Since its inception in the 1990s as a small electronic factory, TCL has transformed into a prominent global competitor in the display technology sectorTheir rise was initially marked by the widespread adoption of LCD televisions, which allowed them to penetrate households across China, earning a prized reputation in the home electronics industryYet, the tides have shifted; as the global LCD panel market grapples with pricing fluctuations and overproduction; combined with the advent of innovative display technologies such as OLED, TCL Technology now faces unprecedented trials.

The urgency embedded in TCL’s financial disclosures reveals a stark realityIn the first half of 2024, TCL managed to generate revenue of 80.224 billion yuan, marking a decline of 5.74% compared to the previous yearThe competitive landscape intensifies as international titans like Samsung, LG, and Sony aggressively invest in alternative technologies like OLED while domestic player BOE continues to expand its stronghold in the LCD sector.

At this pivotal moment, TCL is seeking to rescue itself through strategic acquisitions in the LCD market, which is not only a reflection of its historical trajectory but also an urgent maneuver toward securing its position in the evolving marketplace.

On September 26, 2024, TCL Technology announced that its subsidiary, TCL Huaxing Optoelectronics Technology Co., Ltd

(referred to as TCL Huaxing), intends to acquire LG Display Co., Ltd(LGD) subsidiaries – specifically, 80% of the equity in LG Display (China) Co., Ltd(LGDCA) and 100% of LG Display (Guangzhou) Co., Ltd(LGDGZ), along with relevant technologies and support services, for a base price of 10.8 billion yuan.

Trapped within a sea of red ink, characterized by price volatility and overcapacity in the LCD domain, TCL stands at a critical crossroads.

In the early 2000s, LCD technology surged forward, capitalizing on its advantages of being light, energy-efficient, and having superior image quality, quickly eclipsing the traditional CRT (cathode-ray tube) monitorsGlobal manufacturers jumped aboard the LCD bandwagon as demand soared, eager to satisfy a market hungry for modern displays.

Between 2004 and 2007, shipments of LCD televisions surged, with brand giants like Sony, Samsung, and LG reaping substantial rewards from this burgeoning market

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However, the rampant growth soon gave way to an imbalance as capacity expanded rapidlyBy May 2010, DisplaySearch reported sharp declines in prices across various display categories, igniting price wars that devastated profitability across the LCD manufacturing sectorThe oversaturation of the market indicated a shift from rapid to sluggish growth, signifying troubling signs of decline.

In the throes of this crisis, OLED technology began making its mark, renowned for its lightweight, vibrant colors, and superior contrast ratios, positioning itself as the choice for high-end displaysFollowing this, newer technologies such as MiniLED and MicroLED emergedA sentiment developed that hinted at the potential obsolescence of LCD technology.

As the backdrop of the pandemic ushered in periods of home-centric consumption, the LCD market experienced a fleeting revival, prompting companies to ramp up production

However, the subsequent slump in demand for mobile devices and falling needs from large-scale household electronics led to unsold inventory in larger LCD panels.

The year 2022 saw the LCD market plunge, with numerous manufacturers reporting decreases in performance, some even suffering from losses in the hundreds of millionsA report from Omdia highlighted a predicted downturn in panel shipment growth rates, shrinking 15% in terms of global panel value—the first instance of negative growth in yearsThis desperate low compelled the industry stakeholders to rethink their strategies, pivoting towards potentially lucrative new display technologies.

Despite the challenges faced within the LCD realm, it is essential to recognize that the market has not entirely lost its vitalityA report by Lottu Technology indicated that in the first half of 2024, the sales of esports monitor in mainland China's online market surged by 30%, reaching a volume of 2.69 million units, with revenues jumping 10% to 3.3 billion yuan

The esports display market is thus entering an unprecedented stage of development.

Additionally, while the high-end TV segment gravitates towards OLED and mini LED technologies, LCDs continue to maintain a dominant position among large screen televisions due to favorable cost-benefit scenarios and consumer preferencesData suggests that in the first half of this year, LCD television held more than 60% of the market share, with this advantage being even more pronounced in the mid-to-low end of the market.

Market analysis from Omdia lends insightful projections for TCL's strategic futureThe acquisition of LGD's Guangzhou facility, upon completion, could potentially enable TCL to surpass BOE in the LCD television panel market and help it lead in the sizes of 32-inch, 55-inch, and 65-inch panels.

The acquisition also suggests that LGD is quickening its business transition towards high-end OLED products, as articulated by LG Display’s chief financial officer, Kim Seong-hyun, during the company’s 39th regular shareholder meeting, stating, “The company is transitioning from LCD to an OLED-centric business structure.”

Meanwhile, rivals in South Korea and Japan, such as Samsung and Sharp, are choosing to gradually exit the LCD market, which will further consolidate the segment under the umbrella of Chinese manufacturers

Data from Lottu Technology indicated that as of August this year, Chinese companies dominated 66.0% of global LCD panel shipment market sharesAs international competitors withdraw, this figure is expected to rise, solidifying a more favorable positioning for them in the global market.

