriorated this year Chinastar, while having ordered a considerable amount of fab equipment form a variety of vendors, seems to have pushed out the delivery dates, some of which were to have been delivered this month.  Two South Korean equipment suppliers indicated that they had seen such delays for contracts with near-term delivery dates, totaling $24.2m US, one of which seems to have been pushed into late 2023 (unconfirmed), and the potential micro-LED project seems to have been indefinitely postponed.  While last year panel producers were competing with semiconductor manufacturers for equipment for the TFT portion of display production, causing unusually high demand and long delivery schedules, display tool vendors are now putting the breaks on those deliveries, causing serious problems at equipment vendors who have invested in materials and labor but cannot claim customer acceptance.
While these issues are devastating to LCD and OLED equipment manufacturers, the postponement or cancellation of potential capacity expansion projects is a positive for the industry, albeit a bit later than hoped.  With little demand expansion expected for the display space over the next year, and the expansion of new product categories, such as AR/VR and Micro-LED still a few years out, there is little need for greenfield capacity, unless it is dedicated, such as has been the case with Apple (AAPL) and LG Display (LPL) in years gone by.  But with a number of OLED panel producers chasing the same potential future Apple business, and the thought that the automotive display business cannot be supported by existing capacity, has pushed some to set capacity goals a bit unrealistically. 
While most expansion plans are rarely fully cancelled (it does happen), most slow considerably or change from one display modality to another as display perspective change, and delays or postponements of new capacity currently serve to tighten the supply side of what is an unbalanced equation currently.  Without a return to the incremental demand seen during the height of the COVID pandemic, or a more conducive spending environment, the display and even the entire CE space must focus on supply, at least for the 1st half of 2023, so we view any delays and postponements as a positive, despite the implications for tool vendors and similar suppliers, as it seems better to take a short-term hit than to live through an extended downturn that could impact the entire industry.  It’s the best of a bad situation.

​Chinastar (pvt), a subsidiary of TCL (000100.CH), celebrated the opening of its T9 LCD display fab in Guangzhou, China last week, with considerable fanfare and the usual ‘glorious’ description of how the new fab, along with Chinastar’s T8 OLED fab that is under construction, will push Guangzhou to become the display capital of the world, generating over $35b US, up from $25.3b that was generated in 2019[1].  The T9 fab however, will not be in mass production until 3Q ’23, running what we expect to be two 30,000 Gen 8.6 sheet/month lines at the onset.  Phase two of the project, another two 30,000 sheet/month lines are expected to become producers in mid to late 2024, while plans for phase 3, another two 30,000 sheet/month lines are a bit too far out for speculation.
The T9 fab will be initially producing IT panels, automotive displays, and PID (public information displays), but is also expected to, at some point, incorporate an ink-jet printing line, along with the T8 fab.  We expect the IJP line will be used for Mini/Micro-LED products at T9, while for OLED materials at T8, although actual IJP based displays at Chinastar are still at the technical demo stage.  Both fabs are expected to be producing IGZO backplanes for the displays they produce and the T9 fab, which is expected to cost upwards of $5b US, will have a module production facility in the complex to take the open cell panels and create display modules that can be sold to OEMs..
Note that Figure 1 shows Chinastar’s large panel sales and Gen 8+ capacity (dotted line), with large panel LCD industry sales scaled to match Chinastar’s January 2019 sales.  Chinastar’s growth through 2021 has been based on the company’s ability to fully utilize the new capacity it has added over that time period, however since the beginning of the year sales have declined rapidly as utilization rates for existing Gen 8+ fabs declined.  The industry has seen sales for large panel LCD displays decline by 32.3% since the end of 2021 while Chinastar has seen sales decline 39.3% over the same period.
While the celebration ahead of actual production is typical, given the current circumstances in the display space, the addition of new LCD capacity, especially Gen 8 type capacity is of little use to an industry that is facing low utilization rates at many Gen 8 and Gen 10 fabs due to weak demand.  Chinastar, now the 2nd largest LCD panel producer in China (19.3% sales share) and the 5th largest (sales) globally (9.3% global sales share) as of August of this year, so we would expect to see sales continue to increase next year as the T9 fab begins production.  That said, a continuation of weak overall display demand next year, T9 could prove to be a significant burden on the company as it will be difficult to fil the new lines along with added depreciation.  Under that scenario, we would expect the phase 2 schedule to be slowed, but with a year between now and the planned phase 2 opening date there are a lot of parameters that could change.


[1] According to Guangzhou Bureau of Industry & Information Technology.

