LEDinside: Excessive Capacity Caused Oversupply to Persist in 2012; Makers’ Technological Edge and Patents Become Critical for Survival

LEDinside, the LED research division of TrendForce, indicates that affected by the month-end inventory adjustment and the dreary end-market demand, most LED manufacturers’ revenues underwent setbacks, averaging between 10% and 15%. According to LEDinside, despite the low utilization rates of LED companies, the LED chip supply in 2011 still amounted to 174 billion units while the chip demand was merely 129 billion units, with a 35% of oversupply. As a result, most LED manufacturers faced considerable inventory pressure in 2H11.

Looking towards 2012, given the huge amount of untapped MOCVD capacity, the LED industry is expected to remain in oversupply. However, companies with patents and technology strength still have a fighting chance to manage through this downturn.

Supply End: Inventory Digestion and Cost Reduction among First Priorities
Many LED makers’ exports decreased considerably due to slow end-market demand caused by global economic downturns. At present, the industry is kept afloat by orders from the commercial lighting sector and the governmental projects, moreover, the intensifying competition is also driving a number of companies to the brink of going out of business before the Chinese New Year. The bleak outlook also rendered upstream manufacturers more conservative about choosing clients and managing outstanding payments.
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In response to the decreasing shipments and the rising inventory level, most companies decreased their utilization rates and forced the employees to go on unpaid vacation in order to reduce production and costs. However, the high inventory level remains the biggest issue for the LED makers.

Demand End: Potential LCD TV Demand Surge to Revive LED Backlight Market
As for the TV backlight market, the gloomy global economic climate contributes to the under performing sales of LED TV, which use a huge amount of LEDs, causing the total shipments to drop from 220 million sets as previously forecast to 203 million sets.

With the forthcoming London 2012 Olympics and LED TVs with consumer-friendly prices released by big brands, the sales of LED TVs in emerging markets are expected to surge, which will breathe new life into the LED backlight market.

Demand End: LED Lighting Market Slowly on Upswing; Active Supports from Several Countries and Manufacturers
In terms of LED lighting market, the European and the United States markets are usually where the money is for the commercial lighting industry. But the European market’s growth momentum takes a turn for the worse following the outbreak of the European debt crisis. Fortunately, projects from governments and power plants continue to increase. As a case in point, the LED outdoor lighting and architectural lighting projects in the United States and Australia see stable growth, not to mention the increaseing street lamp projects in the U.S. east coast states. Furthermore, the street lamp projects released by Australian power plants also begin to take form.
 
LED lighting owns bigger market shares in the project-oriented and high profit sectors. As for LED light bulbs, the market prospects are looking up in Japan. In addition, special lighting applications such as plant lighting, agricultural lighting (including UV curing) and low-temperature lighting have been receiving increasing interest.

Perspectives from LEDinside
With regards to the outlook in 2012, LEDinside points out that the South Korean companies play an integral role. Aside from Seoul Semiconductor reaching a cross-licensing agreement with five global major LED makers, Samsung Electronics will merge its LED division. The purpose of the merger is for the LED division to incorporate semiconductor division’s technologies and to further increase the self supply of Samsung’s mobile device and TV backlight needs. With Samsung mapping out its channels on a global level, Samsung will become a top competitor against other companies in terms of building a solid lighting brand.

LEDinside believes that the oversupply is expected to persist in the short run, but the LED end market will continue to see speedy growth. Hence, 2012 will become a year for the strong to thrive and the weak to fade; only companies who own technology edge and patents can survive the fierce competition.