By doubling down on its LCD operations at this juncture, TCL not only seeks to capture residual demand but may also sustain its competitive edge in the realm of LCD technology in the coming years.

Beyond market assertions, TCL's recent ventures into the new energy photovoltaic sector also reflect an urgent need for financial rectification amidst challenges in supply-demand balancing.

From the semi-annual report released by TCL Zhonghuan, it was observed that in the first half of 2024, the company's revenues from new energy photovoltaics and other silicon materials plunged to 16.213 billion yuan, a grim 53.54% decrease year-on-year, with a net loss of 3.064 billion yuan—marking a staggering 167.53% decline in performance.

The imbalance between supply and demand has significantly impacted TCL's broader financial metrics

In the same semiannual timeframe, TCL recorded revenues of 80.224 billion yuan, down 5.74% year-on-year, resulting in a net loss of 468 million yuan, the first negative net profit during a semiannual reporting period since 2014.

Historically, the acquisition of Zhonghuan Group was a hallmark strategic investment for TCL.

The story traces back several years when the photovoltaic industry experienced a robust surge buoyed by the rising global demand for renewable energyTCL seized this opportunity and acquired Zhonghuan Group in 2020, swiftly entering the burgeoning field of new energy photovoltaics, which drove rapid growth for the business.

For instance, in 2021, revenues from its new energy photovoltaics and semiconductor materials soared to 41.1 billion yuan, reflecting a remarkable year-on-year growth of 623.30%, alongside a gross profit margin of 21.69%. The impressive data set high expectations for TCL's future endeavors.

However, market dynamics can be unforgiving

The photovoltaic industry began exhibiting signs of excess capacity and heightened price competition, pressuring TCL's operationsBy 2023, revenues from TCL's photovoltaic business and distribution sector declined by 11.74%—plummeting to 59.146 billion yuanThis downturn persisted into the first half of 2024, where revenues dropped to 16.213 billion yuan, a 53.54% contraction, with a net profit loss of 31.76 billion yuan—a staggering 165.63% negative shift.

It is worth noting that despite these losses, TCL maintained a high operational capacity, revealing a rate near 80% as indicated in their performance review on August 27.

Contrasting starkly with the plight of the photovoltaic sector, TCL's semiconductor display segment has shown signs of recoveryIn the same semiannual period for 2024, it generated revenue of 49.877 billion yuan, indicating a 40.39% growth year-on-year, alongside a net profit of 2.696 billion yuan—an impressive 61.45 billion yuan improvement.

In a climate characterized by the cyclical lows of the photovoltaic industry, TCL’s management anticipates a natural selection process within this manufacturing sector that could eventually optimize industry structure and restore profitability in the long run

However, in the short term, alleviating the financial strain from its renewable sector mandates that TCL enhances investment and resource allocation towards the more profitable semiconductor display segmentThe acquisition of LGD's Guangzhou factory appears vital to tilt resources favorably towards a more lucrative operational segment.

This acquisition is poised to significantly broaden TCL's semiconductor display capabilities, enhance the synergy and scalability of its industry chain, and ultimately enrich the firm’s long-term profit potential.

Integrating technology will be pivotal for TCL’s advancement in market competitionSuccessful absorption of LGDCA’s In-Plane Switching (IPS) capabilities and technological resources positions TCL to enhance its IPS technological standingIPS panels are renowned for their superior viewing angles and fast response times, positioning them as high-end products within the display market.

Through integrating innovation and technology, TCL could make substantial inroads into the IPS LCD segment, potentially delivering higher-quality, high-performance display products to consumers

It’s critical to highlight that prior to this venture, the IPS panel landscape was largely held by LG and BOE; TCL had yet to penetrate the IPS technology domain.

Moreover, the integration of upstream and downstream processes presents TCL with a strategic pathway to reduce production costs and elevate profitabilityRather than limiting their scope to mere panel manufacturing, TCL employs a vertically integrated business model to create a comprehensive display technology ecosystemTCL's influence spans the entire industrial chain—from raw material procurement to production manufacturing and onward to extending their product sales network.

This acquisition lands TCL a decisive edge in rectifying the integration of its supply chain; obtaining advancements in panel technology and production capacity from LGD, particularly in large panel displays and LCD modules, stands to significantly augment TCL's competencies.

TCL’s announcement highlighted that this acquisition would effectively leverage economies of scale and industry synergy

Upon concluding this deal, LGDCA would coalesce with TCL’s existing facilities in Guangzhou under a new “twin star” plant model, enabling honed resources allocation, reduced operational costs, enhanced efficiency, and bolstered competitiveness in the production line—an ideal compendium to the company’s long-term profitability vision.

However, caution is warranted as the technology landscape poses critical challenges to business continuity; viewing technology transitions can be perilousThe shift from film to digital devastated Kodak, while the mobile world transitioned from features to smartphones decimating 90% of feature phone brandsThe current pivot from fossil fuel to electric vehicles is an ongoing narrative of this transformative age.

As for the display domain, Korean and Japanese firms are gradually retreating from LCD, fervently realigning their sights on OLED, propelling the semiconductor display race into the era of OLED and MiniLED technologies