"Five tricks" to help LED out of the upstream vicious spiral

Since 2014, the LED industry upstream enterprises (substrate, epitaxial, chip) overcapacity problem highlights, coupled with the downstream LED application product prices continue to decline, making the upstream LED gross margin continued to decline.

Compared with downstream applications, the LED industry is highly intensive investment in the upstream areas, margins have been at a high level. But in recent years, the rapid development of the domestic LED market led to the rapid growth of the upstream business sales, in the market environment and government subsidies under the dual stimulation, LED upstream production capacity expansion, competition is becoming increasingly fierce. The majority of enterprises to expand production scale to dilute the cost of production, in order to lower prices in exchange for market share, resulting in LED chip prices continue to decline.

Price competition upgrading LED chip enterprise cost by compression decreases the size of LED chip, not only makes the problem of overcapacity is more serious, resulting in further downward price, and induce more upstream of the extension of the enterprise and the sapphire substrate production overcapacity, forming a vicious spiral price and production capacity.

In the face of fierce price competition brought about by the cost pressures, LED upstream enterprises in order to remain competitive, you can break the price and capacity of the vicious circle from the following points.

Through the integration of the industry chain to keep warm"

The downward pressure on the market led to the emergence of many LED companies set off a wave of mergers and acquisitions. 2015, LED industry has occurred nearly 40 cases of mergers and acquisitions integration, the average monthly more than 3 cases of mergers and acquisitions occurred, covering all aspects of the LED industry chain.

Intense market competition makes small and medium LED epitaxial chip companies unsustainable, looking forward to other epitaxial chip companies horizontal integration. 2009, the mainland upstream epitaxial chip companies reached more than and 60, but this year has dropped to less than 20, the actual operation of only about 15. The bankruptcy of enterprises eager to be the leading enterprises to integrate acquisitions, such as the 2013 acquisition of Jiangxi Rui technology, perfect technology, perfect for the restructuring of the photoelectric. Horizontal integration for small businesses is undoubtedly a good shade behind the tree, but also for large enterprises to expand production capacity at a small cost, to maintain their market position in a way.

LED upstream enterprises can also be achieved through vertical integration, industry chain synergies. LED epitaxial chip companies can extend to the upstream sapphire substrate and chemical gases and other raw materials, vertical integration of related enterprises, thereby reducing procurement costs, the formation of synergies, enhance their competitiveness. As of this year in Sanan optoelectronics spent 126 million yuan acquisition of air products and chemicals (Wuhu) Co., Ltd. 100% stake and air products and chemicals (Shanghai) Co., Ltd. 11 ISO container, to further strengthen the upstream raw material supply capacity; HC semitek bid 1 billion 80 million yuan to buy 100% stake in Yunnan langene science and technology, the effective integration of aquamarine technology production capacity of sapphire substrate.

Enhance product competitiveness by increasing R & D investment

In the market gross margin continued to be squeezed under the circumstances, through continuous price to gain competitive advantage is not a permanent solution. In order to cope with price competition, chip companies will cut the cost of the wafer by cutting the epitaxial wafer into smaller chips. But with the decrease of the chip size, it is necessary to increase the injection current and improve the power density of the light in order to achieve the same luminous power, which requires higher performance of LED.

On the one hand, with the increase of power density, the luminous efficiency of LED is decreased, which requires the use of more excellent performance in the LED epitaxial structure to offset the decline in light efficiency.

On the other hand, the decrease of LED light efficiency under high power density also means that more heat is produced, which puts forward higher requirements for the performance and reliability of LED chips. If the enterprise just chip size blindly and complemented by epitaxy and chip design research and development, will not only lose the competitiveness of their products, but also make the product has super power to work and produce potential security risks.

Through a specific application market to high-end product line

In the face of price war intensified LED Red Sea market, LED epitaxial chip companies should be brave to rush out of the Red Sea, into the high-end segments of the blue ocean. Automotive lighting market is a typical LED new blue ocean". According to the National Bureau of statistics data, as of the first half of 2015, China's car ownership reached 163 million. Such a huge car market for the automotive parts market has brought considerable room for development. According to statistics, in 2014, the Chinese market a total of 245 thousand sets of LED headlamps, is expected in 2016 will be increased to 907 thousand and 500 units, while the LED in the tail of the vehicle penetration is also very high.

However, the automotive market is not intended to enter the LED. At present, more than half of the domestic automotive LED lighting market is dominated by foreign companies, especially the chip side, almost by OSRAM and PHILPS. The lack of domestic automotive headlamps in the field of products from the chip to the whole industry chain module matching. OSRAM and PHILPS, the two giants in the automotive market for many years, has a wealth of automotive product lines, and long-term cooperation with world-class auto companies, thus establishing its own high-end positioning. The mainland LED chip technology in the early stages of the development of the LED industry is also difficult to be qualified for the performance requirements of LED headlamps, so missed the opportunity to enter the market. In recent years, the domestic LED chip has made great progress both in light efficiency and reliability. 2014, the domestic LED chip market share of 83%. In three, Huacan and other leading enterprises