Panel Maker Comparison Shows Winners and Losers
We now have all the financial results of panel makers for Q3 2018, and we have compiled a comparison view as part of DSCC’s Quarterly Display Supply Chain Financial Health Report. The comparison highlights big discrepancies in results between some of the major players in the industry. While Q3 was in general a positive quarter for display makers, it was especially good for Samsung, and not so good for some of the smaller players.
The chart below shows the revenue share of the eleven panel makers we track. Samsung has had the leading revenue for the last seven quarters, but their lead over other players jumped in Q3 on a strong recovery in flexible OLED panel shipments. Samsung captured 31.7% of industry revenue in the quarter, far outpacing 2nd place LGD at 19%. Samsung’s 71% revenue growth Q/Q overwhelmed the industry, as all other panel makers lost revenue share.
Panel Maker Revenue Share, 3Q16 – 3Q18
The disparity between Samsung and the rest of the industry is even more apparent looking at operating profit. Samsung Display’s operating profit of $981 million represented 55% of total industry profits of $1.8 billion, far ahead of 2nd place BOE at $394 million. On a margin basis, though, Samsung’s 11% operating margin of 11% of sales was outpaced by Tianma at 14%, while BOE was the only other panel maker to hit double digits with 10%. Both JDI and CPT had negative operating income, with the latter company recording severely negative results (more about that later).
Panel Maker Operating Profit, 3Q16 – 3Q1
Operating profits improved for most panel makers, with the exceptions being companies reliant on small size LCD sales – CPT, Hannstar, and Sharp. Other panel makers benefited from the increase in TV panel prices during the quarter, as well as the higher volume of shipments.
Four of the top five panel makers report area shipments and prices (Samsung does not), and the industry set a new record for reported area shipments in Q3, surpassing 40 million square meters for the first time. LGD continues to lead the industry in area shipments, with 10.8 million square meters or 27% of the total, but with the increased capacity of their Gen 10.5 line in Hefei BOE is growing fast and captured 20% area share in Q3.
Area Shipments by Panel Makers, 1Q17 – 3Q18
While we frequently think of LCD panels as commodities, and panel makers can switch between different products, the area prices reported by the panel makers show dramatic differences. Among the large players who report area prices, LGD captures far higher prices than its competitors, as shown in the chart. LGD gets $77 more per square meter than BOE, an 18% difference, and a whopping $319 more than CSOT.
Panel Maker ASP per Square Meter, 3Q16 to 3Q18
Product mix is a major driver of the differences in ASP. In particular, CSOT prices are especially low because their sales are primarily TV panels, which have the lowest area prices, and because CSOT sells LCD cells almost exclusively, rather than selling modules complete with the backlight unit. BOE takes a relatively high percentage of its revenue from small and medium displays for smartphones, which have a dramatically higher area price than large panels. Tianma does not appear on the chart, but by selling small and medium products for smartphones and automotive applications Tianma brings in an impressive $2388 per square meter of panel sales.
While most of the companies in the industry generated a profit in Q3, the huge capital investments required for capacity expansions have driven free cash flow negative for almost all the companies in the industry. Only AUO, which has been very disciplined about capital investment, and Tianma, which has the highest operating margins in the industry, recorded positive free cash flow in the quarter. Samsung does not report cash flow for its product divisions, but with operating profits of almost $1 billion and a restrained capex less than $500 million, there is no doubt that Samsung had positive free cash flow in its display business in the third quarter.
Free Cash Flow for Panel Makers, 3Q16 to 3Q18
The free cash flow results of three individual companies deserve further attention:
- BOE’s huge capital expenditures of $2.3 billion in the third quarter led to their negative free cash flow of $1.3 billion. Since the beginning of 2016, BOE has recorded a negative free cash flow of $10.6 billion.
- LGD continues to spend heavily to increase OLED capacity, spending $2.0 billion on capital expenditures in the third quarter and recording -$730 million of FCF. While LGD’s LCD business generates cash, and LGD’s OLED TV business turned profitable in Q3 for the first time, these businesses can’t generate nearly enough cash to fund LGD’s expansion plans. LGD will continue to need external financing via debt and/or equity offerings to grow their OLED capacity.
- CPT’s negative FCF was hardly influenced by capex, rather their operating losses were severe. CPT has continuously reported negative FCF in every quarter at least since 2014, and the company’s balance sheet continues to deteriorate with debt/equity now at 734%.