Dongxu Photoelectric starts up polarizer project
Dongxu Photoelectric (pvt), a subsidiary of Dongxu Group (000413.CH) has indicated that it has begun operation of two polarizer lines in Fuqing City, China. The facility, which is said to have been put into operation just 105 days from its start (we have trouble with either the official dates here or the translation), is a JV with Sumitomo Chemical (4005.JP), Dongwu Fine Chemical Co (pvt), Asahi Electronic Materials (2502.JP) and another private Hong Kong based chemical company, who formed the Fuzhou Xu Friends of Electronic Materials Technology Co., Ltd, to develop the project. While China’s share of the polarizer market is still small, it has grown from 4.3% in 2012 to 8.8% in 2015 and the new lines are expected to produce 10m m2 per year, or just under 1%. While the gap will be hard to fill, we don’t doubt that the Chinese government will ‘encourage’ other companies to build out polarizer production.
Back in December 2016, we noted that Dongxu Group had teamed with Japanese supplier NEG (5214.JP) to build a Gen 8.5 furnace in Fuzhou, China, where BOE (200725.CH) is building out its B10 Gen 8.5 LCD fab. The company had pointedly said it was going after glass substrate business from BOE, and while no timeframe was given at that time, we noted last month that the new line has begun operation and a second line is being built. Dongxu has invested in a number of other Chinese supply chain projects, including color filters, polarizers, sapphire production, and cover glass in order to coordinate its ability to be a broad-based supplier to the Chinese display space. Dongxu reported 2016 net income of ~$180m compared to Corning’s (GLW) $935m from its display glass division (excludes cover glass), but Dongxu expects the new Gen 8.5 production line to generate an additional $131m in net income when completed, on $382m in additional sales.
Polarizers are a key component of LCD displays, and two are necessary to make an LCD device show a normal display. The polarizers are set 90” apart from each other, and when the liquid crystal, which is sandwiched between the polarizers is activated electrically which ‘twists’ the light, the polarized light from the LED backlight passes through the front polarizer and the image can be seen, and when the liquid crystal is not activated the front polarizer blocks the light. While polarizers are a bit esoteric to the average investor, what is apparent is that China continues its quest to become self-sufficient in the display space.
The Chinese central and provincial governments continue to build out display supply chain capacity to gain control over their display production, and while China is expanding display capacity faster than any other region, they remain concerned that much of the supply chain is controlled by foreign companies, encouraging both short and long-term programs to reduce that dependence. Subsidies have been the main tool used to help Chinese display supply chain participants gain traction in both the local and world markets, and we expect that to continue until display market saturation is reached, in similar fashion to how China developed its LED market, and then went through a period of rationalization where hundreds of small suppliers closed and a few large firms remained.
We don’t expect this saturation to happen soon, and by soon we mean in the next 2 to 3 years, but the entire display industry is betting that a continuation of screen size increases will offset the slower unit growth seen in the display space and premiums will remain intact for those products. Chinese panel producers are building ever larger panel production facilities and as these come on line over the next few years, the balance between capacity growth and demand for ever-larger products will become the most important metric. There is a finite limit to panel size growth in almost all categories, as smartphones must be able to be carried in pockets, laptops have to remain portable, and TVs have to fit on available wall space, so the rapid expansion of large panel display capacity helps China gain ‘internal’ share, but also feeds world markets that will eventually become saturated with ever larger displays, and we do not expect China to see this as a reason to curtail construction until it is a bit too late.
Back in December 2016, we noted that Dongxu Group had teamed with Japanese supplier NEG (5214.JP) to build a Gen 8.5 furnace in Fuzhou, China, where BOE (200725.CH) is building out its B10 Gen 8.5 LCD fab. The company had pointedly said it was going after glass substrate business from BOE, and while no timeframe was given at that time, we noted last month that the new line has begun operation and a second line is being built. Dongxu has invested in a number of other Chinese supply chain projects, including color filters, polarizers, sapphire production, and cover glass in order to coordinate its ability to be a broad-based supplier to the Chinese display space. Dongxu reported 2016 net income of ~$180m compared to Corning’s (GLW) $935m from its display glass division (excludes cover glass), but Dongxu expects the new Gen 8.5 production line to generate an additional $131m in net income when completed, on $382m in additional sales.
Polarizers are a key component of LCD displays, and two are necessary to make an LCD device show a normal display. The polarizers are set 90” apart from each other, and when the liquid crystal, which is sandwiched between the polarizers is activated electrically which ‘twists’ the light, the polarized light from the LED backlight passes through the front polarizer and the image can be seen, and when the liquid crystal is not activated the front polarizer blocks the light. While polarizers are a bit esoteric to the average investor, what is apparent is that China continues its quest to become self-sufficient in the display space.
The Chinese central and provincial governments continue to build out display supply chain capacity to gain control over their display production, and while China is expanding display capacity faster than any other region, they remain concerned that much of the supply chain is controlled by foreign companies, encouraging both short and long-term programs to reduce that dependence. Subsidies have been the main tool used to help Chinese display supply chain participants gain traction in both the local and world markets, and we expect that to continue until display market saturation is reached, in similar fashion to how China developed its LED market, and then went through a period of rationalization where hundreds of small suppliers closed and a few large firms remained.
We don’t expect this saturation to happen soon, and by soon we mean in the next 2 to 3 years, but the entire display industry is betting that a continuation of screen size increases will offset the slower unit growth seen in the display space and premiums will remain intact for those products. Chinese panel producers are building ever larger panel production facilities and as these come on line over the next few years, the balance between capacity growth and demand for ever-larger products will become the most important metric. There is a finite limit to panel size growth in almost all categories, as smartphones must be able to be carried in pockets, laptops have to remain portable, and TVs have to fit on available wall space, so the rapid expansion of large panel display capacity helps China gain ‘internal’ share, but also feeds world markets that will eventually become saturated with ever larger displays, and we do not expect China to see this as a reason to curtail construction until it is a bit too late.
Figure 3 - Composite Average Smartphone Screen Size - Source: Various
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