Affected by the chip capacity crisis, market environment changes and many other factors, the domestic semiconductor market heat is unprecedentedactive, the Internet, household appliances and other fields of enterprises, also began to flood into the field. According to Data from Chip Vision, the number of new enterprises in the domestic semiconductor industry reached 20,000 in 2020 alone, increasing rapidly.
Among many enterprises entering the semiconductor field, TCL Technology, the leading enterprise in the panel industry (renamed TCL Technology after the reorganization of TCL Group in 2019), has also recently established a semiconductor company and officially announced its entry into the semiconductor field. In the semiconductor industry under the background of heat, TCL technology in-depth layout, obviously also has its own considerations.
TCL entered the semiconductor behind the inducement
For the layout of the upstream industry chain, TCL technology has always spared no effort, and this is also related to the domestic color TV industry lack of core technology embarrassment situation.
For a long time, the domestic color TV industry in the picture tube, complete machine, semiconductor and other upstream industry chain are lack of dominance, and foreign color TV brands master relevant technology, by virtue of price advantage in the domestic market to expand, so that TCL technology, Changhong, Chuangwei and other domestic manufacturers are facing great pressure.
In order to take the initiative in the upstream market, TCL Science and Technology began to make a deep layout in the manufacturing links of the upstream industrial chain through investment, merger and acquisition.
As early as 2007, TCL invested 1.396 billion yuan in the integrated manufacturing of LCD TV modules in the upstream of the color TV industry, and added TV module manufacturing and sales business. In addition to personally end, TCL in the upstream industry chain investment acquisition action is also many. As early as 2002, TCL acquired schneider’s color TV business to enhance its competitiveness in the upstream industry chain. In 2010, TCL invested 24.5 billion yuan in Shenzhen to build 8.5 generation TFT-LCD panel production line to produce LCD panels.
Under the multifaceted layout, TCL technology finally achieved a breakthrough in the upstream production technology of color TV industry. But at the same time, the price war frequently set off in the display panel industry has also exerted a great impact on TCL technology.
For example, under the influence of the price war in the panel industry, the profit of the domestic display panel industry dropped by nearly 15%, which naturally affected TCL Technology. According to TCL Technology’s 2019 financial report data, its main business, TCL Huaxing business, saw its net profit drop from 2.32 billion yuan to 964 million yuan, a plunge of nearly 58%, even once causing the capital market to question TCL technology’s profitability.
Under pressure from the capital market, TCL Technology turned its attention to the semiconductor market, where the heat continued to rise. In July 2020, TCL Technology acquired Zhonghuan Semiconductor, which officially started its business in photovoltaic and display semiconductor fields. Later this year, IT set up a semiconductor company jointly with TCL Industry, further expanding into integrated circuit design, semiconductor power design and other fields.
A deeper consideration
Behind TCL’s move to the semiconductor industry, there are also various deep considerations. On the one hand, changes in the supply-demand relationship in the panel industry in recent years have exposed TCL Technology and other enterprises to many external risks.
For example, in the first quarter of 2020, domestic panel prices were affected by the imbalance between supply and demand in the market. LGD, AU, Display and other panel companies all suffered losses, and Samsung and LGD were even forced to withdraw from the LCD market. In this context, TCL technology, suffering from periodic changes in the panel market, naturally focused on the semiconductor field closely related to its own business.
On the other hand, the changing environment of the semiconductor industry and soaring market demand have also promoted TCL’s layout in this field from the side. Since 2020, the domestic semiconductor market demand has maintained rapid growth, only in September increased by 45%, the semiconductor industry once appeared the phenomenon of capacity crisis. TCL Technology and other enterprises, struggling to find growth opportunities, took the opportunity to rush into the track.
