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US retailers resumed their annual ritual of attracting bargain-hunting shoppers with special deals on the day after Thanksgiving. The shopping day has lost some of its luster through dilution to the rest of the week or even the rest of the month and the rise of online shopping, but it is still an event that brings out special deals for TV, and sets a benchmark for shoppers during the rest of the TV season and the rest of the year. From one industry perspective, Black Friday represents everything wrong with the hyper-competitive, price-fixated US TV market. US TV prices, especially on Black Friday, are routinely the lowest in the world (although prices in China, if you could subtract the VAT, would be quite similar), even though the US produces not a single display panel and assembles very few TVs. What the US market lacks in proximity to suppliers, though, it more than makes up in economies of scale as both a national market and in the scale of national retailers. Big US retailers like Wal-Mart, Costco, can arrange deals for tens or even hundreds of thousands of TV sets to be sold on a single day, and these deals inevitably attract TV suppliers into giving heavy discounts. I can recall early in my career when Black Friday first made an impact on the US TV business in the late 1990s. Wal-Mart ran a Black Friday deal for a 13” CRT TV for $99, the first ever possibility for a consumer to buy a color television for under $100. The next year, the same price could get a 19” CRT TV, and over the years the products have continued to get bigger and better, with the price points going even lower. While Black Friday promotions include all range of product categories, inevitably TVs gather some of the greatest attention in news reports and pictures of the days’ sales, as shown in Figure 1 from last year. Figure 1: Black Friday Shoppers Grabbing the Best TV Deal  Source: Business Insider Here are some of the deals offered at the lowest “Opening Price Points” (OPP) this year for several screen sizes this year.  Several takeaways from this list:
Figure 02: Operating Margins of TV Divisions of Major Brands  Source: DSCC Quarterly Display Supply Chain Financial Health Report While LGE has been able to sustain high margins on the strength of its position in OLED TV (and the huge MDFs from LGD) and Sharp has improved its profit margin after restructuring following the Foxconn acquisition, most TV makers have seen operating margins fall substantially in 2017, with Chinese brands TCL, Hisense and Skyworth falling to near break even or operating losses. Black Friday is often known for these OPP deals, rather than sales of more upscale TVs. At the lower price points, these products are affordable for every household budget in the US, and the typical Black Friday shopper is by nature the most price-oriented. Nevertheless, the biggest TV brands get into the action as well, offering special deals on more upscale products:  Some observations for these premium set deals:
Although the OPP deals for Black Friday have been one-time events in the past, the deals for higher-end sets are likely to persist past the Christmas season and into the New Year. These deals tend to peak in mid- to late-January, just before Super Bowl Sunday.
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Q3’17 results for panel suppliers have been compiled and analyzed in aggregate and individually in our latest Quarterly Display Supply Chain Financial Health Report. What we found was that revenues rose 5% Q/Q and 10% Y/Y to $28.1B, the second highest quarter to date as shown in Figure 1. The primary cause was double- digit growth in unit shipments, which had been down for the past two consecutive quarters on seasonal weakness and high prices choking off demand. However, Q3’17 benefited from seasonal strength in large- area applications, lower prices stimulating demand in large-area markets and a shift to 18:9 in small/medium markets boosting demand and prices. By supplier, Samsung’s share rose from 25.4% to 25.9% on increased mobile OLED output as it continues to increase flexible OLED capacity. Other companies gaining share as shown in Figure 2 included BOE, CPT, HannStar, Sharp and Tianma. Companies losing share included AUO, CSOT, Innolux, JDI and LG Display. All suppliers experienced growth except for Innolux and JDI. HannStar had the fastest growth, up 41%, on renewed small/medium demand after its revenues fell Q/Q in Q1’17 and Q2’17. Tianma and CPT, also small/medium specialists, had the 2nd and 3rd fastest growth, up 24% and 23% respectively. On a Y/Y basis, only JDI, CPT and LG Display were down. Figure 1: Display Supplier Revenues  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report Figure 2: Display Supplier Share  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report All profit margins fell at a faster rate in Q3’17 as shown in Figure 3. However, they remain at elevated levels and were above many analysts’ expectations due to stronger small/medium demand and better small/medium pricing on the shift to 18:9. The small/medium growth offset weakness in large-area pricing, as did higher large-area shipments and high utilization. However, with shipments seasonally slower in Q4’17 and Q1’18 and large-area pricing expected to continue to fall, margins should continue to erode, likely at a faster rate. Figure 3: Display Supplier Profit Margins  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report HannStar had the highest gross margins at 42% on rising 18:9 production