Comment: Why did BOE lose more than five losses in six years?

Not long ago, the first TFT-LCD 8.5 generation line in Mainland China built by BOE Technology Group Co., Ltd. (hereinafter referred to as BOE) was built and put into operation in Beijing. This move not only ended the history of China's large-size LCD screens relying entirely on imports, but also made BOE China the only company capable of producing a full range of LCD screens from 1.8 inches to 55 inches, and is expected to sit on the sixth spot in the world. This marks that for the first time since the semi-conductor technological revolution took place in the first half of the century, Chinese companies affecting the global landscape have emerged in the electronic core component field.

However, these brilliances have not shuffled the doubts about the “China LCD First Screen”: Since the 5th-generation line production in 2005, why hasn’t the high investment provided high returns? In the “five-year-five-five-deficit” scenario, why did BOE still invest heavily in the launch of new lines?

A few days ago, the reporter walked into the BOE located in the Yizhuang Economic Development Zone in Beijing and tried to unravel the puzzle of “following the loss”.

Last year, the import value of LCD panels in China was as high as 47 billion U.S. dollars, which was second only to the quiet and cool 8.5-generation factory building where the integrated circuits, petroleum, and iron ore were newly put into operation. The robots were operating in an orderly manner in an ultra-clean room; bright showrooms. Inside, a large ultra-thin glass substrate measuring 2,200 mm × 2,500 mm is particularly attractive.

"After the production process of the array, color film, box and module, this glass substrate can be processed into a 32-inch to 55-inch TV LCD screen." Zhang Yu, deputy general manager of BOE, said, "The LCD screen is like Semiconductor chips are as indispensable as the 'food' of the information industry. In LCD TVs, LCD screens cost as much as 70%."

After entering the 21st century, China's color TV industry, once known as male world, suffered a devastating blow. With the rapid replacement of CRT by TFT-LCD technology, the sales of thin, wide viewing angle and brightly colored LCD TVs quickly surpassed CPT TV. The industrial chain has closed down. As TV LCD screens are completely dependent on imports, China's color TV companies are regained control over people and suffer from the low-end assembly links in the industry chain.

According to conservative estimates, sales of domestic LCD TVs with 32-inch or more LCD TVs exceed 40 million units a year. Based on the average import price of US$200 per screen, the import amount for one year totals more than RMB 50 billion. Judging from current consumer trends, domestic CRT TVs have a total capacity of about 400 million units. If they are all replaced with LCD TVs, the total market value will be as high as 1 trillion yuan.

At the same time, China is still a global consumer of mobile phones and computers. According to statistics from related departments, in 2010, the import value of China's LCD panels was as high as 47 billion U.S. dollars, which is the fourth largest imported product following ICs, petroleum, and iron ore.

With the advent of digital high-definition, next-generation Internet and triple play, the "food industry" status of LCD panels will become increasingly prominent. Professor Lu Feng, director of the Institute of Enterprise and Government of Peking University, believes that the LCD flat panel display industry determines the rise and fall of China's color TV industry and even China's electronic information industry.

As a big country in the electronic information industry, China cannot afford to use its own "food"! In January 2003, BOE, which has been tracking and pre-researching flat panel display technology for nearly 10 years, acquired HYDIS (Hyundai Display Technology Co., Ltd.), a subsidiary of Korea Hyundai Group, for 380 million U.S. dollars to enter the liquid crystal display. Through cross-border acquisitions, BOE obtained strategic elements such as technology sources, patent resources, and start-up markets needed to enter the TFT-LCD industry.

Immediately thereafter, BOE began its “domestic rooting” and invested 10.3 billion yuan in September 2003 to build its own 5-generation line in Beijing. In January 2005, the 17-inch LCD screen produced was shipped for the first time, ending the "non-screen era" in mainland China.

Only a sufficient number of product specifications, a large enough production scale, and a sufficiently strong technology research and development will be able to stand firm in the brutal competition. Unexpectedly, since the 5th-generation line was put into production in 2005, BOE will have Making money becomes a loss. As of 2010, except for a profit of 690 million yuan in 2007, the remaining five years were losses.

What is even more puzzling is that BOE has not only failed to retreat, but has also turned it into losses: in 2008, it spent 3.4 billion yuan to build a 4.5-generation line in Chengdu to produce small-size LCD screens; in 2009, it invested 175 yuan each. Billion and 28 billion yuan were used to build two high-generation lines in Hefei and Beijing - the 6th generation line and the 8.5th generation line.

