Competition China LED chip industry analysis - LEDinside

The first part: Industry Report

With the LED chip companies in the three quarterly report settled, LED industry high boom has been confirmed, three, Huacan, Australia Shunchang, changelight no doubt that this round of LED chip cycle beneficiaries. Compared to the same period last year, the major manufacturers have achieved more than 50% profit growth.

However, in the high degree of economy, behind the high profitability, but also stimulate a new round of the expansion wave is wildly beating gongs and drums, just for the industry boom cast a shadow of disquiet.

The latest statistics, LEDinside said, including three Huacan, Australia Shunchang China etc. top three chip manufacturers, beginning in 2017 has obvious expansion plans, estimates when these new capacity are in place, in 2017, MOCVD Chinese cumulative installed capacity accounted for the global proportion will reach 54%. "The mainland LED chip to usher in a new wave of expansion peak, 2017, production capacity accounted for 54% of the world"

From the production perspective, Chinese manufacturers because the equipment is new, more efficient production capacity accounted for as much as 58%.

This is reminiscent of the 2009 LED chip industry fever. At the time of investment frenzy, directly after 2010 to 2012 Chinese by nearly 80 LED chip projects have been launched, and the formation of LED chip industry is highly fragmented, poor profitability of the industry pattern. After years of several rounds of industry reshuffle, LED chip industry was finally ushered in this round of industry boom.

History will not repeat itself? The next 2 years, China LED chip industry will once again fall into the quagmire of excess supply, price competition?

Unlike in 2009, the expansion mainly concentrated in the top three chip manufacturers. Foreign manufacturers in addition to OSRAM still have the expansion plan, other manufacturers are no large expansion plans, China most domestic chip manufacturers have been unable to expand production capacity, gradually withdraw from the competition. Siu Chi although there are new LED chip project, the short-term impact on the market is very limited.

Therefore, although alone several major manufacturers expansion sharply, but the overall capacity expansion rate is relatively limited (145%), taking into account the Veeco Red Bull, micro A7, Axitron R6 and other large cavity new machine has become the main model, K465i, CRUIS2 and earlier models gradually withdraw from the market. The overall market supply is more concentrated, capacity growth is lower than expected.

Together with the local government MOCVD equipment subsidies are relatively more concentrated. With the early rain equitably mode, the local government is now more inclined to choose the camera subsidies in the competition of the market economy has been proved to have good operation and management ability of the company.

Subsidies also need according to their strength and ability to negotiate a proposed model to determine the status of the industry, and has the advantages of good and the ability to pay in a favorable position in the company and the local government in bargaining.

Subsidies to the enterprise cost structure change is very obvious, the production efficiency of the new machine single chamber 31x4 inch per furnace is higher, less material consumption, equivalent to the average variable cost of 2 inch tablets compared to K465i can be reduced by about 30%, and the only disadvantage is the initial capital needs a higher amount of the expenditure, which means the higher the amount of depreciation, it takes longer to cumulative amortization of depreciation to reduce the average cost.

The role of subsidies is that this process is greatly shortened, the short term can do an average cost is lower than the old equipment depreciation and amortization end, to reduce the risk of fixed capital investment in new equipment procurement. Therefore, chip manufacturers have a strong motivation to get subsidies for the purchase of new machine to increase cost competitiveness, the new chip project investment of almost all rely on government subsidies to do.

The efficiency of the new machine corresponding advantages also provided after manufacturers turn overtaking opportunities, Siu Chi is in Jiangxi Government Subsidy Commitments under the background of hope with direct procurement of new machine, no historical cost advantage, cut into the LED chip industry.

From the supply perspective, because the expansion of the schedule and the amplitude of Sanan 2017~2018 years only slightly higher than the expansion rate of the whole industry, compared with the expansion though the absolute number is not small, but relatively Huacan and Australia, expansion moves seem too conservative.

The supply structure of the LED chip industry lost into a structure similar to semiconductor foundry industry opportunities, will gradually form a similar DRAM memory industry in a situation of tripartite confrontation pattern. In contrast, assume that CR3 is equal to the lack of stability of structure of a situation of tripartite confrontation, competition strength is higher than that of a super strong, also higher than the duopoly structure.

In order to occupy nearly 75% of the total profits of the industry profitability, as the industry leader of the three strong profit at the expense of the operation capacity of deterrence strategy, push back the potential entrants (Zhao Chi) and forcing competitors (Huacan, Australia Shunchang) more cautious expansion.

For example, if three prepare a production capacity of 100 units, if not put into use, a total investment of about US $200 million, with 7 years of depreciation, the annual cost of about $30 million, equivalent to 2 hundred million RMB less profit, net profit for the three year billions, and will not pose a serious burden. But it can form a strong deterrent, to prevent new competitors to join, will make the existing rival expansion have more concerns, lay the foundation for the next few years, the profit space. Three in 2014 has successfully used this strategy. "Comments on an optoelectronic three deterrence strategy" capacity

However, the latest progress of the negotiations, because the subsidy is slow, the expansion of new capacity three has been slow to progress, Huacan, Aoyang provides capacity expansion of the window of opportunity. Huacan and Australia Shunchang also saw this opportunity, in increasing the productivity have increased.

