LEDinside, LED industry research brand under TrendForce, observes that prosperity of LED industry recovers in 2016, and price decline causes the LED penetration rate to further improve. In addition, due to the impetus of India, Southeast Asia and other emerging markets, the LED market demand has significantly increased over the same period. In recent years, many large manufacturers have signed the strategic cooperation agreement and collaborative signs are more obvious, so those manufacturers’ market share will continue to increase, which is the main driving force of their production expansion.
Large manufacturers’ market share increases, with obvious signs of production expansion.
Table 1 Overview of Chinese LED packaging manufacturers’ expansion plans
From the recent announcements, On October 10th, NationStar announces its plan to invest no more than RMB 400 million in LED package expansion. Since November 2015, NationStar has announced three LED package expansion plans. The first two plans are to respectively invest RMB 400 million and RMB 240 million in projects , and the production capacity has been gradually released.
In almost a year, NationStar, Lightning Opto, MLS and other manufacturers continue to release new capacity. And within the coming year, they will continue to expand production. Different from the collective expansion a few years ago, currently manufacturers of expansion are basically large enterprises. Few small and medium-sized enterprises expand production.
Market competition is still fierce, and manufacturers’ profitability is low.
Although large manufacturers have expanded production, LED market competition is still fierce and packaging manufacturers’ profitability remains low. According to the statistics of LEDinside, major Chinese manufacturers of 2Q16 obtain the gross margin of 24.5%, declining by 1% YoY. Gross margins in some fields are ridiculously low, such as lighting LED field. Refond’s gross margin of 1H16 is only 10.9%; while that of Jufei is just 9.4%. But as for 3Q16, because the chip prices rise and some packaging manufacturers have adjusted the prices as well, the gross margin is expected to get improved.
Chart 1 M ajor LED packaging manufacturers’ gross margins in 1Q14-2Q16
Price declining slows down, thus manufacturers are expected to enhance profitability.
In May 2016, Epistar was the first to raise prices of some chip specifications, but at that time Chinese manufacturers did not follow it. Nevertheless, their product prices have stabilized. In September, Chinese chip manufacturers including San’an Optoelectronics, TongFang and Zhongke Group have raised prices of the small-sized chips. The market demand for fine-pitch displays is strong, resulting in the demand for fine-pitch display-used LED chips growing sharply. And in the lighting field, the downstream manufacturers pursue the high lighting efficiency of lamps, stimulating demand for the small-sized lighting-used LED chips.
Prices of small-sized LED chips sharply decline in 2015, so many chip manufacturers gradually reduce production capacity of the small-sized chips, resulting in demand over supply of those chips in a short period of time and prices rising as well. Due to the price growth of chips, prices of LED packages also begin to rise. Especially in the display field, MLS, Puguang, Xindeco and other manufacturers announce raising prices at the same time. Compared with 2015, prices of LED package are inclined to be stable in 2016 .
Chart 2 Chinese LED package price decline slows down in 2016 (USD/K).
Shuffle is intensifying, and the industry is expected to hit bottom.
Since 2014, the fierce market competition has led to the declining profitability of manufacturers. Many small and medium-sized packaging enterprises have been forced to withdraw from the market. The tide of mergers and acquisitions also makes great manufacturers’ scale larger. Before MLS was dominant; however, the scale of NationStar and Honglitronic is gradually increasing. This year they are expected to attain revenue scales over RMB 2 billion. Besides, other manufacturers in the second camp gradually enlarge their scales. This round of expansion wave is predominated by large enterprises, such as MLS, NationStar, Honglitronic and Xindeco. Production capacity is expanded, thus the industry reshuffle will accelerate. LEDinside considers that LED industry will gradually begin to bottom out. Large manufacturers’ market share will increase, with their bargaining power enhanced and profitability gradually improved as well.
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