​TCL (000100.CH), the owner of display producer Chinastar (pvt), released its annual report, giving some additional insight into both how the company performed and how its display business segment fared during 2021.  The 212 pages was loaded with praise for the company and its leading share in a variety of products and niches, and much about its silicon wafer and solar businesses, which represented 37.5% of sales last year, a 79.7% increase y/y, while the display business, with a 44.1% share of sales, saw a decline of 8.8% in sales y/y.  While all of the positive rhetoric, such as this flowery Kumbaya moment in the financial notes…
“TCL Technology will continue to invest in fields closely related to human life (such as intelligence, health, low carbon, energy saving, etc.), to establish a leading edge in technology and products, to bring people a wonderful experience and a better life. We will uphold sustainable development, People-oriented concept to promote harmonious coexistence. Committed to environmental friendliness, employee love and social trust; committed to people and nature, (and) the harmonious development of man and society. At the same time, we will join hands with stakeholders to jointly build an open and win-win industrial ecology, and adhere to a benign competition and coordinated development, adhere to open cooperation, symbiosis and win-win.”
…were also followed by some less optimistic hints about the display business…
“In the long run, the growth rate of production capacity in the large-size display field will slow down and the competitive landscape will continue to be optimized.  Given the severe situation, TCL CSOT will continue to improve its efficiency and efficiency indicators and go through the industrial development cycle.”
To TCL’s credit, the company was able to show an increase in operating income of 13.6% for the year, with operating costs up 31.8%, due to the strength in the silicon business against the loss in display, although the net loss was $390m US.  While there was certainly an emphasis on the company’s wafer and solar businesses, they gave some updates on the status of the many display projects that TCL/Chinastar has underway, with much of the emphasis on LCD rather than OLED capacity, despite the multiple OLED projects that the company is developing.  There was mention that the company would be starting mass production of a VR product in September, but seemed to intimate that it would be based on LCD rather than the more popular micro-OLED technology.
They did mention that the T4 G6 OLED fab is still in the ‘early cost stage’, which we take to mean unprofitable, while no information on how far along the development of Chinastar’s T8 Gen 8 OLED fab had progresses, which is expected to be on-line in 2024.   They did note that the T5 Gen 6 OLED fab had progressed from construction to equipment move-in, with the delivery of the first lithography system, which would indicate that the first line should be in mass production around mid-year 2023, a step toward increasing the company’s small panel OLED capacity.
All in, TCL was able to offset the weakness in the display business with its exposure to the continued demands of the silicon business, a luxury few other display producers have (other than Samsung (005930.KS)).  We expect 2022 to be similar, albeit with a bit less growth in the wafer business, but most important will be the eventual status of TCL/Chinastar’s expansion projects, including capacity expansion at T3 and the progress on T5, both of which will add to the industry’s over-capacity issues.  While TCL is the leader in ultra-large LCD market (capacity), we expect they are currently working under lower utilization rates at those fabs, which will have an impact on their ability to generate cash from the display business.  With that in mind, the 35.1% decrease in cash from operations and the 74.6% decrease in overall cash & equivalents could slow those expansion projects, at least for the remainder of this year, which we see as a positive, although it is inevitable that they will eventually be completed.

