A few days ago, according to foreign media reports, due to BOE without permission to change the screen specifications set by Apple, the latter may be canceled by its iPhone 14 OLED screen orders.
After a few days of fermentation, the situation seems to be more and more unfavorable to BOE - Cook, who has always been demanding and controlling of the supply chain, is absolutely unlikely to accept the supplier's behavior of changing the parameters on its own.
It's just that the collapse of this deal will have a very different impact on both sides. From Apple's point of view, it's not easy to believe that Cook would have to deal with the fact that he's failed to constrain Samsung. According to The LEC's revelations, BOE's 30 million iPhone 14 screen order, 20 million will be given to Samsung, 10 million to LG, Apple and the two big manufacturers of the game may continue for a long time.
From BOE's point of view, the economic and reputational losses are visible to the naked eye. According to the current market, iPhone 14 this 30 million screens totaling nearly 10 billion yuan.
However, BOE's efforts to join the "fruit chain" will not be in vain: years of saturated investment has helped BOE to build one of the most mature OLED production lines in China, with the strongest mass production capacity, and even if there is no Apple, there is no shortage of new customers.
Compared to Apple, which may be missed, the rise of domestic competitors, the potential crisis faced by the OLED panel market, such as price cuts and overcapacity, are also worthy of BOE's attention.
After days of fermentation, the tug-of-war between BOE and Apple still sees no hope for a peaceful resolution.
Previously, according to foreign media reports, due to BOE's unauthorized changes to Apple's screen specifications, the latter may cancel its iPhone 14 OLED screen order. According to previous public information, BOE undertook more than 30 million Apple iPhone 14 screen orders, which is important for its performance.
The null hypothesis may not be without cause. Comprehensive reports from various sources, the root cause of this controversial event has been very clear - BOE privately change the width of the TFT circuit to achieve the purpose of reducing resistance and improving yields. This set of operations down, BOE's profit margins will undoubtedly have a significant increase, but the side effect is that the panel's brightness, power consumption, and Apple's design is different, which may have a negative impact on the quality of the final product.
What's more, Cook, who has always had a strict and controlling approach to the supply chain, would never accept a supplier's behavior of changing parameters on their own.
Another famous fruit chain enterprise Ruixing Technology has previously said, "In principle, in addition to the equipment and workers are Ruixing, the other parts of the production line are controlled by Apple." Among them, the control software and computer system is Apple's, the ERP system is also Apple's, even the production line of the team of engineers also have Apple's resident staff ......
In Cook's management philosophy, strengthen the supply chain control is to ensure that Apple's dominant position and the quality of the product is the key, but also can not be challenged the bottom line.
For Apple and BOE, if they can work together seamlessly, it is undoubtedly a win-win situation. But now there is a rift in the partnership, and I'm afraid it will bring different degrees of impact to both sides.
For Apple, the collapse of this partnership is a not insignificant impact on its supply chain system - especially in the face of constraints on Samsung's failure to the fact that I believe Cook did not feel good.
The LEC, which first broke this story, said Apple will transfer the 30 million iPhone 14 screen orders originally given to BOE to Samsung and LG, two major Korean manufacturers, and the report is not lacking in irony for Apple.
As we all know, the reason why Apple included BOE in the iPhone 14 panel supplier list in the first place, in addition to wanting to ensure production capacity, to counterbalance Samsung, reduce the supply risk posed by a single supplier is also an important reason.
According to a previous report by Bloomberg, Samsung Display and LG's panel maker LGD supplied Apple with a total of 110 million OLED panels over the past year, mainly used in the iPhone 12 and the newly released iPhone 13 series models last fall. To know, the past year Apple total **** only purchased 170 million panels, Samsung, LG two big manufacturers have undertaken 64% of the order.
Among them, the high end version of the iPhone 13 Pro and iPhone 13 Pro Max models panel is exclusively supplied by Samsung, the latter's role and status can be seen.
In light of this, Apple has worked to expand its list of panel suppliers to constrain Samsung and increase its bargaining power.
But alas, Apple's plans may have come to naught this time. According to The LEC, BOE's 30 million iPhone 14 screen order, 20 million will be given to Samsung, 10 million to LG, Apple and the two big manufacturers of the game may continue for a long time.
As for standing in BOE's point of view, the economic and reputational losses are visible to the naked eye.
According to the current market, the iPhone 14 this 30 million screens totaling nearly 10 billion yuan. Last fiscal year, BOE's revenue reached 219.31 billion yuan, an increase of 61% year-on-year, history for the first time exceeded the 200 billion mark. At first glance, less than Apple's order of 10 billion, on the BOE is not considered to be hurt.
But it should be noted that the iPhone 14 orders, representing much more than 10 billion turnover - behind this, there is the BOE has been brewing for a long time to upgrade the transformation, as well as Samsung, LG and the determination to go to war.
