From a small electronics factory in the 1990s to becoming a globally renowned display technology giant today, every step of TCL is branded with the marks of its era. Once, it entered thousands of households with the popularization of LCD TVs, becoming the pride of China's home appliance industry. However, with the price fluctuations and overcapacity issues in the global LCD panel market, coupled with the continuous emergence of new display technologies such as OLED, TCL Technology is facing unprecedented challenges.

The financial report data of TCL Technology reveals a sense of urgency. In the first half of 2024, TCL Technology achieved a revenue of 80.224 billion yuan, a year-on-year decline of 5.74%. The battle for market share is also becoming more intense, with international giants such as Samsung, LG, and Sony all laying out other more novel display technologies such as OLED, while domestic BOE continues to grow in the LCD field.

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At this critical moment, TCL urgently needs an acquisition of LCD to save itself, which is not only a response to the past but also a layout for the future market.

On September 26, TCL Technology announced that its holding subsidiary TCL China Star Optoelectronics Technology Co., Ltd. (hereinafter referred to as "TCL CSOT") intends to acquire 80% of the equity of LG Display (China) Co., Ltd. (hereinafter referred to as "LGDCA") and 100% of the equity of LG Display (Guangzhou) Co., Ltd. (hereinafter referred to as "LGDGZ"), as well as related technologies and support services, with a base purchase price of 10.8 billion yuan.

01 Searching for Blue Ocean in the Red Sea

TCL Technology is standing at a crossroads, with the background being a red sea composed of price fluctuations and overcapacity of LCD panels.

In the early 2000s, LCD technology quickly replaced traditional CRT (cathode ray tube) displays with its thin and light, low power consumption, and high-quality image display characteristics. At that time, TV and computer manufacturers around the world were investing in LCD production, and market demand was insatiable.

From 2004 to 2007, global shipments of LCD TVs soared, and the LCD market became a synonym for rapid growth, with major brands such as Sony, Samsung, LG, etc., all making a fortune in this competition.

However, with the rapid expansion of production capacity, the market began to show signs of oversupply. In May 2010, market research firm DisplaySearch released data showing that the prices of monitor, notebook computer, and LCD TV panels almost all fell, and the smoke of price wars made the profits of many LCD manufacturers plummet. In the situation of market oversaturation and excessive competition, the LCD market gradually shifted from rapid growth to slow growth, and even showed signs of decline.

Just as the LCD market was mired, a new display technology - OLED - began to emerge. OLED, with its thinner, lighter, more colorful, and higher contrast characteristics, gradually became the darling of the high-end display market. Since then, new technologies such as MiniLED and MicroLED have appeared one after another. Many people believe that the gradual elimination of LCD has become a foregone conclusion.Returning to recent years, the homebound trend triggered by the pandemic once stimulated a brief recovery in the liquid crystal display (LCD) market, prompting many companies to expand their production scale. However, with the gradual weakening of demand for mobile devices and the decline in domestic demand for major home appliances, many large-sized LCD panels faced a situation of unsold inventory.

In 2022, the LCD market fell into a trough, with the performance of many LCD panel companies declining, and some companies even suffered losses of tens of billions. Omdia's report pointed out that in 2022, the growth rate of panel shipment area will be halved to 3%, and the global panel output value will decline by 15%, which is the first negative growth in recent years. This low point undoubtedly brought huge pressure to the entire industry, forcing many companies to adjust their strategies and turn to new display technologies with more development potential.

However, it needs to be clarified that although the LCD market faces saturation and the impact of emerging technologies, it has not completely lost its vitality.

LT Technology's report shows that in the first half of 2024, the online sales volume of esports monitors in mainland China surged by 30%, reaching 2.69 million units, and sales also increased by 10% year-on-year to 3.3 billion yuan. The esports display market is facing unprecedented development opportunities.

