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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 cuts in the LED sector, investment in the industry remains strong. A recent report by Gaogong LED indicates that the total output of the domestic LED industry is projected to hit 205.9 billion yuan by the end of 2012. The number of MOCVD equipment in China increased from 803 units in 2011 to 917 in 2012, reflecting continued investment. However, chip production only rose by 20% this year, while sapphire prices dropped by 35% and LED chip prices fell by 32%. This significant decline in prices has put pressure on manufacturers.
From an overall perspective, the upstream sector has seen some improvement, mainly due to increased downstream investment in the second and third quarters. A large portion of this investment comes from traditional lighting companies transitioning into the LED industry. Zhang Xiaofei, CEO of Gaogong LED, noted that the growth rate of epitaxial wafer investment dropped from 46% last year to just 10% this year, while downstream application investment surged from 21% to 53%. This shift shows a clear trend of moving focus from upstream to downstream segments.
Zhang also predicted that there may be fewer than 30 epitaxial chip companies in the next year. While three domestic MOCVD equipment manufacturers will emerge, they may not yet have products for sale. Packaging factories are expected to shut down by 20%, and display enterprises will face even faster closures. Meanwhile, the penetration rate of LED downlights and spotlights in the domestic market is expected to exceed 30%, with LED lighting sales potentially reaching 1 billion yuan.
Chip packaging costs have dropped significantly. Wang Lianghai, vice president of Tongfang Shares, observed that the price of chips fell by 30% in 2010, and performance doubled during the same period. In the packaging segment, average prices have decreased by 40% compared to 2010, though performance improvements have been slower. As a result, the cost of end-user products has also declined—products that once cost 300 yuan now offer similar performance at 200 yuan.
The oversupply of LED products, driven by heavy upstream investments, has triggered a price war. Zheng Tie Min, General Manager of Shandong Inspur Huaguang Company, pointed out that many companies entered the LED market without proper planning, leading to overcapacity. Some entrepreneurs prioritize short-term gains, and some firms, lacking government support, have moved production overseas to take advantage of foreign incentives.
Zheng believes the price war will eventually lead to a complex process of production cuts, shutdowns, and mergers, resulting in a more sustainable industry. As product performance improves and quality stabilizes, prices will gradually become more reasonable.
Government subsidies have played a key role in the development of the LED industry. Under energy-saving and emission-reduction policies, local governments have introduced various incentives. However, Zheng Tie Min criticized some local governments for making unrealistic plans and offering overly attractive policies, such as land and factory donations, which contributed to overcapacity.
On the other hand, Zhu Bingzhong, deputy general manager of Kingsun, believes that national subsidies are an effective way to boost emerging industries. He argues that this model is not unique to China, as many foreign companies also benefit from government support. Subsidies can drive technological innovation, stimulate market demand, and reduce raw material costs, all of which help the LED industry grow. The success of these policies depends on how well companies utilize them.