In addition, changes in the domestic semiconductor market environment have also brought many benefits to TCL’s entrance. Affected by huawei Kirin chip incident, the domestic semiconductor industry set off an independent boom, and the country also launched relevant support policies. For example, policies for Promoting high-quality Development of The Integrated Circuit Industry and Software Industry in the New Era clearly states that enterprises in the fields of integrated circuits, equipment and materials are exempted from income tax from the first year to the second year after they make profits, which greatly encourages TCL Technology and other enterprises to enter the semiconductor industry.
From the perspective of the enterprise itself, TCL’s participation in the semiconductor field has many benefits for it. On the one hand, entering the semiconductor industry can help TCL to open up new development space. On the other hand, TCL’s participation in the semiconductor field can also help TCL raise its competition barriers and pave the way for its future development.
Concerns remain
For TCL, however, the road ahead in the semiconductor industry has not been so easy. First of all, the semiconductor industry is an industry with huge investment, which requires a large amount of capital investment in the early stage, which will undoubtedly bring considerable cash flow pressure to TCL Technology.
For example, when TCL acquired CMC Semiconductor in 2020, the total current assets on its books were 54.233 billion yuan, and the actual disposable monetary capital after excluding receivables and financial assets was 19.77 billion yuan, while CMC group’s sale price reached 10.974 billion yuan. This is bound to make TCL technology in the acquisition of Zhonghuan semiconductor pressure on the capital chain.
In addition, due to TCL technology’s frequent investment, its cash flow has been a net outflow, which is bound to further aggravate the situation. According to its financial statements, from 2015 to 2019, TCL Technology’s free cash flow was -9.186 billion yuan, -6.512 billion yuan, -6.45 billion yuan, -22.31 billion yuan, and -8.8 billion yuan, respectively. Long-term large capital flow was negative, making it face great cash flow pressure.
Secondly, limited by equipment and materials in overseas markets, the domestic semiconductor industry still faces many uncertainties. For example, in March this year, changes in the market environment made domestic semiconductor manufacturers rush to buy second-hand chip manufacturing equipment, resulting in the collective price rise of equipment in the industry, which is obviously not conducive to the development of TCL Technology and other new entrants.
Finally, the semiconductor industry is an industry with high technological threshold, and it takes time for enterprises to improve their technology. For example, TSMC, the industry leader, also achieved technological breakthroughs in 5nm, 7nm and other advanced process fields after years of technological accumulation, and achieved a significant increase in profit margins. In contrast, TCL technology, which entered the field of integrated circuits, obviously has a longer way to go.
How does TCL Technology break the ice
In the face of the obstacles on the development of the semiconductor industry, TCL Technology still needs to deal with them from many aspects and solve the numerous problems they are facing.
From the demand side, in recent years, the rise of new energy vehicles, smart phones, personal computers and other electronic consumer markets has created a favorable external environment for TCL to expand its semiconductor industry.
In the case of rapid growth of market demand in the field of electronic consumption, TCL Technology can take the lead in this field to improve profitability as soon as possible. Take the new energy vehicle industry as an example. Through participating in the production of chips for new energy vehicles, the profits of well-known semiconductor manufacturers such as Intel and Qualcomm have reached more than 30%, which is much higher than the profit margin of the panel industry. This means that TCL technology, which entered the field, can also improve its profit space.
In terms of capital chain, TCL Technology also needs to do a good job in risk control. As the semiconductor industry has a long investment cycle and slow investment return, it has high requirements for corporate cash flow risk control, which requires TCL Technology to reasonably allocate cash flow and make long-term capital investment planning.
As for technical issues, TCL also needs to make long-term preparations. For example, TSMC, which is currently leading the industry in technology, achieved a technological breakthrough from 16nm to 5nm after six years of technological breakthroughs. In contrast, TCL science and technology, which has just entered the game, should be prepared for long-term accumulation in terms of technology.
In view of all aspects, TCL Technology still needs to take technology and cash flow as the core focus index at the present stage, so as to ensure its steady development of business in the booming opportunities of the semiconductor industry and achieve more achievements in the industry.