In addition, although the high-end TV market is gradually tilting towards OLED and mini LED, considering cost-effectiveness and consumer acceptance, LCD still occupies a dominant position in large-sized TV screens. According to statistics, in the first half of this year, the market share of LCD TVs still remained above 60%, especially in the mid-to-low-end market, the advantages of LCD are more obvious.

The forecast of market research institution Omdia provides a more specific market outlook for TCL's future layout. Omdia predicts that once TCL China Star's acquisition of LGD Guangzhou Company is completed, TCL Technology's overall share in the LCD TV panel market is expected to surpass BOE and take a leading position in the fields of 32-inch, 55-inch, and 65-inch TV panels.

The completion of this acquisition also means that LGD is accelerating the pace of its business transformation and focusing its strategic vision on small-to-medium OLED products targeting the high-end market. LG Display's Chief Financial Officer Kim Seong-hyun said at the 39th regular shareholders' meeting held in Paju, Gyeonggi Province, "The company is transitioning from a liquid crystal display (LCD) to a business structure centered on organic light-emitting diodes (OLED)."

Other Japanese and Korean companies such as Samsung and Sharp also choose to gradually exit the LCD market, and the LCD market will further concentrate in the hands of Chinese manufacturers. According to LT Technology data, in August this year, the global shipment market share of mainland China's liquid crystal panel factories was 66.0%. The completion of the acquisition and the subsequent exit of Japanese and Korean companies will further increase this proportion, thereby occupying a more favorable competitive position in the global market.

At this time, TCL Technology's increase in LCD business is expected to seize the remaining market demand, achieve performance growth, and is more likely to continue to maintain its position in the LCD market for a period of time in the future.

02 Financial Self-helpIn recent years, TCL Technology's new energy photovoltaic business has been facing the challenge of supply and demand imbalance.

According to the semi-annual report for 2024 released by TCL Zhonghuan, in the first half of 2024, TCL Technology's new energy photovoltaic and other silicon material businesses achieved a revenue of 16.213 billion yuan, a year-on-year decrease of 53.54%; the net profit attributable to the parent company was a loss of 3.064 billion yuan, a year-on-year decrease of 167.53%.

This supply and demand imbalance has also had a significant impact on TCL Technology's overall financial condition. In the first half of 2024, TCL Technology achieved a revenue of 80.224 billion yuan, a year-on-year decline of 5.74%; the net profit was a loss of 468 million yuan, a year-on-year decrease of 119.58%. This is the first time TCL Technology has had a net loss in semi-annual profits since 2014.

Before this, Zhonghuan Group was undoubtedly one of TCL's wisest strategic investments.

The story began with the photovoltaic industry boom a few years ago. At that time, with the global demand for renewable energy increasing, the photovoltaic industry ushered in a golden period of development. TCL Technology seized this historical opportunity, acquired Zhonghuan Group in 2020, quickly entered the new energy photovoltaic field, and then achieved rapid business growth.

Taking the data of 2021 as an example, the new energy photovoltaic and semiconductor material business achieved a revenue of 41.1 billion yuan, a year-on-year increase of 623.30%, with a gross margin of 21.69%. TCL Technology continuously expanded its production capacity in photovoltaic cells and components, and the impressive performance made the market full of expectations for its future.

However, market changes are always unexpected. The photovoltaic industry gradually showed signs of overcapacity and intensified price competition, and TCL Technology's new energy photovoltaic business also began to feel the pressure.

In 2023, TCL's new energy photovoltaic and other silicon material businesses and distribution business revenue decreased by 11.74%, falling to 59.146 billion yuan. And by the first half of 2024, TCL's new energy photovoltaic and other silicon material businesses achieved a revenue of 16.213 billion yuan, a year-on-year decrease of 53.54%, with a net profit loss of 3.176 billion yuan, a year-on-year decrease of 165.63%.

It is worth noting that despite the business loss, TCL still maintains a high utilization rate. On August 27, TCL Zhonghuan stated at the semi-annual performance briefing for 2024, "Our current utilization rate is around 80%, which may be appropriately reduced later according to sales conditions."

