The Latest on the Coronavirus and the Display Industry
The Latest on the Coronavirus and the Display Industry
The latest toll of the coronavirus as of February 3rd is as follows:
- More than 300 people have died and there are 17,228 confirmed cases in China.
- 146 confirmed across 23 countries outside of China.
- >243 people have been cured.
- More people have now been infected than in the SARS epidemic from 2022-2003 where 8098 people were infected and 774 died. These numbers are still significantly smaller than average flu related deaths in the US of over 23,000 – 61,000 annually from 2012 according to the CDC.
- The US has imposed unprecedented restrictions on travel to and from China. The State Department told Americans not to travel to China. Foreigners who have been in China during the previous 14 days are barred from entering the US. All returning US citizens must now face a 14-day quarantine. Other countries are adopting similar guidelines. There are now 11 cases in the US.
- Japan also barred any foreigners who had visited Wuhan the past 2 weeks from entering their country as well as anyone with a passport issued by the Hubei province. There are concerns that the Tokyo Summer Olympics could be delayed or canceled.
- Most airlines have canceled a growing number of flights to China and the union representing flight attendants asked the Trump administration to half all flights to China. Nearly 10,000 flights have been canceled since the start of the outbreak.
- A large number of companies have restricted travel to China and asked overseas employees currently in China to return.
- A growing number of companies have extended the Lunar New Year holiday and shut down operations until February 9th throughout China, this includes both manufacturers and retailers. Apple announced all of their 42 stores are now closed until February 9th as are corporate offices. IKEA closed all their stories. Walt Disney shut its theme parks in Shanghai and Hong Kong. Google shut all its offices and extended this to Taiwan. Starbucks closed more than half of its stores and McDonalds shut down several hundred of its 3300 stores.
- A second city was locked down in China, Wenzhou, which has 9M citizens. Roads were closed and people were shut in their homes. Only one resident per household is allowed to go out every 2 days to buy necessities.
- Analysts are reducing their outlook for the Chinese economy. Citibank cut the Q1’20 growth outlook from 6.0% in Q4’19 to 4.8% in Q1’20 and cut its full year forecast from 5.8% to 5.5%.
- China issued a number of measures to boost its economy and stabilize its stock markets as a result of the coronavirus. These included:
- $174B in additional liquidity with the People’s Bank of China adding $21.7B on Monday the 3rd. The money will be supplied using reverse repurchase agreements to ensure liquidity is reasonably ample during the outbreak. 1 Trillion Yuan of short term funds were scheduled to mature on the 3rd.
- Halt futures trading;
- Banks were encouraged to lend more and not call in loans to companies in Hebei province or other affected regions. Interbank liquidity will be ensured. 300B Yuan will be provided in relending facilities. Banks should also consider rolling over loans or cutting interest rates to help affected companies. Regulators will allow affected companies to delay reporting their results for 2019 and Q1’20.
- Once the coronavirus is brought under control, policy makers are expected to shift their focus to the economy and boost infrastructure and consumption.
In terms of its impact on the display industry, the latest we have heard is as follows:
- Since transportation into Wuhan has been stopped, production will be impacted at:
- CSOT’s T3 LTPS and T4 flexible OLED fabs
- Tianma’s G4.5 a-Si LCD and G6 OLED fab
- BOE’s B17 G10.5 a-Si LCD fab
- Since materials and parts can’t be supplied, the schedule for BOE’s mass production, which was expected to start in Q1’20, is expected to be delayed by at least one quarter. We will likely be delaying all installations in Wuhan in Q1’20 by one quarter.
- Engineers from one company we talked to who were involved in setting up key equipment at BOE have sent back 60 engineers on January 28th. It is not clear when they will return.
- We believe 1K substrates were inputted at BOE B17 in January.
- LGD ordered all short-term staff from Korea to return to Korea.
- The Chinese government is reportedly penalizing companies with a 1-month shutdown if an employee is confirmed to be infected while at work. Thus, LGD is considering closing their factories till at least February 9th, but has not decided yet. Samsung has extended holiday closures for some factories in line with Chinese government guidance.
Regarding end products:
- TV sell-through will be significantly impacted by the lack of shopping during the lockdown. TV sell through estimates for the Chinese New Year holiday are being cut from 1.0-2.5M. With retail and company shutdowns being extended, the Y/Y drop will likely grow larger.
