Power Outage Update

Power Outage Update
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Yesterday we noted that a number of regions and cities in China were facing an unprecedented heat wave that had caused local power authorities to cut production from August 15th to August 20th.  According to China’s largest panel producer BOE (BOE), the four display production lines that it runs in Sichuan province have been notified by the Sichuan Power Authority that “in order to ensure the safety of the power grid in Sichuan Province and ensure people’s livelihood enterprises need to make production adjustments.”  The company goes further stating that it will cooperate with people’s livelihood, security policies, and minimize electricity load, and flexibly arrange production operations, although the company will make ‘timely’ adjustments to the TFT-LCD production line, performing routine equipment maintenance.  However they also state that “Based on the above situation, after evaluation, this power cut will not have an impact on the company’s overall operating performance.
BOE’s fabs in Sichuan province are:

​Based on the fabs affected, potential production outages could represent 9.6% of BOE’s overall display capacity should they all be shut down, with 8.6% of the company’s LCD capacity and 55.2% of its OLED capacity more specifically.  We do not yet know which lines and by how much production cuts are being made, but the metrics here represent the worst case and are not actual estimates of actual production reductions.  We would expect that ongoing negotiations with the local power authority are continuing, as they are with HKC (248.HK) and other CE supply chain companies in the region, but we are a bit more focused on BOE considering its entry into the Apple (AAPL) OLED supply chain this year and the problems it has already faced in that regard.  As we noted yesterday, forecasts for Chengdu and the region call for continued above average heat through the 25th, so we expect that the original restriction end date of 8/20 will be extended for an extra few days.