According to the financial data, the last fiscal year BOE net attributable profit recorded only 25.831 billion yuan, compared to the past although there is a great progress, but 13.88% of the net profit margin and 28.87% of the gross profit margin is not outstanding. In contrast, Samsung Display's profit margin has long been maintained at more than 20%, last year's third quarter operating profit margin is as high as 26.8%, almost twice as much as BOE.
As we all know, BOE's current revenue is still dependent on LCD business, but compared to OLED, the former profit gap is obvious. Take Apple's order, and gradually upgrade the business from LCD to OLED, is the BOE's transformation route for their own planning. Now the plan is disrupted, it will certainly have a certain impact on its short-term performance.
Undeniably, in the past years, BOE did make a lot of efforts to enter the "fruit chain".
As early as 2017, BOE is expected to join the fruit chain for Apple to produce cell phone screen news, but because of technical and production capacity problems failed to come true. And after this, BOE is targeting these two weaknesses to make up for, while expanding production lines and strengthening investment in research and development.
The data show that in 2017-2021, BOE's R&D investment was 6.97 billion, 7.23 billion, 8.75 billion, 9.44 billion, and 12.436 billion, and the year-on-year increase is also rising. By the end of last year, the total number of BOE R&D personnel reached 19,000, accounting for 24.8% of the total number of employees, and 9,000 new patent applications were filed in the past year, 90% of which were invention patents.
After years of saturated investment, BOE also finally has the backbone to arm wrestle with Samsung and LG.
And in terms of production capacity, BOE's investment is equally huge.
At the end of last year, BOE threw 46.5 billion huge investment in the construction of the sixth generation of flexible AMOLED production line began to enter the mass production stage, and the current capacity has begun to climb. In addition, according to media reports, BOE also intends to adjust the third phase of the production line of the B12 factory, the purpose is to undertake Apple iPad orders.
On the surface, BOE has invested a lot of money to expand production capacity and upgrade technology, and if it can't squeeze into the "fruit chain", it is indeed a loss. But the Value Institute believes that everything should be viewed from both sides: The sunk costs invested in the previous period have helped BOE build one of the most mature OLED production lines in China with the strongest mass production capacity, and even if there is no Apple, there is no shortage of new customers.
According to DSCC, since 2019, the smartphone market has seen a high-end trend, and Xiaomi, OPPO, vivo, and the independent glory have all made it clear that they want to make an effort in the mid- to high-end market. Riding on this wind, the penetration rate of OLED panels has also seen a significant rise. The report shows that the penetration rate of OLED cell phone panels was 52% in 2021, occupying half of the market, and is expected to reach 57% by the end of 2022.
According to IHS Markit's report, in 2021 the global OLED display panel market size gained $68 billion, compared with $36.7 billion in 2019, nearly doubled. In addition to the "panel kingdom" of South Korea, China has grown to become the world's second largest OLED panel supply market.
Back to BOE. With the OLED screen production capacity gradually climbed, Wuhan BOE photoelectric business efficiency is also a comprehensive improvement. In the first quarter of last year, this important subsidiary of BOE to achieve the first positive profit in nearly five years, to achieve a net profit of 360 million yuan, a single quarterly profit has exceeded the total net loss in the past four years.
And on June 21 last year, when the announcement of the fixed increase of nearly 20 billion, BOE in the AMOLED market layout and future planning and surfacing. At present, including glory, OPPO, Motorola and other cell phone manufacturers have reached a cooperation with BOE, the latter is also working to develop VR/AR hardware, smart medical, car screen and other markets.
The broad market outlook even allows BOE to continue to start the capacity expansion program, especially for high-end screen production line upgrades.
The latest development is that in March last year, BOE's subsidiary, Wuhan BOE, announced that it would expand the capacity of the existing plant. This expansion plan is expected to invest self-financing 3.775 billion, mainly for the 10.5 generation thin film transistor liquid crystal display panel production line.
It is worth mentioning that, in response to the news that Apple may cancel the iPhone 14 screen orders, BOE responded to investors on May 23 that "no comment", and emphasized that the company's annual target in the field of OLED has not changed, and the relevant business is still in the orderly progress.
Through the above analysis, the Institute of Value Studies believes that BOE's response is not a hard-line or bureaucratic, they do have their own bottom line and considerations.
What's more, compared to Apple, which may be missed, the rise of domestic competitors, the OLED panel market is facing a potential crisis of price cuts and overcapacity, perhaps more worthy of attention by BOE.
According to data from Omdia, a well-known research organization, the share of Chinese manufacturers in the OLED panel market is expected to rise to 27% in 2022, nearly doubling from last year's 15%. With the growing shipments of folding screen phones and mid-range and high-end smartphones, the demand for OLED panels is expected to continue to rise, and this Chinese manufacturer provides an opportunity for upward mobility.