- From a TV production standpoint, most of the brands and OEMs are located in Shenzhen and Dongguan, so the impact on production is somewhat reduced. However, the timing of when workers will return is unclear since they are spread throughout China for the holidays and travel is restricted. We have since learned that Guangdong factories are closed until at least February 9th, so there is some impact on production. In addition, it is not clear how long it will take for all their workers to return which will further delay full production.
- The launch of the Apple SE2 may be impacted if Foxconn employees cannot return to Zhengzhou before the middle of February.
Of course, the coronavirus situation fanned the flames of those saying the market was overbought and overvalued and helped create a quick correction despite a number of strong earnings reports from the likes of Intel, TSMC, Apple, Amazon, Lam Research, Microsoft, etc. In terms of index performance last week:
- Our Panel Supplier Stock Index (PSSI) had the best performance with the Chinese participants not trading, it was down 1% W/W and is up 1% Y/Y.
- The US large cap index was down 2.1% W/W and is now flat Y/Y.
- The XLK big cap tech index was also down 2.1% W/W despite strong earnings from index leaders Apple and Microsoft. It still leads the way Y/Y up 4%.
- Our equipment supplier index (ESSI) was down 5.2% last week and is now down 6% YTD.
- The emerging market index (EEM) was down 5.6% W/W on growth concerns and lower oil prices and is now down 6% YTD.
- The concentrated semiconductor index we follow SMH was down 6.8% W/W and is now down 3% YTD.
All panel maker stocks that were traded, were down this week since the China stock markets were closed for the full week. As a result, the Chinese panel maker stocks had the best week with no change. Taiwan stocks re-opened on Thursday, January 30th, and panel makers took a steep drop on that day before rebounding on Friday.
For short week, among individual stocks:
- BOE, Tianma, Visionox, and CEC Huadong were not traded, so flat for the week.
- LG Display was down only 2.4% after its earnings release on January 31st. LGD’s Q4 came in better than expected and the company gave a positive outlook on its plastic OLED business.
- Japan Display lost another 3.3% for the week and is now down 12% for the year. Nikkei reported that JDI was finalizing a funding deal with Ichigo Asset Management for JPY 100 billion.
- AUO dropped more than 8% in the first day of trading after the Lunar New Year holiday, but rebounded on Friday to be down 5.3% for the week. AUO is now down 1% year-to-date.
- Innolux dropped an even bigger 11% on Thursday after the Lunar New Year break but also recovered on Friday to be down 6.8% for the week. Innolux is now up 4% for the year.
- HannStar fared the worst, with an 11.5% drop for the week. HannStar is now down 8% for the year.
On February 3rd when trading resumed in China, each of the 4 publicly traded Chinese panel suppliers fell 10%.
Looking at large cap equipment suppliers:
- Han’s Laser and Wuhan Jingce did not trade last week and therefore had the best performance.
- SCREEN released disappointing results and significantly reduced its fiscal 2020 outlook on weak semiconductor results causing its stock price to drop 19% the day after earnings and 25% for the week. Wonik, SFA, ULVAC and AMAT also fell more than 6% on concerns over the coronavirus. TEL released results last week which were good enough to limit its reduction to just 2%, leaving its fiscal 2020 forecast unchanged which implies solid Q1’20 results.
Looking at the small-cap equipment suppliers, every single one of them was down W/W ranging from -5% to -17% on coronavirus fears. 8 of them were down double digits as follows:
- HB Tech: -17%
- KC Tech: -14%
- ICD: - 14%
- Viatron: - 14%
- Top Engineering: - 13%
- Jusung: - 12%
- Invenia: - 11%
- APS: -11%
On a YTD basis, only Toptec is now positive YTD with ICD down 23% and Viatron down 22% representing some real values.
Speaking of values, UDC fell 15% last week despite only minimal exposure to Wuhan as CSOT and Tianma are still in early stages of production and represent just 3.7% of Q1’20 OLED input capacity and could easily be compensated by increased production at BOE in China and LGD or Samsung in Korea as their utilization can easily be increased. On the other hand, the Apple store closure announcement represents a bigger concern, however, Q1 is typically a seasonally slow period for Apple's high-end smartphone sales.
Check back for frequent updates on this topic.