On August 26, TCL Technology released its semi-annual report for 2024.

The financial report shows that in the first half of 2024, TCL Technology achieved revenue of 80.224 billion yuan and a net profit attributable to shareholders of listed companies of 995 million yuan, representing a year-on-year increase of 192.28%. Its net operating cash flow was 12.633 billion yuan.

Among these, the most notable was TCL Technology's semiconductor display business, which generated revenue of 49.877 billion yuan in the first half of the year, with a net profit

of 2.696 billion yuan, representing an improvement of 6.145 billion yuan year-on-year. Notably, the second quarter alone generated a profit of 2.157 billion yuan, a quarter-on-quarter increase of over 300%.

The improvement in TCL Technology's semiconductor business can be said to confirm that the panel industry is gradually entering a new cycle with more stable profitability. So, how do we interpret TCL Technology's interim report and understand the current panel industry?

Large-size panels recover, while small- and medium-sized panels continue to thrive

After experiencing the bottom of the cycle in 2022 and the optimization of the industry structure and improvement of panel business strategies in 2023, the panel industry began to recover this year and showed a moderate upward trend.

According to Omdia data, in the first half of 2024, LCD TV panel shipments were roughly consistent with the first half of 2023. However, due to the increase in average panel sizes, the industry's overall shipment area increased by 6% year-on-year to 871.4 million square meters. Correspondingly, the production line utilization rates of mainstream panel manufacturers also performed better than the same period last year.

This undoubtedly laid the foundation for panel factories like TCL Technology to achieve good profitability in the first half of the year.

Of course, besides the industry's overall growth, TCL Technology's impressive financial performance is also inseparable from its own strengths. According to TCL Technology's financial report, in the large-size panel segment, TCL CSOT increased the proportion of 55-inch and larger panel area to 81%, and the proportion of 65-inch and larger panel area to 55%. The average panel size of the company's products increased by 1.2 inches year-on-year. The company's TV panel market share remains among the top two globally, with the first place globally in 55-inch and 75-inch products, and the second place globally in 65-inch products. Its interactive whiteboards, digital signage, video walls, and other commercial display products continue to enhance their competitiveness, ranking among the top three globally.

In the medium-size panel segment, TCL CSOT accelerated in-depth cooperation with new business customers in IT and automotive fields. Meanwhile, in the monitor segment, TCL CSOT's overall shipment ranking rose to second globally, with the first global market share in gaming monitors. The company's 6th-generation LTPS production line accelerated product structure upgrades, ranking second globally in LTPS laptop panels and first globally in LTPS tablets. The company continued to focus on the trend of high-end and large-size automotive displays, with LTPS automotive display shipment area ranking third globally.

In an interview with the media, Zhao Jun, CEO of TCL CSOT, said that TCL CSOT's gaming display shipments grew by 20% in the first half of this year. The IT business, including gaming monitors, commercial monitors, laptops, and tablets, showed considerable growth.

"The IT display business is one of TCL CSOT's strategic growth points and an essential area for business growth. TCL CSOT entered the gaming monitor market five years ago, starting from scratch and achieving the first global market share in gaming monitors within two years, demonstrating rapid growth," said Zhao Jun.

It is worth mentioning that the recent popularity of "Black Myth: Wukong" is expected to drive a new wave of computer upgrades in the domestic market, especially in the display market, bringing new growth opportunities to TCL CSOT's small- and medium-sized panel business.

In the small-size panel segment, TCL CSOT's OLED product shipments increased significantly, and operating performance improved. The t3 production line's LTPS mobile phone panel shipments ranked third globally, maintaining stable operations. The utilization rate of the t4 flexible OLED production line increased significantly, with flexible OLED mobile phone panel shipments reaching 39 million units in the first half of the year, representing a year-on-year increase of 180%. The market share increased to third globally, while foldable display shipments ranked fourth globally.

As AI integration in smartphones and Mac laptops accelerates, small-size displays are poised for significant growth. Last year, TCL CSOT became the exclusive display supplier for multiple flagship models of Xiaomi and Transsion, two of the top five mobile phone brands. In the future, it is expected to become a big winner in the AI hardware boom.

The increase in prices and shipments of large-size TV panels, coupled with the robust growth of small- and medium-sized panel businesses, has multiplied TCL Technology's growth potential.

Acquiring priority bidding rights for LGD's factory, further optimizing technology, products, and customer portfolio

Recently, there have been many significant news events in the industry, one of which has attracted widespread attention. Shortly before the financial report's release, TCL Technology announced that TCL CSOT had become the preferred bidder for the equity auction of LGD's Guangzhou factory. The target assets include 70% of the equity of LGD's Guangzhou 8.5-generation panel factory and 100% of the equity of the module factory, with a net asset value of 10 billion yuan.

The industry generally believes that if TCL CSOT successfully completes the acquisition of LGD's Guangzhou factory, the global TV panel production capacity landscape will further concentrate in leading Chinese mainland manufacturers. With leading manufacturers adhering to a build-to-order production strategy, the TV panel industry is expected to usher in a golden era of stable profitability and cash flow growth.

Why did TCL CSOT choose to acquire LGD's Guangzhou factory? Besides strengthening the foundation for the healthy development of the industry, there may be two other important reasons:

First, TCL CSOT previously focused on vertical alignment (VA) panels, accounting for approximately 22% of the global market share. By acquiring LGD's Guangzhou 8.5-generation line, TCL CSOT will gain significant plane-switching (IPS) technology production capacity, complementing its IPS technology roadmap.

Second, one of the "biggest structural changes" in the industry resulting from this acquisition is the change in customer relationships.

Previously, due to the influence of balancing upstream supply chain relationships, Japanese and Korean TV brands relied more on LGD's Guangzhou factory, Sharp's Japan 10-generation line, and Sharp-Innolux's Guangzhou 10.5-generation line for high-end panels. Currently, Sharp's Japan 10-generation line has been completely shut down. By acquiring LGD's Guangzhou line, CSOT will significantly enhance its discourse power in the supply of high-end panels to Japanese and Korean TV brands.

Thus, the long-standing three-country, four-region TV panel landscape (mainland China, Taiwan, Japan, and South Korea) will become a two-country, three-region layout (mainland China, Taiwan, and Japan). South Korea will no longer have TV panel production capacity, and mainland panel factories will further increase their market share, pricing power, gross margin, and net profit margin, firmly establishing China's dominance in the industry.

The upward trend of the industry is clear. Have mainland panel manufacturers finally emerged as kings?

Mencius said, "One is born in adversity and dies in ease." Throughout history and across cultures, this principle has been universally applied in the world of business.

From Nokia, Samsung, and Sony dominating the domestic mobile phone market to the emergence of domestic brands like Huawei, Xiaomi, OPPO, and vivo; from the pursuit of BMW, Mercedes-Benz, Honda, and Toyota to the rise of domestic new energy brands like BYD, NIO, Xpeng, and ZEEKR, it is evident that continuous technological accumulation and innovation lead to qualitative changes.

The same is true for China's panel market. From being dominated by Korean and Taiwanese giants, relying heavily on international manufacturers like Samsung and LG for panel supply, to Chinese companies like BOE and TCL Technology breaking technological monopolies and leading the world through intensive research and development and early strategic layout, the transformation has been remarkable.

Today, mainland panel manufacturers have firmly established their discourse power in the industry, driving its healthy and sustainable development. Moreover, with the subsequent shutdown and sale of some industry capacities, the supply-side landscape of the display industry will undergo even more positive changes.

As the industry heads upwards, mainland panel manufacturers are poised to embrace an even brighter future.