Focus on market orientation and actively resolve overcapacity in the LED industry

[Source: Gaogong LED 's " LED Research Review" magazine April issue / Liu Wei]

The group buying industry, which has been plagued by the "doomsday criticality", finally ushered in the dawn of the winter last year. The number of purchases and sales orders is considerable, and the accumulated turnover is expected to exceed 21 billion yuan, an increase of about 90% from the previous year. As of the end of February this year, there were only 943 group-buying websites that actually maintained operations, compared with more than 5,000 records in history, and the survival rate was only 18.6%.

In just four years, the group buying industry has basically returned from over-representation to rational growth. The number of websites has shrunk dramatically. The “Matai effect” of the mainstream group-buying website has become prominent, and competition has begun to continue to be concentrated.

Compared with the group buying industry, the LED industry is a real economy, but the past development trajectories of the two are somewhat similar, but now the LED industry is still deep in the overcapacity, only the envy.

From the deadline for the disclosure of the company's annual report at the end of April, there are still a few days, but among the listed companies that have released the 2012 performance forecast, more than 60% of the companies' net profit last year showed a downward trend. For the reasons for the decline in performance, the general explanation given by various companies is that due to the intensified competition in the LED industry, the price of the company's products has dropped sharply, and this has squeezed the profit margin.

The industry predicts that the structural overcapacity of the LED industry will continue in 2013, and related companies will continue to digest inventory and seize market share through price cuts.

In fact, LED overcapacity mainly occurs in areas where profits or gross profit declines, including upstream sapphire substrates, epitaxial chips, and mid-stream packaging.

In order to eliminate the excess capacity in these areas, one relies on the rational flow of production capacity within the industry, the second is through mergers and acquisitions between enterprises, and the third is to activate the terminal application market.

Happy to see a reasonable flow of production capacity

According to a report released by the High-tech LED Industry Research Institute (GLII), the output value of local chip companies in mainland China in 2012 was only 5.1 billion yuan, a year-on-year increase of only 6%. Excluding the number of new production or exiting enterprises, the number of enterprises with an increase in output value in 2012 was 13 (37%); the number of enterprises with a year-on-year decline in output value was 22, accounting for 63%.

In order to avoid price wars and low gross margins, some chip companies would rather sacrifice the speed of capacity release. In addition, chip companies are also busy with vertical integration.

Dehao Runda, which is laid out in the whole industry chain mode, had an operating rate of only about 50% of its LED chips at its Wuhu base at the end of last year. Chairman Wang Donglei believes that slowing the MOCVD in place under the industry's predicament can reduce production losses and wait for the industry to pick up.

It is worth noting that the shift of LED display to lighting has quietly begun, which is attributed to the increasingly saturated LED display market, and new business models such as outdoor advertising are still in the exploration period, and many companies are forced to do so.

At the same time, many manufacturers, including Silan Mingxin and Huacan Optoelectronics, which mainly use display chips, have focused on increasing investment in white light products this year. Silan Mingxin plans to expand its production capacity from the current 1400kk/month to 2000kk/month at the end of the year, and the proportion of lighting chip revenue will increase from 20% to 30%-40%.

From the profiteering to the conscious mind, the result is not long, the price then plummeted to the freezing point, LED sapphire manufacturers roller coaster-like days are not fun. The manufacturers represented by the above-mentioned city technology have to seek blue ocean assault and push the substrate products to the mobile phone protection screen market.

Although the prospects are full of unknowns and are not optimistic about the industry, they are worthy of a useful exploration of capacity flow.

Advocate mergers and acquisitions and capital integration

To solve the problem of overcapacity, mergers and acquisitions are also one of the ways. At the same time, the government is pursuing a package of policy subsidy programs to activate the end market consumer demand.

The Central Economic Work Conference held at the end of 2012 proposed that “the contradiction of overcapacity will be resolved as the focus of work next year”; before the Spring Festival, the 12 ministries and commissions jointly issued the “Guiding Opinions on Accelerating the Merger and Reorganization of Key Industry Enterprises”, proposing to use automobiles and steel. Focus on industries such as electronic information, medicine, and agricultural industrialization, and promote mergers and acquisitions. This undoubtedly provides guidance for the reorganization of LED companies at the policy level.

On April 9, Ganzhao Optoelectronics announced that the company plans to acquire 100% equity of Dongguan Zhoulei Electronics.

GLII believes that the LED upstream chip industry has gradually shifted from the original technology competition to scale and capital competition. Many SMEs have caused some capacity to be released due to the capital chain bottleneck. In 2012, there have been many merger and acquisition cases in the LED chip industry. Jingyuan Optoelectronics acquired Guangrong, Sanan Optoelectronics invested in Taiwan, and Dehao Runda invested in NVC Lighting. The LED chip industry integration has begun, and 2013 will be the transition year for the upstream chip industry integration group. In 2014, industrial integration will be carried out on a large scale.

It should be pointed out that in the merger and reorganization, cooperation with Taiwanese industry should not be neglected, so that it is conducive to assessing and scientifically calculating the production capacity of the two places and even the world, and will not cause unnecessary surplus. Ye Weifu, chairman of Everlight, said that the Taiwan region and the mainland region have their own strengths in the LED industry. The mainland has a vast market. From the perspective of upstream manufacturing, Taiwan has strong competitiveness. He has repeatedly called for the cooperation between the two places to develop the "Zhonghua brand" and have the opportunity to compete with international lighting brands such as Osram, GE and Philips.

Can you activate the market policy?

Whether it is enterprise product structure adjustment or mergers and acquisitions between enterprises, the terminal market demand has a guiding role. The famous economist Wu Jinglian said the current problems in the application and policy of the LED industry: "What is the government's ability to judge which technology has a future? Some technology may be advanced in itself, but it can succeed in the market, no Anyone knows. Now the government is talking about what technology to develop, and then giving a lot of money. What is the final result? You look at what the photovoltaic industry has become."

The essence of Wu Jinglian’s remarks is not only the concern about the LED domestic demand market, but also the questioning and vigilance of the government to promote and support the development of the LED industry. The severity of overcapacity in the photovoltaic industry and its dependence on foreign markets are all greater than LEDs. When affected by the reduction in demand, it will naturally face a collapse.

At present, PV companies are digesting their production capacity by investing in power stations, but without the introduction of electricity prices, standard systems and government policy rules, it is difficult to achieve the original intention.

The good news is that although the terminal applications of LED products in mainland China are still dominated by large-screen display and backlight applications, there is a huge potential market in the field of residential lighting and public lighting. The new “new urbanization” reform strategy pushed by the new central government has been adjusted, and LED lighting will undoubtedly receive positive energy from the application. Commercial and public lighting demonstration projects launched by local governments have recently come to the fore.

As far as LED companies are concerned, when expanding the terminal market and participating in demonstration projects, they hope that the government will also provide more convenience and guidance in policy support. Many companies have specifically suggested that the relevant subsidies should be more fair and reasonable. Unlike the current, subsidies often become a fig leaf on the books of enterprises, and they do not really benefit consumers like energy-saving lamps.

Unlike the group buying industry, the LED industry, especially in the upstream chip field, is not easy to achieve profitability or profitability in the short term, and once the situation is not good, it is unlikely that the company will retreat. In 2013 and even longer, the LED industry may have to adjust itself to overcapacity. Who is the winner under the long run is still difficult to determine.

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