China’s Everdisplay Optronics listed on Shanghai Stack Exchange Star Market on Monday, but the company will need to overcome its profitability problem.
Everdisplay manufacturers small rigid and flexible organic light emitting diode (OLED) panels. Its current mainstay is rigid OLED. The firm was the first in China to start manufacturing OLED panels, back in 2014.
It was also the first among Chinese panel manufacturers to supply OLED panels for notebooks and tablets, instead of smartphones, last year.
Despite these achievements, Everdisplay has failed to realize economics of scale, and is falling behind rivals.
Production capacity is a problem; the company has two product lines. Its Gen 4.5 OLED line has a production capacity of 15,000 substrates per month, while its Gen 6 OLED line also has a capacity of 15,000 substrates.
The Gen 6 line is designed to handle 30,000 substrates, but Everdisplay only uses 15,000. This is substantially lower then BOE, which mainly manufacturers flexible OLED, which is aiming to increase its production capacity of 144,000 substrates per month by the end of the year.
Chinese media ijiwei believes it Everdisplay can’t improve its profitability, it will have a negative effect on the company’s operations.
From 2017, the company has reported negative gross margin in its main businesses. Its smartphones and wearable OLED business posted 600 million yuan in sales in 2017; 800 million yuan in 2018;1.5 billion yuan in 2019; and 900 million yuan in the first half of 2020. Gross margin at these times were -99.7% in 2017; -70.7% in 2018; -31.5% in 2019; and -29.3% in the first half of 2020.
The company’s operating profit between 2017 to 2019 was 200 million yuan to 600 million yuan. In the first half of 2020, the company recorded 900 million yuan. But net income to shareholders of its parent company was -1 billion yuan in 2017; -800 million yuan in 2018; -100 million yuan in 2019; and -500 million yuan in the first half of 2020. Everdisplay’s research and development spending is around 20% of its operating income.
Net cash flow in 2017 was -600 million yuan; it was -300 million yuan in 2018; -400 million yuan in 2019; and 200 million yuan in the first half of 2020. The company’s OLED shipment increased starting in the first half of 2020.
Everdisplay will also have to resolve the challenges in developing low-temperature pollycrystalline silicon (LTPS) thin-film transistors (TFT) and RGB fine metal mask deposition technologies. It will also need to uplift its production yield rate and panel reliability.
Everdisplay is ranked third globally in rigid OLED panels. Samsung Display controls some 90% market share; China’s Visionox and Everdisplay owns 4% to 5% and are ranked second and third, respectively. Rigid OLED is used in mid-tier 5G smartphones.
Everdisplay supplies panels to Huawei, Xiaomi, Oppo, Vivo and Lenovo.
The company began producing 11-inch and 15.-inch rigid OLED panels for tablets and notebooks last year. It also supplies 12.8-inch and 15.6-inch flexible OLED panels for tablets and notebooks. Samsung Display was the exclusive supplier of OLED panels for notebooks and tablets prior to Everdisplay entering the market. OLED panels for notebooks and tablets is a small market but is growing fast, and will likely become a new revenue stream for Everdisplay going forward.