As analysts we always look for anecdotal evidence that what we feel is true is actually a valid hypothesis, but most times that evidence is hard to come by…and other times it’s not.   Given our longstanding experience with the CE and display space we tend to get a feeling that something is going to happen before it actually does, and while we are certainly wrong (on occasion) or misjudge timing, having closely followed the display space for over 18 years gives us some sense of intuition about how things will play out.  While the industry bemoans about how deeply it had to cut utilization to try to manage inventories and keep panel prices from dipping so far below cash costs that it was not worth turning the power on, we saw this issue as the potential solution to the very problems the industry had created for itself.
The necessity for lower utilization rates at panel producers, be it LCD or OLED, is a function of the classic imbalance between capacity and demand, and while there are many ways in which demand can be influenced, supply/capacity, especially in the display space, where greenfield capacity has a high capital cost and process equipment has long lead times, needs years to plan and complete, which means panel producers must anticipate industry and macro conditions years in advance.  Such advanced planning is fraught with influences that color panel producer views and complicate the process further and such can push a short-term or long-term roadmap toward a postponement or eventual cancellation, or worse, an idle or under used facility.
The threat of competition is certainly one ‘influencer’ in the capacity decision making process, but there is competition in every business.  In the case of the display business however there is another kind of competition that we believe is, and has been, a major factor in exaggerating the cyclical nature of the panel business, and that is political nationalism (aka ‘polinat’ – you heard it here first ☺).  Under our definition, polinat is the influence of politics in a country’s desire to be recognized globally, which puts the government’s necessity to gain global acceptance above that of the populous and can be a significant influence on a country’s economic and business outlook, depending on the political system.  Over the last 12+ years the Chinese government has had a significant influence on the display space through government sponsored funding of display capacity, which was readily accepted by panel producers.
The plentiful funding, which typically comes from provincial or city owned entities, has allowed Chinese panel producers to expand capacity at an unprecedented rate, which in many cases had little to do with supply/demand and more to do with a desire to cement China’s place in an industry that has previously been dominated by other Asian competitors.  Underlying this political nationalism has been good old company rivalry between Chinese panel producers themselves, which has served to aggravate the situation.  The Chinese display industry has been focused on chasing market share since its inception and now is the dominant force in the LCD display space, and has built out very significant capacity under the assumption that the LCD display business will continue to grow, with China the dominant force behind that growth. 
This enthusiastic capacity expansion was reinforced during the COVID-19 pandemic, as panel prices rose under unusual demand circumstances and most panel producers became profitable.  This positive justification led to further expansion planning under the assumption that we were living in a ‘new’ demand environment and funding continued, even after panel prices began to deteriorate in July of last year, and while TV panels pricing declined rapidly, panel producers continued to justify those expansion plans citing the mantra that IT panel pricing (monitors, notebooks, and tablets) remained strong.  Unfortunately that IT panel price stability was not sustainable given the fact that most panel producers shifted capacity from TV panel production to IT panel production as TV panel prices deteriorated, which caused IT panel prices to deteriorate, especially as demand weakened.
Little has been said during the 1st half of this year about previously announced expansion plans, but we expect much has been said internally and most recently a trip by the chairman of TCL (000100.CH) the owner of China’s 2nd largest panel producer Chinastar (pvt), visited South Korea to meet with Korean equipment suppliers to discuss ‘the current state of the industry’.  According to the South Korean trade press, those discussion were focused around the TCL chairman explaining to equipment suppliers that delayed payments and timeline pushbacks were the result of the overall weakness in the display market and to discuss the feasibility of changing the format of some of the equipment from small panel OLED (Gen 6) to Gen 8 in order to move more toward the production of IT OLED panels and away from those for smartphones.
Equipment producers were told that Chinastar’s T5 Gen 6 LCD fab in Wuhan that TCL announced late last year would be expanded, has delayed the expansion until 2023 and the company’s T9 Gen 8.6 LCD fab project in Guangzhou will also be postponed for 6 months, apologizing for the delay in progress payments.  This is a sensitive subject for South Korean equipment suppliers as we mentioned in notes on 12/29/20 and 6/1/21, as a company known as Jiangxi Infintech Optoelectronics (defunct) has ordered roughly $77m from a number of South Korean suppliers for a $3.5b mixed use LCD/OLED Gen 6 fab it was planning to build in 2018.  After multiple delivery pushouts and little, if any payments, the company’s management abandon the project and left the country leaving South Korean equipment vendors with raw materials and project expenses that were never paid and the expensive task of trying to recover funds through the Chinese courts.
TCL is lucky in that Samsung Display (pvt) has a 12.3% share in TCL, which it purchased when it sold its LCD fab in Suzhou to Chinastar in August 2020.  This gives TCL considerable credibility with Korean suppliers, but more importantly the delays in TCL’s display expansion projects are indicative of the theory that the idea that helter-skelter expansion might not be the only way to prove a country’s ability to compete in the world market, and that the concept of ‘If you build it they will come’ was a line form a movie and not necessarily a motivation for spending billions of dollars.  The continued expansion of LCD production capacity through 2023 and 2024 against a more moderate demand cycle was one that give us little hope for more than modest sales gains for the industry and as that philosophy spread to the OLED space, the same fate, out a few years further, was also inevitable, but a more rational view of capacity now seems to be starting to take hold with the TCL chairman’s trip a good omen.
That said, we still have to account for the political nationalism that exists in China which is exacerbated by anti-China political rhetoric in the US.  Historically capacity delays tend to disappear at the first sign of rising prices and while Samsung Display made the hard decision to exit the large panel display business years ago and LG Display (LPL) has been following a similar path, that decision seemed a very wise decision in 4Q 2019 and a terrible one in July 2021.  The underlying price competition from Chinese LCD producers that caused such decisions, a function of the Chinese desire to prove its global worth by dominating a space that had been controlled by it political and regional rivals, still exists and our concern is that while we take the TCL/Chinastar postponements as anecdotal evidence that there is potential for more rational display capacity expansion planning in China, changing a mindset is a difficult task that either takes a long time or is forced economically.  While we prefer the former and abhor the idea of an extended downturn in the display and CE space, sometimes it takes being hit over the head to figure out that you are the one doing the hitting.

