What Display Daily thinks: There’s a simple solve to the profitability and growth woes of AUO and Innolux – merge your display businesses. Both companies have been diversifying their business interests in non-display markets while continuing to look for an expected uptick in demand in the display market, one that would help them recover from the worst of 2023.
However, it makes little sense for these two companies to bifurcate Taiwan’s display industry powers in pursuit of automotive. It makes more sense to join up. It makes more sense to merge on the large panel display business to create greater operational efficiencies and put on more muscle for the fight with Chinese and Korean competitors.
You want to succeed in automotive? You need consolidation and heft and a big footprint. You want to succeed in TV panel sales? You need consolidation and heft and a big footprint.
As for the display industry becoming a semiconductor business? Let’s say over $2 billion has gone into MicroLED startups and businesses. That’s about $18 billion short of what is needed to create the next big transition in the industry. You need to build financial muscle, be in the MicroLED game in a big way, and have an eye on your long-term strategy for developing a MicroLED manufacturing base. Who cares if that is 5 years away. Do it now. But for AUO and Innolux to do that separately in Taiwan? It seems short-sighted.
In fact, the view of the display industry as a semiconductor business should be the main focus of any strategic initiative by either company. So, yeah, AUO and Innolux can keep doing what they are doing, but it just means that they won’t be able to summon up the resources needed to remain competitive. At least not alone.
Neither company can keep hoping that the TV business bounces back and makes everything better again. The pandemic may have blinded the industry to how truly boring TVs can be and how great it might be if everyone just made really price conscious MiniLED backlit big screens and stopped trying to force pricier OLED displays on consumers when all anyone wants to do is see whether Tamara finally clocks Shannon on RHOC. Besides, no one is looking at rainforests and flowers on a $3,000 screen. I sometimes wonder if the people who make TVs have ever actually Netflix’d and chilled at any point in their lives.
DSCC Reports on Taiwan’s Panel Maker Revenues
DSCC is reporting that in the third quarter of 2023, the revenues of Taiwan’s panel makers saw an upswing. Overall, there was an 8% quarter-on-quarter (QoQ) and a 29% year-on-year (YoY) increase in terms of the Taiwan dollar. However, when converted to US dollars, the growth rates were a bit more modest at 4% QoQ and 24% YoY due to the depreciation of the Taiwan dollar in Q3.
| AUO | Q2’23 | Q2’22 |
|---|---|---|
| PRC (including Hong Kong) | $22,518,404 | $21,616,691 |
| Taiwan | $16,620,976 | $16,076,423 |
| Singapore | $3,849,237 | $5,439,794 |
| Japan | $2,754,107 | $4,239,698 |
| United States | $5,995,825 | $4,117,034 |
| Others | $7,318,090 | $5,953,857 |
| Total | $59,056,639 | $57,443,497 |
| Products for Televisions | $12,031,633 | $10,654,808 |
| Products for Monitors | $9,157,468 | $10,971,054 |
| Products for Mobile PCs and Devices | $13,745,507 | $14,888,435 |
| Products for Automotive Solutions | $9,916,170 | $8,687,702 |
| Products for PID and General Display | $8,037,746 | $8,649,994 |
| Products for Vertical Business | $6,168,115 | $3,591,504 |
| Total | $59,056,639 | $57,443,497 |
| AUO | 1H23 | 1H22 |
|---|---|---|
| Taiwan | $30,794,599 | $41,175,005 |
| PRC (including Hong Kong) | $37,419,143 | $45,153,171 |
| United States | $10,850,386 | $13,420,752 |
| Singapore | $6,643,938 | $14,420,352 |
| Japan | $4,655,214 | $8,706,146 |
| Others | $13,809,415 | $12,421,501 |
| Total | $104,172,695 | $135,296,927 |
| Products for Televisions | $19,133,355 | $25,007,258 |
| Products for Monitors | $15,553,197 | $24,243,154 |
| Products for Mobile PCs and Devices | $25,467,122 | $41,502,254 |
| Products for Automotive Solutions | $18,419,512 | $15,967,730 |
| Products for PID and General Display | $15,245,185 | $20,412,395 |
| Products for Vertical Business | $10,354,324 | $8,164,136 |
| Total | $104,172,695 | $135,296,927 |
Reflecting on the financial health from the previous quarter, all three panel makers from Taiwan recorded considerable operating losses in Q2. AUO posted an operating margin of -8%, while Innolux and HannStar trailed with -10% and -32%, respectively. Given the third quarter’s performance, AUO seems to be on a recovery trajectory towards a positive margin. However, Innolux’s return to profitability seems uncertain, and HannStar is anticipated to suffer another significant loss in Q3’23.
| Innolux | Q2’23 | Q2’22 | 1H23 | 1H22 |
| TFT LCD revenues | $55,087,258 | $57,901,588 | $100,682,666 | $127,787,606 |
| TFT LCD profit (loss) before tax | $(5,133,118) | $(4,381,145) | $(12,072,266) | $(2,051,806) |
The display industry is very cyclical and periods of losses are offsets by periods of profitability in an almost rote fashion. But, the over-emphasis on the health of the TV market as a driving force for the industry is also a matter of complacency. Yes, you cannot ignore the market or play against it, but that is all the more reason for consolidation and operational reorganization to help maintain your position in the market as you pursue bigger goals for the future.
How does AUO and Innolux do this separately? It’s hard because their Chinese and Korean competitors have the benefits of a broader government investment, and a much bigger, ingrained culture of symbiosis in the supply chain. Simply put, even if Taiwan sees the display industry as strategically valuable, it cannot hope to compete with the level of investment being made by the Chinese and South Korean government in their display industries. Ultimately, the nature of the industry in Taiwan, and the personalities involved, is such that it is very unlikely that AUO and Innolux would ever consider consolidation. They may find out that they were wrong not to when it becomes too late.
