China LED Market Suffering Growing Pains

China LED Market Suffering Growing Pains

October 4, 2012…In 2012, numerous government projects and subsidies have spawned a booming LED market with the LED firms. Much of the LED market is centered around the LED makers headquartered around Shenzhen in the Guangdong province. While subsidies have been plentiful, they have reportedly been given to all LED firms regardless of the quality of their products, according to a Digitimes article. For this reason low quality products can still compete in the market with low prices. Additionally, many of the small small LED firms are not well structured financially. This has prompted some China LED industry observers to predict that by 2015, around 30% of the firms will be acquired by peers or exit the market.

In 2012, around 80 LED firms in Shenzhen have declared bankruptcy. One notable example is LED display maker Shenzhen YJG Optoelectronics which claimed revenues exceeding CNY100 million before declaring bankruptcy.

Market researchers have have concluded that the market for LED billboards is saturated after six years of compound annual growth of 28.5 percent from 2001 to 2007, and an additional growth spurt in 2010 due to the World Expo in Shanghai. The high growth rate attracted many players.

The saturated LED billboard market has pushed firms such as Absen Optoelectronics to switch focus to LED lighting products. Absen announced a plan to provide integrated OEM/ODM services for LED lighting in 2012. The firm plans to increase LED lighting revenues to 50% of total revenues in three years. Absen has been focusing on the domestic enterprise lighting market. Absen believes low gross margin has become the norm in the LED lighting market. This is the reason why most LED firms favor the corporate lighting market that has certain set requirements for LED products.

Uniquely, China-based Neo-Neon has been expanding its customer base through ODM/OEM business. The firm enables customers that have the intention of entering the LED lighting market to begin production immediately by providing a complete production process. Neo-Neon also provides free technology transfer and training that can help customers begin production within one week, according to the firm. The business model has reportedly been helping the firms to expand to markets such as Poland and Turkey. Neo-Neon not only provides LED lighting module, the firm also sent technicians to help customers with production.

China-based Sanan Optoelectronics is a fast-growing LED chipmaker that entered Taiwan to compete with its main local rival Epistar. Sanan Optoelectronics currently has 144 units of 2-inch MOCVD equipment with capacity utilization rate approaching 90 percent and has a monthly capacity of around 100,000 AlGaInP LED expitaxial wafers and 300,000-400,000 units for blue LEDs. Sanan has become a supplier for Taiwan-based LED packaging firms such as Unity Opto and BrightLED. Sanan has been expanding capacity and expects that by 2013, annual capacity of LED epitaxial wafers will reach 10 million units and LED chips will reach 30 million units. In mid-August, Sanan announced that the company has obtained subsidies of CNY12.15 million for sapphire substrates from Anxi County. The construction of the plant is near completion and equipment will be installed with production scheduled to begin in 2013.

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