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Panel makers 4Q18 earnings show diverging

In October 2018, LGD had expected that panel ASPs will diverge by company, product, and size as company specific pricing and profitability affects the price. As per the 4Q18 earnings result panel makers margins are highly correlated. The correlation between each individual (AUO, BOE, Innolux, LGD, and SDC) panel maker and the group average is between 72 percent (for BOE) and 95 percent (for Innolux). Up to 2016, LGD had consistently above-average margins, but in 2H17 and 1H18 LGD ran much lower margins than the group, because of substantial losses on OLEDs.

Since 2015, Samsung has had consistently higher margins than the group, driven by their higher profitability on OLEDs. In 4Q, divergence appeared between AUO and the Korean panel makers. AUO margins dropped substantially, while LGD and Samsung margins increased. To the extent that flat panel products are commoditized, the industry is expecting high correlation between the players. The divergence stems from OLED, as the leaders in OLED (SDC and LGD) are profitable while the laggards in OLED (AUO) face losses.

Divergence was most easily seen in the average price reported by LGD and AUO.  The ASP difference flows directly to profits and accounts for the diverging results. The ASP difference, in turn, was driven by product mix. LGD’s share of revenue from the higher-ASP mobile panels increased from 21 percent to 28 percent, while AUO’s share of revenue from less than 10-inch panels was stable at 17 percent. This allowed LGD to record a revenue increase of 13 percent quarter-on-quarter, while AUO revenue declined 5 percent quarter-on-quarter.

With respect to the upcoming quarter and year, both AUO and LGD have a cautious or negative outlook. AUO’s value enhancement approach pushes to some niche market segments: gaming monitors, auto displays, and public information displays. AUO noted that large size TV is selling well. 75-inch and above TV sales in 2019 is expected to increase more than 40 percent year-on-year, and AUO expects to grow faster than the market driven by 8K products. The company did not announce any new developments in OLED and their capacity is limited.  While they pursue MiniLED, this is a very small share of their business. AUO does not expect any big supply/demand impact from Samsung G8.5 closure to convert to QD OLED. LGD will have 8K OLED, but also premium form factors in OLED such as Wallpaper TV and Rollable TV. LGD WOLED capacity is 70K/month now, to increase to 130K/month in 3Q19 with China expansion, and will add another 30K/month in 2020.

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