Rising Lighting Demands Triggers Chinese LED Manufacturers Surging Utilization Rates

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In 1H13, listed Chinese LED manufacturers’ total revenue increased at a Year Over Year (YOY) rate of 24.26% to US$ 629.62 million, while LED chip manufacturers’ revenue reached US$ 274.01 million. LED package manufacturers listed on the Chinese bourse also saw their revenue increase to US$ 355.61 million. Although, chip prices plunged in 1H13, overall sales increased at a YOY rate of 15.42%, companies have implemented low pricing strategies as manufacturers expanded production capacity. Taking into consideration factors including the timing of the production capacity expansion and chip performance, there were huge differences in chip manufacturers’ revenues. Affected by the LED lighting market demand, China’s major chip manufacturers’ production utilization rate reached a historical high, with San’an Optoelectronics and Elec-tech International (ETI) utilization rates at 87% and 59% respectively. Package manufacturers, especially in backlight field had the highest profits as they benefited from unexpected volume increases for lighting applications during 1H13 and an increasingly domestic backlight module supply chain.

Chip Manufacturers Fail to Benefit from Rebounding End-market Demands, Gross Profits for Chips Continue Downward Slide

As the lighting market continued to grow in 1H13 and LED display growths ease, chip manufacturers are turning their focus from display to lighting market. Out of these manufacturers, San’an Optoelectronics lighting chips proportion reached 70% of the company’s manufactured chips in 1H13. HC SemiTek Corp. LED chips for lighting shipments YOY jumped 289%, and accounted for more than 20% of total shipments. Another manufacturer, Hang Zhou Silan Azure Co. revenue from LED chips for lighting in June took up a third of the company’s total revenue. But switching to lighting application has not been a guarantee to higher profits for manufactures. Hang Zhou Silan Azure and HC SemiTek have seen their chip gross margin slump in 1H13 to -4.7% and 5.3% respectively. Taking into consideration the serious oversupply of MOCVD equipment investment situation in China, and the local government’s support, LEDinside projects upstream manufacturers oversupply status will continue into 2015. Excluding San’an Optoelectronics that has technical and capital advantages plus a comprehensive vertically integrated supply chain, and ETI that has downstream client support, most manufacturers will wind up in a relatively awkward position if they continue to expand chip production capacity. Xiamen Change Light Co. (Change Light) that has technological advantages in the AlInGaP LED field is also moving beyond developing AlInGaP chips by integrating its downstream, and establishing a LED package subsidiary. The company hopes to achieve technological breakthroughs in LED package products with this investment. Foshan Nationstar Optoelectronics Co. (Nationstar) epi wafer production project is expected to enter mass production in 4Q13. In addition, HC SemiTek Corp. and EPI’s 4-inch epi wafer production capacity will also be expanded in 2H13. Overall, chip prices are still under a lot of stress in 2H13.

Figure 1: Revenue of Listed LED Chip Manufacturers (1H13)

 

Source: Financial Report, LEDinside

Package Manufacturers Revenues Grow Considerably From China Backlight Module Supply Chain 

Compared to the chip field’s oversupply condition, package manufacturers are facing significant production capacity shortages in the last six months, which has caused supply shortages in mid power LED for the lighting market in 1H13. However, if the LED lighting market performance falls short of expectations in 2H13, the LED market demand and supply is likely to reach equilibrium and reenter a pricing downtrend since package manufacturers have short production cycles. .

As downstream market conditions eased in 1H13, LED package manufacturers have all felt the lighting and backlight markets reignite for the first time after a very long period. Revenues have surged for major package makers which focus in the lighting field, which includes Honglitronic, Shenzhen Wanrun and for backlight field manufacturers, such as Shenzhen Jufei Optoelectronics Co. (Jufei Optoelectronics) and Shenzhen Refond Optoelectronics Co. (Refond). Listed package manufacturers revenue increased at a YOY rate of 32.05%, and its net profit also rebounded at a YOY of 5.68% to US$ 36.84 million after hitting an all time low. LED package manufacturers in display field were unaffected by the massive slow down in LED display demands and their revenues continued to grow. Nationstar Optoelectronics and Ledman Optoelectronic Co. SMD LED component revenues were up 29.73% YOY and -5.9% YOY respectively.

Figure 2: Revenue of Listed LED Package Manufacturers (1H13)

 

Source: Financial Report, LEDinside

However, in terms of profitability, LEDmakers in backlight field, such as Jufei Optoelectronics and Refond’s gross margin and net margin outperformed those in lighting and display fields. In 1H13, Jufei Optoelectronics and Refond’s revenues accounted for only 28% of listed LED package manufacturers revenue, but has a 38.28% share for net margin. Jufei’s net margin reached 19% and was higher than the industry average of 10%. The company benefited mostly from the rising Chinese smartphone and tablet market demand that has driven fast growth in the backlight supply chain. Jufei has stronger bargain power, due to rapid growth in smartphone and tablet demands, higher gross margin for side view LED and fewer competitors. Refond on the other hand is dealing with a handful of domestic TV manufacturers, and has insufficient bargain power.

