Demand slows down, the initial change in the profitability of LED chip makers

On the one hand, the expansion of capacity brought about by the large purchases of upstream equipment, and on the other hand, the slowdown in the growth of downstream demand. While the actual production capacity has not yet been released, the market environment that China's LED chip manufacturers are facing is playing a subtle change.

Policy-driven large-scale equipment procurement

The large-scale application of LCD backlights has led to the rapid development of the LED industry in recent years. At the same time, due to the surge in demand from downstream companies and the encouragement of related subsidies, global LED production capacity has shifted from the domestic market to the domestic market in 2009.

Incomplete statistics show that in 2009 LED industry announced plans to invest 22 billion yuan; in 2010, only the listed company's LED investment plan amounted to more than 30 billion yuan. Among them, Sanan Optoelectronics (600703) plans to invest up to 20 billion yuan, BDO Runda (002005) announced 4.1 billion yuan investment in LED.

The entry into upstream chip manufacturing, which is a high threshold, is the main reason for the increase in the investment amount of the entire LED industry. “The plan we started was to open the market through downstream applications and then gradually manufacture the chips. After comprehensive consideration of the market environment and policy support, the company chose 'one-step' to directly conduct chip production.” People once told a reporter from the China Securities Journal that the government’s subsidy policy has played an important role in driving manufacturers to invest in LED chip manufacturing.

Analysts said that the government has provided generous policy support for the introduction of metal organic chemical vapor deposition (MOCVD) equipment for the production of GaN LEDs. According to the latest research report from IMS Research, a market research organization, between 2010 and 2012, it is expected that China will spend USD 1.6 billion on MOCVD equipment and at the same time it will provide up to US$1.8 million in subsidies for each equipment. In addition, local governments also propose reductions. Tax rates, accelerating equipment trade-in and free land use and other preferential measures.

Powered by the Chinese market, MOCVD's global shipments have reached new heights since 2009. From previous annual 100-200 units, they have soared to 786 units in 2010. It is expected that shipments in 2011 will reach 790 units. . According to IMS Research, it is conservatively expected that domestic wafer production capacity will grow by 54% in 2010, and the growth rate by 2011 will reach 74%.

Stabilizing demand affects industry growth

However, before the domestic LED production capacity has not been substantially released, the LCD TV market's pulling effect on LED is slowing down.

Due to technological advances, the demand for LEDs per LED TV and display panel has rapidly decreased. It is understood that from the second half of 2009 to the first half of 2010, the number of LEDs required for each panel has decreased by 22%-27%, and it has dropped by 34%-38% in the second half of 2010. In just one year, the number of LEDs used in each panel has dropped by 51% to 54%, far exceeding the manufacturers' expectations.

In addition, as the high point of LED TV prices has passed, LCD TV sales began to slow in the third quarter of 2010, resulting in reduced demand for upstream products such as LED, further affecting the LED industry's capacity utilization. IMS Research believes that, in 2011 and 2012, supply growth will further exceed the expectation of demand growth, LED excess situation will become more and more serious.

On the whole, the LED industry will continue to grow rapidly under the influence of the penetration rate of the LED TV industry and the gradual opening of the lighting market. Analysts believe that LED will expand its application in the field of backlight products, and its penetration rate will be faster than that of general lighting applications; in addition, by 2015, the revenue growth brought about by the use of LED in general lighting will make up for the backlit TV. Saturation led to a decline in revenue.

“We can foresee that the LED market will grow up healthily, but it is difficult to say whether the relevant manufacturers can make the same good profit.” IMS Research said that the excess of LED led to the decline of capacity utilization rate and the slowdown of output growth, plus China The MOCVD stimulus plan will eventually come to an end. There are many variables in the outlook of LED chip manufacturers.