LGD Guangzhou Factory Has Not Yet Reached The Risk Of Gamble OLED Risk Looming

In 2019, it was known as "the first year of OLED in China" by the industry, because the first large-scale OLED panel production line built by Korean giant LG Display outside the country was officially put into operation. The total investment of 46 billion yuan of LGD factory in Guangzhou will form the two pole layout of the OLED business of the group.

But in this year's extremely difficult color TV market situation, OLED TV has also been difficult to open sales in China. As the 2019 draws to a close, the LGD Guangzhou factory is also hard to find itself in an environment of low demand.

Following the announcement and punishment of environmental protection in September this year, the LGD factory in Guangzhou recently reported that the output was not up to the expected target. In response, LGD's latest reply to the twenty-first Century economic report acknowledges that the Guangzhou plant is currently in the final stage of quality ramp up. Production is indeed reduced compared with the original expectations, but the company's original strategy remains unchanged and is accelerating the shift of its core business from LCD to OLED.

"LGD is stepping up its efforts in the Chinese market to let more consumers understand the value and advantages of OLED TV." LGD said that with the expansion of China's customer base, it is estimated that the OLED TV sales in China will account for 22% of the world's OLED TV sales in 2020. "LGD's sales target for OLED panels in the Chinese market is 200 thousand this year."

Guangzhou factory trapped in "hard struggle"

In 2018, LG Display issued a statement that China's State Administration of market supervision and Administration formally approved its investment plan for the 8.5 generation panel production line in Guangzhou, and approved its establishment of a OLED panel manufacturing plant in China. The factory started construction in July 2017, with a total investment of 46 billion yuan, covering an area of more than 190 thousand square meters, with 9 floors on the ground and a total area of 560 thousand square meters.

It is understood that LGD began building modular plants in Guangzhou in 2006, and built a LCD panel plant in 2012. The 8.5 generation OLED panel production line built in Guangzhou is the third production line set up by LGD after the module factory and LCD production line in Guangzhou, China. More importantly, this is the first large size OLED panel production line built outside Korea by LGD. After the Guangzhou plant is put into operation, it will form the layout of LGD in the OLED industry.

After more than two years of investment and construction, the Guangzhou OLED panel factory was announced to be completed and put into operation by the end of August this year. It is reported that Guangzhou OLED factory substrate size is 2200mm * 2500mm, mainly produces 4K ultra high definition 55 inch, 65 inch, 77 inches and other large size TV OLED panels. At that time, LGD said that the initial production capacity of the Guangzhou plant was 60 thousand pieces of glass substrate per month, and the maximum capacity at the end of 2021 would reach 90 thousand glass substrates per month.

Recently, however, media reports reported that the output of Guangzhou plant is only 50%-60% of the expected target. Moreover, as the Guangzhou plant has tried many new technologies that have never been tried before, the structure of the related devices has changed and new suppliers have been introduced, resulting in instability in the initial production and interfering with the entire business plan.

Now, in recent years, the LGD factory in Guangzhou has been able to stabilize production system and ensure output. "At present, the Guangzhou plant is in the commissioning stage of equipment, quality and good product rate, and it needs recognition from customers." LGD said.

LGD's investment in China seems to be uneven. Reporters noted that Guangzhou's factory had received a ticket from the EPA. According to the "administrative penalty decision" issued by the Guangzhou Ecological Environment Bureau, the actual emissions of smoke and dust (particulate matter) in Guangzhou plant, which is the loader company of the Guangzhou plant, is nearly 1.653524 times that of the annual emissions of 0.891 tons, and it is pointed out that the gold display (China) has not seriously fulfilled its main responsibility as a construction unit, and there have been many errors in the preparation of the EIA documents for the projects involved.

The Guangzhou Ecological Environment Bureau believes that the fact that the actual emissions of smoke and dust (particulate matter) exceed the allowable emission limits of smoke and dust (particulate matter) in the year 2018 is clear and should be penalized, but it can be partially adopted by the parties concerned. It should be punished with leniency on the basis of the penalty amount, and the parties concerned should be ordered to immediately correct the illegal activities and impose a fine of 600 thousand yuan.

In this regard, LGD said, "because of the EIA emission standards in the wrong marking, resulting in this administrative punishment. At present, a new sewage permit has been received. And stressed that the company attaches great importance to environmental problems, and will eliminate similar errors later.

OLED transformation pains

In fact, compared with the environmental protection red line, OLED TV has always been difficult to open the market in China, which is the most headache for LGD. Since the advent of OLED TV in 2013, after nearly seven years of promotion, the sales of OLED TV in the Chinese market have not been popularized. According to AVC, the total sales volume of China's overall TV market is 36 million 330 thousand in 1-10 this year, while the total sales volume of OLED TV market is only 154 thousand, accounting for less than 4.5 percentage points.

It was also the result of the "OLED" price reduction operation launched by SKYWORTH at the beginning of the year. According to Wang Zhiguo, chairman and chief executive of Shenzhen SKYWORTH -RGB Electronics Co., Ltd., the shipment volume of SKYWORTH OLED TV reached 64941 units in 1-10 this year, the first in the industry. "After the first month of price reduction, OLED TV sales increased by nearly 80%".

However, SKYWORTH's original dream of "taking the lead in reducing prices, causing peer tracking and promoting OLED Popularization" has not been realized. In response, an executive of the group hit the nail on the head. "At present, the cheapest OLED TV is still two times the price of the same size LCD, and Chinese consumers are extremely sensitive to price, which makes OLED TV difficult to popularize."

In twenty-first Century, the economic report reporter found that by LG DISPLAY CO.LTD.'s shareholding structure, the company's shareholding was 51%, the gold display (Guangzhou) Limited company held 10.5%, the gold display (Guangzhou) Trading Limited company held 8.5%, the Guangzhou hi tech group holding 20%, and Shenzhen SKYWORTH -RGB Electronics Co., Ltd., holding 10% shares, and SKYWORTH group president Liu Tangzhi also held the position of director.

Even deep bundling of equity investments with downstream manufacturers is still unable to bring the expected benefits to LGD. According to the latest data, the LGD operating loss in the third quarter of this year amounted to 437 billion won (about 372 million US dollars), larger than the 320 billion 300 million won won by the previous market, compared with a profit of 17 billion 500 million won during the same period last year. The overall revenue also decreased 4.6% to 5 trillion and 820 billion won, compared with the same period last year, lower than the market forecast of 5 trillion and 990 billion won.

In September of this year, due to the rising financial losses, LGD announced voluntary redundancy plans for Korean production lines and changed the CEO. In response, LGD responded to this newspaper that the decline in performance was due to the intense price war in the LCD industry, and stressed that the original strategy of LGD remained unchanged, and is accelerating the shift of the core business from LCD to OLED.

But LGD still has many problems in the layout of OLED industry. Insiders pointed out that at present, the capacity of LGD on this newly emerging display panel is not up to date. It also faces a series of unexpected factors, such as continuous price reduction of LCD panels, laser display technology grab, evaporation WOLED technology and OLED competition in inkjet printing. In addition, the massive investment in the OLED panel expansion and the massive investment in the production capacity during the ramp up period are also a major drag factor on its failure to find a break even point.

At present, besides SKYWORTH, local color TV enterprises, including Hisense, Konka and Changhong, also have some layout on OLED. According to the latest news, HUAWEI plans to launch a 60 inch OLED TV equipped with 5G communication function with LGD. What changes will this new player entry bring to China's OLED TV market? It is worth looking forward to.