Figure 3: Net Profit of Listed LED Package Manufacturers (1H13)

 

Source: Financial Report, LEDinside

To raise product gross margin, most package manufacturers have chosen to extend their reach into the downstream market to secure their business momentum. Honglitronic is placing emphasis on product quality and volume to establish its brand, and plans to use branding to increase its product’s price and competitiveness. In 1H13, the company’s sales in lighting application totaled US$ 9.15 million. In comparison, Shenzhen Changfang Semiconductor Light Corp. (Changfang) is implementing a high price/performance strategy to lower costs through in-house manufacturing and selling of leadframes and power supply. Changfang’s lighting application sales amounted to US$ 15.37 million in 1H13. Nationstar on the other hand, has been focusing on channel establishments and has been setting up business centers and exclusive shops to upgrade its sales network and market channel. The company’s lighting application sales reached US$ 12.07 million in 1H13. Compared to Yankon Lighting and NVC Lighting Technology Corp. LED product revenues in 1H13 of US$ 65.2 million and US$ 45.37 million, LED package manufacturers lighting sales were much lower. The main issue LED manufacturers face will be how to quickly increase product sales and lower costs after making huge investments in branding and sales channels. 

Big Chip Manufacturers Become Even Larger in 2H13, Peak-Season Will Likely be Moderate for Package Manufacturers

As future chip prices continue its downtrend and its economic scale advantages are heightened, LED chip manufacturers with little equipment will be facing an even more disadvantageous environment. LED industry capital expenditure (CAPEX) trends show, most CAPEX is focused on industrial leaders and manufacturers that are catching up to secure their oligarch position in the market, instead of new manufacturers distributed widely throughout the industry. These new manufacturers are likely to gradually exit the market due to their production technology and manufacturing disadvantages. This in turn will allow China’s LED industry to escape from low price wars and enter a market phase that increases product technology and explores niche markets. HC SemiTek Corp. and ETI have control or are completing the technology for comprehensive 4-inch epi wafer production. It is projected that more manufacturers in the future will adopt 4-inch and 6-inch epi wafer production to increase production capacity.

In 1H13, increasing backlight supply resulted in rising TV sets inventory levels. In addition, it has been hard for package manufacturers to be optimistic about backlight revenues in 2H13, as China’s Home Appliance Subsidiary policies ends. From July to August, LED-backlit TV shipments declined sharply, as new orders were far below levels from previous years. In addition, Honglitronic, Shenzhen Wanrun and other package makers that used to focus on lighting and display fields are vying the comparatively higher profit backlight field, and using all sorts of methods to enter the market. These companies pose a threat to the original supply chain. The shift of consumer electronic industry supply and demand into China has become an inevitable trend. The key behind LED manufacturers’ success will depend on how they can use this trend to enter domestic TV, laptop, tablet and smartphone supply chains.

On the other hand, China’s LED lighting market especially as LED lighting prices decreases to around the sweet point area, commercial LED lighting penetration rate will continue to drive LED lighting demand growths. Whether residential lighting can kick off this year remains uncertain, due to the sector’s high price sensitivity. For overseas markets, European and U.S. orders gross margin is still higher than the domestic market, and a larger proportion of LED lighting products will still be exported. LED lighting manufacturers profit conditions remain good. China’s LED lighting package and application market value is likely to increase as LED lighting market demand moves from commercial lighting to residential lighting, and increased mid power LED penetration rate speeds up price falls in the end market. In sum, 2H13 LED lighting package and application market opportunities will outweigh the risks.

 

LEDinsde – Gold Member Report

Chapter 1: Worldwide LED Market Forecast and Summary 

• Market Introduction and Overview
• LED Supply Chain
• WW High Brightness LED Market Forecast
• (Revenue / Unit / Material Type / PKG)

Chapter 2: Worldwide LED Demand Forecast  (2010-2016)

• (Revenue / Unit / ASP)
• WW High Brightness LED for Mobile Application Forecast
• WW High Brightness LED for Medium-Large Display Backlight Application
• WW High Brightness LED for Lighting Application Forecast
• WW High Brightness LED for Automotive Lighting Application Forecast
• WW High Brightness LED for Signs and Traffic Signals Forecast
• Quarterly Movement in M-L Display BLU Market- by Set / Penetration Rate/Revenue/ unit NEW!

Chapter 3: Worldwide LED Supply Forecast  (2010-2016)

• Equipment Maker– WW MOCVD Vendor's Revenue
• Equipment Maker– WW MOCVD Vendor's Shipment
• Chip Maker–LED Chip vendors' MOCVD installation volume in Gan Base
• Chip Maker–LED Chip vendors' Epi Wafer volume in Gan Base (wafer size) 
• Chip Maker–LED Chip vendors' Epi Wafer volume in Gan Base (region) 
• Pkg Maker–WW LED package  revenue
• Pkg Maker–LED package vendors' revenue Ranking

Chapter 4: Cost Analysis Compare to Traditional Light Source

• LED Lamp Cost Structure-40W Replacement
• LED Lamp Cost Structure-60W Replacement NEW!
• LED Lamp Cost Structure- 12W PAR30 NEW!
• LED Tube Light Cost Structure- T8 Tube Light Replacement
• Monitor BLU Cost Comparison between LED vs CCFL-20" Monitor
• Mainstream TV Cost Analysis 
• TV BLU Cost Appendix

Chapter 5: Price Forecast in White LED / LED Light Bulb

• Sapphire Substrate Price Trend-2" / 4" / 6" 
• PSS-2" / 4" 
• LED Lamp Cost Structure- 12W PAR30 NEW!
• LED Chip Price Trend 
• LED Package Price Trend
• 40W Equiv LED Light Bulbs Price in the UK, Germany, the US, Japan, Korea, Taiwan, and China NEW!
• 60W Equiv LED Light Bulbs Price in the UK, Germany, the US, Japan, Korea, Taiwan, and China NEW!
• European LED Light Bulb Market Strategy
• US LED Light Bulb Market Strategy
• Japanese LED Light Bulb Market Strategy
• Korean LED Light Bulb Market Strategy

 

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