BOE 5 generation line to become chicken ribs face $2 billion funding gap

Again on the two and fifth generation LCD panel production line, BOE is faced with at least $2 billion funding gap, but not on the production line, the existing investment is difficult to form a scale effect. In September before the opening of the Renmin University of China, Liang Jing went to Zhongguancun, she was the liquid crystal display (TFT-LCD) price startled: a 14 inch LCD display currently priced at only one thousand yuan, so she really excited for a long time. Since the last half of the year, the price of liquid crystal frequently avalanche message, there can always be caused by bursts of cheers among consumers, but the LCD manufacturers have suffered this.

In August 26th, the largest LCD manufacturer BOE announced semi annual report: from January to June, BOE (000725) main business income of 4 billion 321 million 710 thousand yuan, down 30.68% compared to the same period last year; realize the main business profit of -27505.5 million yuan, down 125.79% compared to the same period last year, losses amounted to 988 million 745 thousand and 800 yuan.

Although the loss is expected, but the loss of up to 1 billion yuan is indeed unexpected. And not only the decline in profits, even income is declining, the problem is indeed a bit serious." An industry veteran told the financial times said.

Dragged down by the LCD industry?

The year before the acquisition of BOE-Hydis, a subsidiary of South Korea, when the LCD market improved, the BOE was profitable. But this year, the BOE encountered industry downturn, loss is inevitable." A person familiar with the BOE insiders told reporters.

Cyclical decline in the industry has a greater impact on the company's business." BOE chairman and CEO Wang Dongsheng explained to the outside world.

Although the other four similar domestic listed companies also suffered the same fate with the BOE, but in terms of loss is far lower than the boe. Shanghai radio and television electronics (600602) in the first half of 2005, a loss of $137 million, compared with the same period last year fell by more than 250%. And the other two in the 3.5 generation main line of the Shen Saige (000058) loss of 5 million yuan, rainbow shares (600607) loss of 35 million yuan.

Loss of 1 billion yuan, the loss of the majority of Korean subsidiary BOE-Hydis accounted for the majority. This is the fifth generation of the line with the construction of the BOE, the construction of a generation of the line cost $1 billion to more than $5." The industry familiar with the BOE claims.

Several large LCD manufacturers in Taiwan, China can not be spared. An unconfirmed data show that the first half of the cumulative loss after tax CMO of NT $3 billion 653 million (NT $4 equivalent to about 1 yuan), net loss per share of 0.95 yuan NT; CPT in the first half of the cumulative pre tax losses still reached 7 billion 300 million NT, which TFT sector losses of NT $6 billion 910 million; color the crystal in the first half of the cumulative loss after tax of up to NT $7 billion 408 million.

But in Taiwan the first major TFT-LCD manufacturers AUO recently announced 2005 second quarter results showed that the operating income up to NT $46 billion 200 million, an increase of 19.1% over the first quarter; gross margin and net operating margin reached 6.8%, the first time beyond Samsung and LG Philips LCD to become the world's most profitable TFT-LCD factory.

Jishizixun deputy general manager Guo Haitao pointed out that the BOE does not blame the market. At present, the global LCD industry competition has entered the seventh and the eighth generation line. The BOE fifth generation line was built, in order to form a scale of at least more than three production lines can be. The state-owned enterprises in the background of the BOE is too deep, it will be difficult to form the strength of confrontation with Japan and South Korea and China's Taiwan region LCD companies.

Xu Hankang, director of the Taiwan Provincial Association of electrical and electronic industries in mainland China also expressed the same view. He believes that, despite the large investment in the LCD industry, there is a huge risk. However, as long as the company can produce more affordable LCD products, we will be able to overcome difficulties. In this regard, Taiwan enterprises can serve as a model for mainland enterprises."

The fate of AOC

BOE only way out, it seems that the market is waiting for improvement. However, the future prospects are difficult to predict.

LCD industry is generally a cycle of three years: two years, a year down. But it's been down for nearly a year now, but there's no sign of improvement. Huaxia Securities senior analyst Dong Zhiqiang believes that the industry downturn may also continue.

Wang Dongsheng is optimistic about the future. In his view, the current TFT-LCD price situation has bottomed out, the company's main products have more than 10% of the price recovery, the majority of intermediaries have also optimistic about the recent rebound in the economy.

However, the amount of expansion means that the construction of greater funds. According to the original plan, the BOE will be built in Beijing at least three lines of the fifth generation, in order to form a relative cost advantage. But according to a line of $1 billion, under the huge loss of BOE is clearly facing a funding gap.

A few days before the BOE, at a price of 60 million yuan to the independent third party to sell equity's real estate company, exit and display a domain independent real estate projects. But this does not alleviate the BOE's thirst for funds, the BOE may continue to divest other non mainstream business in the future.

It is worth mentioning that the BOE holding AOC technology, its stake is likely to change in the future." Dong Zhiqiang analysis, the BOE acquired 1 billion stake in the acquisition of AOC technology, and now probably sold around $1 billion 400 million, if the transfer of equity may ease some of the pressure on the capital of the boe.

For the above speculation, BOE official denied. On how to solve the problem of funding, they did not make it clear.

However, the recent BOE high-level personnel changes have been