Once the first Huacan and Australian foreign expansion, may be forced to accept three production scale in a situation of tripartite confrontation. The future of the industry pricing rules may tend to limit the industry production and the pursuit of better price quasi cartel model.

The cartel model is that under the condition of oligopoly, several oligopoly enterprises signed a formal agreement and the public together to set a price, combined in a cartel. In this mode, Cattell first according to the MR=MC principle to determine the optimal production volume and price, then the enterprises within the Union in accordance with the principle of allocation of quota equal to the marginal cost of production.

Between a few oligarchs LED chip industry if not in a formal agreement in a flagrant way of common pricing distribution yield, but increasingly high industry concentration, coupled with the LED chip of greater demand price elasticity of demand, will be between the forcing companies can easily reach a tacit understanding, take the initiative to limit production price.

In short, the 2018 LED chip market, will not be a monopoly monopoly pricing, it is difficult to maintain high profit situation, but also the probability of not again as in 2015 the price collapse. Three an understanding between and the degree of cooperation will become a key factor in the 2018 LED chip price trends. However, the three oligarchs structure also has a natural instability in the formation of new game mode.

The second part: enterprise article

The micro level, observe the strategic positioning of the main LED chip companies will find that, compared to LED packaging factory, chip factory strategic positioning of the space is relatively small, the degree of product differentiation and product line width are far less than the packaging factory. If you want to compare it and process standardization, product assimilation of memory industry is more similar.

This also means that if you want to succeed in this industry, economies of scale is almost a necessary condition and foundation of threshold. There is strength between manufacturers strategic positioning differences, the most important variable affecting the scale is no longer, but the selection of technological innovation strategy.

Simple classification, the LED chip enterprise technology innovation strategy is divided into two categories, namely the leading strategy and strategy to follow.

Three and electricity is a major source of chip industry's technological innovation, but there are three closer to the market advantage, thus leading technology strategy effect is more obvious. De Howard has been working in the field of CSP flip, become a technology leader. Latticepower is the pursuit of advanced technology on silicon substrate. However, this is not a good way to go, it is easy to be high R & D spending down.

In contrast, Huacan, Australia Shunchang is pegged to the mature market demand, in terms of cost control and improvement process under the foot, but the open sky. Huacan aluminum electrode technology industry and the stability of the strongest, Australia Shunchang is in the limit of chip size through the conventional process, can do short side 4mil, has reached Mini led size requirements.

According to the technology innovation strategy two positioning is different, from two dimensions of cost and price positioning of strategic groups to scan the chip enterprises, we can establish a two-dimensional matrix to simplify the analysis of related enterprises.

Three crystal electric is still the main competitors of high-end LED chip market, the two are the basic technology leading strategy, focus on three technical research and development of chip in the mainstream market demand, the more the difference in crystal orientation, the pursuit of leading position in the high-end market, price positioning between the two compared to be roughly the same crystal electric cost compared. Three disadvantages.

Three in order to maintain the leading position in technology, research and development of large needs spending, compared to small enterprise development technology to follow the strategy, the cost will be slightly higher.

Huacan and Australia Shunchang is to follow the strategy, and not the main resource investment in research and development. Key Huacan is to expand the product line width and coverage of the market, to enter the lighting, display, backlight and so most of the LED applications, customers with three high degree of overlap, objectively fill three for customers to reduce three single supplier risk.

But Huacan factories in three, the management cost is high, and the yield is still a disadvantage compared to the level of three, cost center.

Australia Shunchang is the key to improve operational efficiency, reduce product unit cost, obtain the comprehensive advantages of cost. Australia Shunchang cost advantage has been recognized as the first MLS Rawlinson, chip suppliers, and obtain the MLS funding shares.

At present, Australia Shunchang main models have been Aixtron R6, in addition to purchase new models on Veeco Red Bull upgrade version of EPIK868 (4 per cavity, 35 cavity 4 inches), a whole new generation of MOCVD machine proportion is the highest of all manufacturers, at the same time as the production factories in the same factory, cost management also lower.

Others such as blue, harmony and so on can depress profits at lower prices to maintain Linsen supply chain, is in relatively weak bargaining position.

Another smaller chip factory, machine number, equipment is also very old, but temporarily unable to quit, only can supply some two or three lines of packaging factory factory to maintain operation.

Cover from the chip maker's customer situation, the supplier can be used to describe the current state of the market triangle. Three, EPISTAR, Huacan main supply line chip factory. Australia Shunchang, Huacan, blue etc. Linsen system. The two or three line chip factory packaging factory only through some two or three lines to survive.

Only lower cost, higher prices for the enterprises to create profits. The red line segmentation of different price and cost combination, the more close to the lower right corner of the enterprises have stronger profitability, and