Why lose money after having your own 5th generation line?

“This is the result of the dual roles of the 'liquid crystal cycle' industry law and the international financial crisis.” Zhang Yu, deputy general manager of BOE, said that as part of a strategic emerging industry, LCD flat panel display industry, which is in an ascending period, has its own industrial cycle. Regularity: After a new product of a certain specification comes out, it will be in short supply in the first few years, and the price will have high profits. With the intensive production of the new line, the market will soon exceed supply, and the price will plummet, and the industry will enter a low point.

Some studies have shown that since the industrialization of the global LCD flat panel display has experienced six rounds of trough. In the downturn of each round, LCD panel companies suffered global industrial losses due to the sharp drop in prices, and none were spared. BOE’s losses from 2005 to 2006 coincided with the fifth round of industry downturn.

The international financial crisis that broke out in 2008 made the LCD industry worse and the industry's trough earlier. According to Zhang Yu, BOE made a profit of 560 million in the first half of 2008. However, due to the international financial crisis, the company quickly turned from profit to loss. In spite of the slow recovery of the international economy in these two years, the debt quagmire in Europe has aggravated the uncertainty in the recovery of the global market. Consumer expectations have declined, and the liquidity panel's sixth-round downturn has been prolonged.

Knowing that you are in the downturn of the industry, why did BOE continue to invest heavily in building a new line?

"We firmly believe that just as color televisions replace black-and-white TVs, the replacement of CRTs by LCD screens is an irreversible historical necessity, and its prospects can be expected." Wang Dongsheng, chairman of BOE, said. According to many years of practice, he summed up a "law of flat panel display industry survival": Every three years, the price of LCD panels will drop by 50%. To survive, product performance and effective technology inventory must be more than doubled.

For this reason, in the process of becoming a challenger from an industrial chaser, BOE wants to compete with the powerful international giants such as LG, Samsung, and Sharp on the same platform, and only has enough product specifications and a sufficient production scale as soon as possible. Strong enough research and development ability can stand firm in the cruel competition.

While expanding the line, BOE takes more than 5% of its sales revenue each year to invest in research and development of new technologies. At present, the company’s R&D team has more than 3,000 employees and has achieved a turnover of “I am the principal”. In recent years, BOE has applied for more than 500 new patents each year, independently developing new technologies and new products such as dual-view displays, 3D series displays, and mastering AM-OLED (Active Matrix Organic Light-Emitting Diode Panels) that are favored by the industry. Technology builds the technological advantages of future development.

The high-tech industry cluster with BOE as the core has risen quietly. The mainland has become the hottest LCD market in the world. With the completion of several production lines, the liquid crystal display industry cluster driven by BOE is quietly rising. The reporter saw at the 8.5-generation line factory site that on the left is the glass melting furnace site of Corning, followed by TPV's TV production base and the chemical site of Sumitomo; Linde, the world's fourth-largest gas supplier, has also completed supporting facilities. Construction, the world's only liquid crystal material manufacturer - Germany Merck, has already invested in this intention.

At this point, the total investment in the formation of the 8.5th generation of BOE has exceeded 65 billion yuan. The digital TV industrial park built by Beijing has taken shape, and the dream of "quartz sand coming in and television coming out" can be expected. By then, Beijing will become the world's high-definition digital television manufacturing center, and it is expected to provide 20,000 jobs, with an annual tax of over 4 billion yuan.

The effect of industrial clusters is also obvious, as well as Chengdu and Hefei. The 4.5-generation line put into operation in Chengdu in 2009 has given birth to an industry scale of more than 30 billion yuan; the 6th-generation line put into production in Hefei in 2010 has already driven nearly 40 billion yuan in investment.

The persistence of BOE also promoted the development of China's pan-semiconductor industry. At present, Xianyang Rainbow Group and China Building Materials Group have launched glass substrates respectively, and Baoding Lucky has launched polarizers...

At present, in addition to the four lines of BOE, there are many other LCD screens under construction or completed. Mainland China has become the hottest LCD screen market in the world. The world pattern of LCD panels has been rewritten as "Three Kingdoms and Four Territories" from the original "Two Countries, Three Places" (Japan, Korea, and Taiwan).