And in the crowd of domestic panel makers, in addition to BOE, TCL Huaxing Optoelectronics, Deep Tianma is also a very strong competitor.
Take the mass production capacity, market share and yield rate of these data, BOE behind the catching up in the past few years, the progress is very obvious.
According to public information, BOE has realized mass production of OLED production line total **** there are five, Chengdu, Mianyang, Chongqing and Fuzhou production line production capacity can reach close to 50,000 / month, is the domestic manufacturers of the strongest mass production capacity.
The advantage of the deep Pegasus is that its 4.5-generation line located in the Shanghai plant has a single-month production capacity of up to 750,000, which is the strongest OLED panel production line in the country, and LG, Samsung, compared to no less. But the problem is that its production capacity is too concentrated in Shanghai, 4.5 and 5.5 generation line mastered more than 95% of the capacity. Once encountered the last two of this degree of large-scale epidemic, capacity will be a precipitous decline.
Another OLED maker, Huaxing Optoelectronics, with high hopes from industry insiders, has a similar problem. the 6-generation line of Electric Wuhan, which went into production in 2019, has a capacity of more than 450,000 units in a single month, and is the most important production line of TCL Huaxing Optoelectronics at the moment.
Of course, seeing the market gradually take off, these head players are actively increasing production capacity. At the end of last year, TCL announced that it was preparing to build a T8 flexible OLED panel production line in Guangzhou; in January this year, a total investment of up to $15 billion in the T5 production line also completed the module plant and integrated power station roofing work.
According to the law of the industry, OLED production line from the preparation to formal mass production generally takes about two years. In other words, the mass production capacity of BOE, TCL and SZTEMA will reach a whole new level around 2024.
However, while expanding production capacity at full throttle, BOE has to be wary of two crises: one is the short ups and downs of panel demand, and the other is the shortcomings of core technology.
Although the industry is very optimistic about the prospects for the application of OLED panels, but by the international situation, the economic downturn and other factors, the cyclical off-season has begun to show its power. According to foreign media reports, Apple is expected to reduce the iPhone SE and iPad orders in the second quarter of this year, Samsung also has a similar plan to cut orders, is expected to design nearly ten million OLED capacity.
At present, Samsung has called off part of the panel production line in Vietnam, and is ready to withdraw the production line to South Korea itself, to readjust the layout in Southeast Asia.
In the view of the Institute for Value Studies, in the case of market demand turbulence, the manufacturers with the highest yields and the most stable production techniques are better recognized by upstream customers. From another perspective, after cutting out some of the internal demand, the big players like Samsung and LG also have the ability to take on more orders from external customers, which is not good for local players like BOE and TCL.
According to DSCC statistics, LG is currently leading the way in OLED panel yields, which have been stabilized at around 90% since 2017, and Samsung has also passed the threshold in the last two years, with some of its newly commissioned production lines reaching the industry's highest yields of 95% at one point.
In contrast, BOE's publicly announced data is that the yield of mature products of AMOLED production lines is above 80%, which is already the highest level of domestic manufacturers. In terms of production capacity and BOE's closest deep Tianma, 2021 yield rate has just stepped over the 60% mark, TCL Huaxing Optoelectronics also hovering around 60%.
In the final analysis, the core technology that determines the yield rate is still in the hands of Samsung, LG two giants, is the BOE must solve the problem.
For example, the most critical backplane section of the vapor deposition of the essential FMM metal materials, Hitachi mastered the best production process, and Samsung early and Hitachi entered into an exclusive agreement. Another example is the OLED driver IC market, Samsung LSI and LG LX Semicon monopolized 90% of the market share, the dominant position is unshakeable.
BOE has already overcome the mass production barrier, it is time to think of ways to overcome the technical difficulties.
With the introduction of the iPhone 4 as the demarcation point, Apple and even the entire smartphone market ushered in an incomparably brilliant decade. But after 2020, the outbreak of epidemics, the global economic downturn, soaring inflation superimposed on the escalating supply chain crisis, so that the smartphone market accelerated to wave goodbye to their golden age.
Apple is undoubtedly still the world's premier consumer electronics giant, iPhone orders are still all the supply chain companies thirst for opportunities to get rich, but I'm afraid that no longer have the influence to determine the life and death of a company, an industry.
It is worth noting that, from the second half of last year, including the clear overflow photoelectric, eight hundred million time, Grindal, business network electronics, NJG and other BOE supply chain enterprises have successfully landed in the A-share, Lingyun light, Roadway photoelectric, Suzhou Tianlu and other enterprises have also started the IPO process. The BOE may not have a "fruit chain", quietly has cultivated an equally strong supply chain, and drive the industry chain upstream and downstream together towards prosperity.
In the business world, there is no one away from who will certainly fall, no Apple's order is not the end of BOE. As for whether the loss and impact can be minimized, we have to test the BOE's hard power.