At around 8 a.m., tech enthusiasts were buzzing about TCL Group's latest moves, as the company known for its long suspension from major activities is reportedly planning fresh investments and business integrations. The semiconductor display sector, in particular, has drawn significant industry attention.
On July 12th, TCL Group announced its intention to acquire 10.04% of the shares held by Huaxing Optoelectronics from Changjiang Hanyi, Xingyu Limited, Lin Zhou Xinglan, Lin Zhou Xingyong, Lin Zhou Xingyuan, and Lin Zhou Xinglian through a share issuance. The transaction value stood at 4.034 billion yuan, paid via stock issuance.
Following the completion of this deal, TCL Group will directly own 85.71% of Huaxing Optoelectronics' equity. Over the years, Huaxing Optoelectronics has been a key profit driver for TCL Group, ranking as the second-largest TV LCD panel manufacturer in mainland China. Data from the research firm IHS reveals that in 2016, Huaxing Optoelectronics accounted for 13% of the global TV panel market.
Huaxing Optoelectronics’ establishment marked a crucial step in TCL’s strategy to vertically integrate its upstream supply chain. As the display panel industry gains momentum, TCL is deepening its industrial chain integration efforts.
Despite its impressive contributions, Huaxing Optoelectronics remains relatively low-profile, which aligns with the nature of its business-to-business (B2B) operations. The company's financial report indicates that it accounted for half of TCL Group’s profits in 2016. Huaxing Optoelectronics supplies 40% of Samsung's panel requirements and 20% of its own panels, with the remainder going to domestic brands like Hisense and Skyworth.
Although the panel industry offers substantial profits, its cyclical nature means performance varies significantly year by year. Making continued investments during downturns is essential for success in the next competitive phase, but such investments require billions in funding. Besides government support, Huaxing Optoelectronics aims to enhance its financing platform and development prospects through listing.
However, the backdoor listing attempts with Shenzhen Textile failed twice. This year, TCL has been actively pursuing Huaxing Optoelectronics' reorganization. In May, TCL transferred approximately 37% of its shares in “Hua Xian Optoelectronics†to Huaxing Optoelectronics. The rationale behind this move was to better integrate upstream and downstream panel suppliers. Hua Xian Optoelectronics primarily produces panel glass, whereas Huaxing Optoelectronics focuses on modules. Their collaboration is set to intensify with the construction of new production lines.
TCL Group’s acquisition of Huaxing Optoelectronics is also a strategic move in the semiconductor display space. The announcement highlighted two primary objectives: strengthening Huaxing Optoelectronics’ management and control to boost overall operational efficiency and shareholder returns; and enabling key management personnel and core employees to hold shares in the listed company, fostering a stronger incentive system and attracting top talent.
Nonetheless, compared to peers like Samsung, Huaxing Optoelectronics still lags in certain areas. An insider admitted, “Our technology isn’t the most advanced, but we’re focusing on maintaining efficiency leadership while striving for product and technological leadership. We’re catching up quickly to world-class players like Samsung and Sharp.â€
The semiconductor display landscape is becoming increasingly crowded. External competitors are formidable. TCL Group highlighted overcapacity risks in its acquisition announcement. By 2019, several new production lines, including Innolux Optoelectronics Gen. 8.6, BOE Fuzhou Gen. 8.5, and others, will come online, pushing China’s LCD panel capacity past South Korea to become the world leader. Much of Huaxing Optoelectronics’ output will need to be sold externally, posing potential pricing pressures.
Despite this, Chinese panel manufacturers have seen remarkable growth. Statistics from Sigmaintell show that in the first half of 2017, mainland Chinese panel manufacturers accounted for 24.5% of the global display industry, up 22.7% year-over-year. Even with the RMB’s depreciation, profitability remains robust. Mainland panel manufacturers are expected to achieve an average operating profit margin of 12% in the first half of 2017, a 9% increase year-over-year, marking the highest level in five years. Meanwhile, South Korea continues to invest heavily in large-sized mid-to-high-end markets and the AMOLED segment, fueling rapid growth in related industries.
To stay competitive, TCL Group is leveraging Huaxing Optoelectronics to accumulate factory technology. Producing liquid crystal panels demands stringent environmental conditions, requiring slow yet steady technological advancements. As LCD panel technology matures, optimizing production lines becomes critical.
Today, Huaxing Optoelectronics operates fully automated and intelligent factories. Zhang Feng, Director of Huaxing Optoelectronics, noted, “With intelligent controls, we’ve shortened our production-to-output cycle by 38%, reduced defective products by 42%, cut delivery times to customers by 32%, and decreased product defect rates by 28%.â€
On the other hand, TCL Group is exploring flexible displays. Quantum dot and OLED technologies are both on the table, with efforts underway to develop flexible panel printing technology. Zhang Feng added, “Flexible display faces three main challenges: product design, equipment processing, and materials. The latter two are crucial. Equipment processing technology is largely controlled by Korean firms, while materials depend on Japan. However, these technologies are gradually being shared.â€
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