The development of high-tech industries with huge investment scales, high technology density, and extremely fierce competition requires the understanding and support of the society for the predecessor of BOE. It is a well-known electronic component military enterprise, the Beijing Electronic Tube Factory. “The origin of the military industrial enterprises has given us the branding of the industry to serve the country. We always feel that we should do something for the country’s industrial rejuvenation.” Wang Dongsheng said, “Actually, we can absolutely choose the way to make money quickly.” 1997, a foreign fund The company will invest 50 million U.S. dollars in BOE to turn BOE into real estate. "This is a big temptation. Our team discussed the matter for three days and finally chose to do industry. In fact, the idea was very simple at the time: If companies like us all do real estate, who will develop China's electronics industry?"

In 1998, BOE made the decision to “enter the LCD flat panel display industry” and in 2003 determined to be the “world leader in the display field” as the company’s vision.

But this road is doomed to be uneven. In this globally competitive high-tech, high-investment, and high-risk industry, the late catchers, both South Korean and Taiwanese companies, have suffered successive losses in the growth period. At present, Samsung, which ranks first in the world, and LG, which is ranked second in the world, suffered from the initial stage of their business: Samsung suffered continuous losses for 12 years under the pressure of Japanese rivals, but continued to inject capital until it became the leading company in the industry; LG It is also a continuous loss of 8 years before turning losses into profits. Taiwan’s AUO, currently ranked third in the world, has also been ups and downs, but it has continued to invest and has been adhering to its final success.

For the difficulties in the growth of LCD companies, it is obviously beyond the expectations of many people. Zhang Baizhe, a professor at Tsinghua University, said that it is not difficult to find out about relevant reports in the past. The sound of questioning went hand in hand with BOE’s difficult and enterprising roads. In the low season of the industry and when companies suffered losses, there was still a lot of bad news. “This shows that China’s social culture and public opinion have insufficient understanding of the objective laws of China’s development of strategic emerging industries, and that its psychological endurance is not adequately prepared. They still think that it is as short and fast as the development of the assembly industry before. It can be done overnight.”

“In addition to government support and the company’s own efforts to develop high-tech, high-input, high-risk and internationally competitive strategic emerging industries, the socio-cultural foundation and the national psychological endurance are also crucial. We cannot think about investing today and earning tomorrow. The success or failure of the short-term profit and loss theory will be a simple matter.” Zhang Baizhe believes that if the entire society does not have a long-term concept of industrial development, it will be influenced by the mentality of quick success and instant benefit, which will not only hinder the growth of individual companies, but will also hinder the construction of an innovative country.

“In the process of developing strategic emerging industries, we hope to form a social consensus that only after 10 or even 20 years of unremitting efforts will China be able to cultivate a group of world-class leaders.” Wang Dongsheng said. “Our goal is to become a leader in the global new display industry after 10 years of hard work. With government and community understanding and support, I think it is only a matter of time before this goal is achieved.”

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The commercialization of liquid crystal display technology originated in the United States in the 1960s and 1970s, but it was Japan that actually realized large-scale industrialization. The leading companies included NEC, Matsushita Electric Industrial, Sanyo Electric, and Sharp. By 1995, Japan's LCD panel shipments accounted for 90% of the global market share, making it a well-deserved overlord.

In the early 1980s, the South Korean government put forward the slogan of "technology-based nation" and aimed at high-margin liquid crystal displays. Under the strong support of the government, Korean companies led by Samsung, LG, and Hyundai have entered the liquid crystal display industry. By 1999, Samsung Electronics and LPL (a joint venture between LG and Philips) had 16% and 15% share of the global LCD market, respectively, ranking the world's top two.

In the late 1990s, Taiwan’s liquid crystal display industry began to take off by means of technology transfer in Japan. In 2009, Taiwan's LCD panel shipments accounted for more than 40% of the global total, forming a three-way situation with Japan and South Korea.

Since mainland China entered the liquid crystal display industry in the late 1990s, the road is not smooth. In October 1999, the first-generation line of Jilin Caijing imported from Japan was built for trial production in Changchun, but due to a variety of reasons, it was not able to actually mass-produce it. In December 2003, Shanghai Radio and Television Group (hereinafter referred to as SVA) established a joint venture with NEC Japan to establish SNEC NEC and build its fifth generation line. However, the core technology has not been exchanged in the market. The 5th-generation line quickly lost its competitiveness due to huge royalties, and the bankruptcy and difficult reorganization of the company has been announced in less than three years. In January 2003, BOE acquired HYDIS (Hyundai Display Technology Co., Ltd.), a subsidiary of Korea Hyundai Group, and entered the liquid crystal display. After several ups and downs, it finally reached today.