According to the latest financial results disclosed by BOE and ChinaStar, the Chinese panel makers moved from losses in 2012 to profitability in Q1’13. BOE’s Q1’13 revenues reached RMB 8,059 million ($1.3 Billion), with RMB 400 million ($64 million) operating margin and net profit margin of 5%. The TCL group revealed that they made profit from their investment in ChinaStar, which had Q1’13 gross margin of 14%. According to TCL’s statement, ChinaStar’s Q1’13 revenues reached RMB 3,362 (US$542 million) and operating profits were RMB 352 million (US$57 million).
As can be seen in the table, the Chinese panel makers financial performance were among the best in the industry in Q1’13.
|Panel Maker||Q1’13 Operating Margin|
|AUO (Display Segment only)||0.2%|
|Innolux Corp.||2%~3% (Estimated Before Disclosure)|
The strong financial performance of the Chinese panel makers is quite different from the stereotype of Chinese panel makers caring more about investment than profitability. It’s not true that China panel makers relying solely on government support, in terms of investments and monetary policy. This is also different from the perception, summed up by the saying that “Korean panel makers are good at capacity, Japanese are good at technology, Taiwanese are agile, and Chinese panel makers are good at gaining government subsidies.”
What are some of the reasons for Chinese panel makers performing comparatively well?
- Government subsidies, in the form of technology funds or new technology nourishing funds, are a factor, but not the only one. Both BOE and ChinaStar received RMB 50-300 million in subsidies and tax benefits from the government in the past quarter.
- For panel makers, the most profitable sector is TV, while notebook PC and monitor panels lose money; Chinese panel makers have low market share in IT panels.
- BOE and ChinaStar built their Gen 8 lines 2 to 3 years after the Korean and Taiwanese panel makers, which means they were able to get lower prices on equipment. In addition, their depreciation timelines are 7 to 10 years, longer than in Korea and Taiwan. Also, utility and construction providers offer lower cost services, so depreciation per unit is lower. It’s believed that Chinese Gen 8 fab costs can be 20% lower than in Korea.
- More than 90% of BOE and ChinaStar’s production in their Gen 8 fabs is 32.” With a single product in large volume at a single fab means production efficiency can be high, which helps to reduce manufacturing cost.
- Panel makers in China are also enjoying component cost reductions due to depreciation of the Japanese yen, but are also developing local sources of supply, to reduce logistics cost and create competition, lowering prices. It’s estimated that 70% of ChinaStar’s components are provided by Chinese companies.
- According to the Quarterly Large-Area TFT Panel Shipment Report, in Q1’13, 77% of ChinaStar’s LCD TV panel shipments were in open cell form factor, and for BOE the open cell ratio is as high as 90%. Open cell LCD TV panel prices did not fall much in Q1’13 (according to the Monthly Large-Area LCD and PDP Pricing, the 32” open cell fell from $104 in January to $101 in March), which helps BOE and ChinaStar to gain profitability.
- Import duties. China is charging a 5% import duty for LCD TV open cells supplied by Korean and Taiwanese panel makers. Chinese panel makers enjoy import duty rebates when they sell to Chinese TV makers for the domestic market. The rebates help BOE and ChinaStar to sell their open cells at a higher ASP than Taiwanese and Korean makers.