Chinese display glass manufacturer starts new plant operation
Last December we noted that Chinese glass producer Dongxu Group (000413.CH) has 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 note that the new line has begun operation and a second line is being built. The company states that product from the line has been sent ‘East’ for certification. We believe up until this line began operation, the company has been limited to supplying Gen 5.5 glass to display producers, and despite this limitation is the largest locally owned glass producer in China with 20 LCD glass production lines. The company states it is the 4th largest display glass producer worldwide, although we have no corroborating evidence to confirm this. 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 $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.
The Chinese central and provincial governments continue to build out display supply chain capacity to gain control over their display production. 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, and has 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 to happen soon, but it is inevitable when a particular region is bent on gaining share as aggressive as the Chinese have been. They have a long way to go in the display market but it would be foolish for any investor or company to not consider Chinese Display supply chain participants as competitive equals.
The Chinese central and provincial governments continue to build out display supply chain capacity to gain control over their display production. 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, and has 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 to happen soon, but it is inevitable when a particular region is bent on gaining share as aggressive as the Chinese have been. They have a long way to go in the display market but it would be foolish for any investor or company to not consider Chinese Display supply chain participants as competitive equals.
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