and prices, high utilization and a fully depreciated fab. BOE and Innolux had the 2nd and 3rd highest gross margins at 23% and 20% respectively and it was the 4th consecutive quarter of at least 20% gross margins for each company. CPT was the only supplier to experience higher gross margins in Q3’17 than in Q2’17 helped by the ramp of its new oxide fab and a more profitable product mix. Operating profits were down 28% Q/Q, but still up 53% Y/Y. As we explained after their earnings results, Samsung’s OLED profit margins disappointed on reduced utilization due to delays at Apple and others, new capacity start-up costs and lower lamination yields from a new OCA material. SDC still accounted for 34% of industry operating profits, down from 44%. If Samsung were excluded, operating profits would still be down 16% Q/Q. HannStar had the highest operating profit margins as shown in Figure 4 followed by Innolux, AUO and BOE who were all in double digits. JDI had negative operating margins for the 2nd consecutive quarter and its restructuring efforts continue. Net income was down 24% Q/Q, but still up 64% Y/Y to over $1B. LG Display had the highest net income of the companies that report this, followed by BOE and Innolux. HannStar had the highest net margins at 33% followed by Innolux at 11% and BOE and AUO at 9%. EBITDA fell 11% Q/Q to $3.6B, but was still up 58% Y/Y. LG Display accounted for 35% of the industry’s EBITDA. Tianma, HannStar, CSOT and CPT saw increases in EBITDA in the quarter. China Star had the highest EBITDA margins for the 2nd consecutive quarter, narrowly beating HannStar, 45% vs. 42%. Only CPT, China Star and HannStar experienced rising EBITDA margins. Figure 4: Display Supplier Operating Margins  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report In terms of ASPs/m2, China Star and LG Display experienced ASP increases, up 1% Q/Q and 5% Q/Q respectively. The gains were largely due to increased sequential output for small/medium displays, which carry higher ASPs/m2. Increased OLED TV output also supported LG’s increase. AUO and Innolux on the other hand were down 5% and 6% Q/Q respectively with BOE down 2%. Unit ASPs were down 12% Q/Q and 9% Y/Y for the 7 companies providing data. Innolux’s blended large-area ASPs fell 12.5% with AUO down just 6%. In terms of shipments for 6 participating suppliers (AUO, BOE, China Star, Innolux, LG Display and Tianma), area output was up 5% Q/Q and 15% Y/Y with Tianma and BOE experiencing the highest increases up 32% and 15% Q/Q as they ramp new capacity. Small/medium shipments were up 20% Q/Q and 29% Y/Y to over 500M units with all suppliers except for CPT experiencing double-digit increases. Q3’17 smartphone displays rebounded on new product launches as many smartphone brands waited for bezel-less displays to become available. Large-area displays were up 15% Q/Q and 19% Y/Y to over 110M, the strongest quarter we have seen. BOE led the way with over 40M panels followed by Innolux and AUO at 29-30M. Looking at the balance sheet, we saw that debt/equity ratios remained stable at 56%. AUO, CPT, Innolux and Tianma saw improvements, while BOE, JDI and LG Display worsened. BOE and CPT had debt/equity ratios at over 100% with AUO and JDI at over 50%. Net debt/equity ratios, which factor in cash, improved slightly for the industry from 17% in Q2’17 to 16% in Q3’17. BOE and CPT were the only suppliers with net debt/equity at over 40%. Inventories rose 5% Q/Q and 9% Y/Y to $7B in Q3’17, the highest since Q3’15. The average days of inventory fell however from 44 to 43. LG Display and Tianma had double-digit increases in inventories, but remain healthy. JDI had the highest days of inventory at 53 followed by Innolux at 46. HannStar had the lowest at 30, followed by AUO at 32. Looking at cash flow from operations, panel suppliers generated a record $4.4B in Q3’17, up 12% Q/Q and 80% Y/Y, as shown in Figure 5. This increase was helped by large gains at BOE, which is expanding capacity with the market at high prices and its costs low from subsidies. LGD and BOE generated 66% of the industry’s operating cash flow. While BOE was up and LGD was flat, all other suppliers were down Q/Q. Free cash flow improved from -$105M in Q2’17 to +$440M in Q3’17 with $440M with LG Display, BOE, CPT, JDI and Tianma all seeing improved results. AUO generated the highest free cash flow. LG Display generated the highest quarterly increase in cash, however, the net change in cash was -$184M, down $402M, due to high capex, debt repayments and dividends paid. Capex for 10 publicly traded display suppliers fell 25% Q/Q and was up just 9% Y/Y to $6.5B as shown in Figure 6. Excluding SDC, capex was down 12% Q/Q as SDC was down 40% by itself and still led the industry in capex. For the first 3 quarters of 2017, capex is up 71% to $24B. Capex slowed as Samsung took a breather. While we may see some delays at Samsung, OLED and 10.5G investments in China and at LG are expected to accelerate and should remain at elevated levels in 2018. DSCC’s Quarterly Display Supply Chain Financial Health Report also examines equipment suppliers, materials suppliers, OEMs, brands and retailers. For more information, please contact Dustin@displaysupplychain.com or (512) 577-3672. Note, a single issue is also available at reduced pricing. Figure 5: Display Supplier Cash Flow from Operations  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report Figure 6: Display Supplier Capex  Source: DSCC’s Quarterly Display Supply Chain Financial Health Report
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