Competition Chinese 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 Chinese etc. top three chip manufacturers, beginning in 2017 has obvious expansion plans, estimates when these new capacity are in place, in 2017, MOCVD China 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, China 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 China 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, Chinese 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, Chinese 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.