Changes Facing China’s LED Industry in 2013

Supported by the awareness of energy saving and environmental protection as well as government policy, LED market in 2012 was of chaos, experiencing serious oversupply and price cutting. As for 2013, due to the related demand for handheld device and LED lighting products, the output value of global LED will reach $12.4 billion, an increase of 12% from 2012, but the oversupply of the overall LED industry will maintain in short term. Adding that over-investment in the most critical equipment of MOCVD from domestic and foreign enterprises in recent two years, so China’s LED structural overcapacity situation in 2013 will continue, the price of LED chip decline, the profit margin for midstream and upstream enterprises will be compressed, and LED supply chain would see structural integration.

Chinese domestic and foreign enterprises have invested China’s LED industry chain.

Since 2009, the long-term growth outlook for LED lighting attracts many enterprises to enter China’s LED industry. According to statistic, as of the middle 2012, about 90% of international LED giants toss large amount of cash to China’s LED supply chain, and the investment in the LED lighting industry chain from Chinese domestic companies also reach about 408 billion yuan. Of the investment, upstream chip accounts for 196 billion yuan, nearly a half of lighting investment. Based on orders from the largest upstream epitaxial chip and chip as well as other equipment suppliers, from Asia, notably China, the strong MOCVD equipment demand has hit the top in the second quarter of 2011. The large amount of investment in the MOCVD device inhibits the in-time consumption of capacity, therefore, the oversupply situation in this year will continue.

LED chip price continue to slip.

The hot investment in China’s LED industry chain and the continuous purchase of MOVCD from foreign companies outside of Chinese market undoubtedly will increase the output and inventory of LED chip; in order to get profit, companies will further lower chip price, and implement a new round of price war, as such the profit margins of manufacturers will continue to contract. According to the latest market statistic, comparing with the early 2012, LED upstream sapphire substrate and the chip price has declined by more than one third so far.

Under the environment of LED lighting price falling on fierce competition, LEDinside, a division of Trendforce advised lighting manufacturers to develop new blue sea, such as moving to the have-joined-WTO Russian new market and the lower-development-level Indian segment. In addition, with the improvement of living standards, aside from commercial lighting and landscape lighting, some novel LED application fields also top out, including medical lighting, plant lighting, refrigeration lighting, and LED lighting manufacturers can make an attempt in new areas.

LED supply chain will see structural integration.

From another perspective, the excess capacity also contributed to the structural integration of LED supply chain, midstream and upstream enterprises will achieve lateral reorganization or penetrate into downstream to conduct longitudinal vertical integration will be another attraction for LED industry in 2013.

Lateral reorganization is the merger or cooperation among midstream and upstream enterprises. The most surprising news in 2012 was nothing but LED chip plant-San’an photoelectric from Chinese mainland took shares of Taiwan’s Formosa Epitaxy optoelectronics, opening the prelude of reorganization among enterprises.

Upstream enterprises continuously penetrating into downstream also will become the hotspot of vertical integration. The industry sources forecast chip and mode of application will be the trend.