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China's LED industry will meet the next year
This year's output value is expected to reach 205.9 billion yuan. According to the *Securities Times*, despite price reductions, investment in the LED industry remains strong. A recent report from Gaogong LED revealed that the total output of the domestic LED industry is projected to hit 205.9 billion yuan by the end of 2012. The report also noted that the number of MOCVD devices in China increased from 803 in 2011 to 917 in 2012, a rise of 114 units. However, while equipment investment accelerated, chip production only grew by 20%, and sapphire prices dropped by 35% year-on-year, with LED chip prices falling by 32%. This significant price decline has impacted the entire supply chain.
From an overall perspective, the upstream sector has seen some improvement this year. This is mainly due to increased downstream investment during the second and third quarters, with many traditional lighting companies transitioning into the LED industry. Zhang Xiaofei, CEO of Gaogong LED, explained that while the growth rate of epitaxial wafer investment dropped from 46% last year to 10% this year, downstream application investment surged from 21% to 53%. As a result, the focus of investment has shifted from the upstream to the downstream sectors.
Zhang also predicted that there will be fewer than 30 epitaxial chip companies next year. While three domestic MOCVD manufacturers are expected to emerge, they may not yet have product sales. Packaging factories could see a 20% closure rate, and downstream display enterprises might shut down more quickly. Meanwhile, the penetration rate of LED downlights and spotlights in the domestic market is expected to exceed 30%, and LED lighting sales could reach 1 billion yuan.
The price of chip packaging has also dropped significantly. Wang Lianghai, vice president of Tongfang Shares, pointed out that over the past few years, massive investment in the upstream chip sector led to a 30% price drop in 2010, with performance doubling. In the packaging sector, average prices fell by 40% compared to 2010, though performance improvements were slower. As a result, the final product prices have also decreased—products that once cost 300 yuan now offer similar performance at 200 yuan.
Technological innovation has driven these price drops, but it has also reduced profit margins for downstream companies. The oversupply of LED products, caused by heavy upstream investments, has led to intense price competition. Zheng Tie Min, General Manager of Shandong Inspur Huaguang Company, said that some entrepreneurs focused too much on short-term gains and rushed into the LED industry without proper planning. Some companies even moved overseas to take advantage of foreign incentives, despite lacking local support or subsidies.
Zheng believes the price war will eventually lead to production cuts, shutdowns, special production, bankruptcies, mergers, and acquisitions. Only the most efficient companies will survive and move toward sustainable development. As product performance improves and quality stabilizes, prices will gradually become more reasonable.
Government subsidies have played a key role in the LED industry's growth, especially under energy-saving and emission-reduction policies. However, Zheng Tie Min criticized some local governments for making unrealistic plans and offering overly generous incentives, such as land donations, which contributed to overcapacity. On the other hand, Zhu Bingzhong, deputy general manager of Kingsun, argued that government subsidies are an effective way to support emerging industries. He emphasized that such policies help promote R&D, stimulate the market, and reduce raw material costs, ultimately supporting the industry's long-term development.
The goal of the subsidy policy is to help a few leading companies drive the entire industry forward, promoting energy efficiency and creating new growth opportunities. While the policy itself is sound, the key lies in how companies can effectively utilize these subsidies.