In sharp contrast to the difficulties of the new energy photovoltaic business, TCL Technology's semiconductor display business is gradually recovering. In the first half of 2024, the semiconductor display business achieved a revenue of 49.877 billion yuan, a year-on-year increase of 40.39%; the net profit was 2.696 billion yuan, an improvement of 6.145 billion yuan year-on-year.At the bottom of the photovoltaic industry cycle, the management of TCL Technology believes that the survival of the fittest in this round of photovoltaic manufacturing industry will help optimize the industry's long-term pattern and profit repair. However, in the short term, to alleviate the loss pressure of new energy business, TCL Technology must increase investment and resource allocation to the semiconductor display business, hoping to balance the overall financial situation through this more profitable business segment. The acquisition of LGD Guangzhou factory and the tilt of resources to the more profitable semiconductor display business are particularly necessary.

03 Can the whole industry chain be effective

For TCL Technology, this acquisition will greatly expand the semiconductor display technology lineup, enhance the synergy and scale advantages of the industry chain, and thus improve the company's long-term profitability.

Technical integration is a key link for TCL Technology to enhance product competitiveness. With the successful completion of the acquisition of LGD Guangzhou factory, TCL Technology can integrate LGDCA's IPS (In-Plane Switching, plane conversion) capacity and technology, and thus have a more complete IPS technology system. IPS has a good viewing angle and fast response speed, and belongs to high-end products in the panel market.

Through technological innovation and integration, TCL Technology is expected to achieve greater breakthroughs in the IPS LCD field, providing users with higher quality and higher performance display products. It is worth noting that before, there were only two types of IPS panels globally, LG's IPS and BOE's ADS, and TCL did not develop IPS technology.

The integration of the upstream and downstream of the industry chain is an effective way for TCL Technology to reduce production costs and improve profitability. TCL Technology is not satisfied with the single panel manufacturing business, but adopts a vertical integration business model, committed to building a complete display technology ecosystem. TCL Technology's business runs through the entire industry chain from liquid crystal panels to terminal products, from the upstream raw material procurement to the midstream production and manufacturing, and then to the downstream product sales network expansion, TCL has strong control and management capabilities.

This acquisition has brought significant advantages to the integration of the upstream and downstream of TCL's industry chain - TCL not only obtained LGD's advanced technology and capacity in the panel field, including LGD's semiconductor display technology and the production capacity of large-size liquid crystal panels and liquid crystal display modules for TV and commercial display, but also obtained the relevant technology and support services required for the operation of two companies under LGD.

TCL Technology also stated in the announcement, "This acquisition is beneficial for the company to play the scale and industry synergy effect. After the acquisition is completed, LGDCA will form a 'twin star' factory with TCL China Star t9 production line in Guangzhou, which is beneficial for optimizing resource allocation, reducing operating costs, improving operating efficiency, and enhancing the competitiveness of the production line and the company's long-term profitability."

However, it should be noted that the choice of technological paths in the technology industry is crucial to the survival of enterprises. For example, the transition from film to digital in cameras buried the giant Kodak; the evolution of mobile phones to smartphones eliminated 90% of global feature phone brands; and the transition from fuel-driven to electric vehicles in automobiles is a case that is happening. In the current display industry, Korean and Japanese companies are withdrawing from LCD and focusing on OLED, and the semiconductor display technology route competition has entered the OLED and MiniLED era. According to Magirror Research data, in the first half of 2024, the global shipments of flexible AMOLED smartphone panel manufacturers ranked 1st to 6th are Samsung Display, BOE, TCL China Star, Tianma, Visionox, and LGD, with market shares of 30.70%, 22.30%, 13.4%, 12.9%, 12.8%, and 7.9%, respectively.In the display industry, the domestic competition is primarily between BOE and TCL, two major players. At this time, Li Dongsheng boldly invests 10.8 billion in LCD technology, hoping that the era of new technologies will arrive more slowly.