In our note of 7/15/22 we indicated a dispute between Samsung Electronics and China’s BOE (200725.CH) over what amounts to advertising royalties which have caused Samsung to reduce orders for LCD panels from BOE and has spiked interest from other Chinese panel producers who would like to fill the gap left by the Samsung/BOE disagreement.  As we also noted BOE’s Chinese rival Chinastar (pvt), owned by TCL (000100.CH) has already been to South Korea to sweet talk Samsung executives and local suppliers and is now expected to travel to Cupertino to schmooze with Apple (AAPL) folks to gain some traction as a panel supplier for MacBooks and iPads.
Chinastar has been reviewing plans to expand its OLED production capacity, potentially with lines dedicated to Apple, and would be expected to put additional pricing pressure on LG Display (LPL), the current panel supplier to the MacBook line.  China star is already a supplier of TV panels to Samsung, along with AUO (2409.TT), Sharp (6753.JP), BOE, and LGD, and Samsung is a shareholder in TCL, so the visit to Korea was one with some weight and a visit to Apple by TCL’s chairman would certainly create some anxiety at BOE and LGD.  As Apple is quite particular about their displays, the recent brouhaha over BOE’s changes to Apple’s qualified display design without prior approval has set BOE back a bit in terms of company reliability and once there is even the smallest amount of blood in the water[1] the sharks will gather.  We would assume Chinastar will gain share at Samsung and Samsung will use Chinastar to further its pricing leverage with its other suppliers, particularly BOE, and any success at Apple will help Chinastar gain share against BOE, although we expect it will take considerable time for Chinastar to build out dedicated Apple capacity.


[1] Fact – Sharks can sense between 1 part in 25m and 1 part in 10 billion depending on the chemical, which would be the equivalent of one drop of blood in a small swimming pool.

​TCL is a very price competitive brand, particularly when it comes to TVs and even more so when it comes to QD/Mini-LED TVs, as it was the first brand to release such combined technology and is a generation ahead of rivals, including Samsung Electronics and LG Electronics (066570.KS).  TCL recently released a 98” QD/Mini-LED TV to compete with a 98” offering from Samsung and noted that it had received 5,000 pre-orders for the sets in the 1st hour it was listed, which sell for ~$8,900 against Samsung’s recently discounted price of $13,000.  TCL has now stated that it has already sold more than 4,000 of the units, mostly during the 6/18 holiday, roughly 5x the number it sold last year.  Samsung has not disclosed its sales figures for its 98” QD/Mini-LED models.  Displays for the TCL 98” QD/Mini-LED model are produced by Chinastar, a subsidiary of TCL.
While it is hard to verify such specific sales figures, especially those from China, we expect TCL has had some success with its ultra-large QD/Mini-LED lines given both pricing and local familiarity, but the ultra-large TV market is a rarified one with expectations for less than 100,000 98” units sold this year, including other technologies, although the sales value is certainly enviable even for 4,000 units, which would be the sales equivalent of selling 54,769 TCL 55” QD/Mini-LED TVs based on current prices, and while the TCL98” TVs mentioned were sold in China for ~$8,900 you can steal last year’s model from Best Buy (BBY) at the currently discounted price of $8,500, although you would have to wait until August 3 to have it delivered, especially as it would be hard to fit in a standard vehicle as the box is 5 feet high and 8 feet long.

China’s TCL (000100.CH) was the first major TV set brand to release a mini-LED based TV and is now on its 4th generation of such devices, while major competitor Samsung Electronics (005930.KS) has recently released it 2nd generation Mini-LED TV lineup.   TCL has approached the Mini-LED/QD TV market differently than its competitors, pricing its sets considerably below major brands to generate high unit volumes and the most recent additions are more of the same.  While we don’t yet have full specifications to compare against for the TCL line, we can give some approximation as to the comparable sets in the Samsung line, which points out that price difference.  Again, the TCL and Samsung sets do not have the same feature sets so a point-by-point comparison is not being made here, just a rough idea as to the price points and the TVs have yet