Build a new ecological business model, and small-pitch LEDs continue to show their power

In the first half of the year, small-pitch LED companies had a good harvest

In the first half of 2016, the main changes in the small-pitch LED screen industry were almost all good news.

First, the market capacity continues to grow. Although it has doubled from 2014 to 87% in 2015 and is currently around 60%, the growth rate is declining. However, in terms of absolute growth scale, the application of small-pitch LED screens is still in the "explosion period." In fact, as long as the industry growth rate remains above 41.5%, small-pitch LED screens can maintain "absolute doubling of incremental growth." This pace can be maintained for at least 3 more years.

Secondly, against the background of intensified market competition and falling prices, the net profits of industry leading companies basically doubled in the first half of 2016. Price decline has been the main development trend of small-pitch LED screens in the past three years. It is also the reduction in price that has contributed to the continued expansion of product application scale. However, LED screen companies can still maintain a development situation in which "profit growth" exceeds "scale growth" by developing products with smaller pitches, expanding market size, and extending the service industry chain.

Third, the gap between Chinese and foreign markets and enterprises has further widened. If before 2012, the domestic small-pitch LED screen industry still followed the development of the international market, then now the entire situation has been completely reversed. At present, the domestic market has mainly promoted the popularization of P1.2 level products. This type of product is also the "threshold resolution" that can maintain the best results in emerging fields such as VR. In contrast, traditional LED display giants such as Europe, the United States and Japan are still looking for a way out in the P1.5 and above product market.

Fourth, the local share of the upstream industry chain has expanded. Including the localization of 1010 lamp beads and the localization of some key equipment, it has become the main key force to promote the cost reduction, scale expansion and profit improvement of small-pitch LED products. Small-pitch LED screens have higher requirements on LED lamp beads, substrate materials, packaging processes, etc. This has created a space for differentiated growth in the context of the overall downturn in the LED manufacturing industry, and has attracted widespread attention from the domestic LED chip industry chain.

Of course, nothing is perfect. There is also bad news about the development of small-pitch LED screens. In addition to the price decline mentioned above, the deterioration of the competitive landscape has become a major trend in industry development.

Small-pitch LED screens are not an industry with "high core technology threshold". In the past, there were few similar products, which was inevitably related to the immature market demand. For full-screen companies, the maximum technical threshold for small-pitch LEDs should be described as "process experience". This allows, as time goes by, the number of companies capable of entering small-pitch LEDs, especially quasi-fine-pitch products (p1.6-p3.0), to increase. Part of the small-pitch LED industry shows the possibility of repeating the "vicious scale and price" competition routine of the traditional LED screen market.

Avoiding vicious competition in the context of product homogeneity is a key proposition in the small-pitch LED screen industry. In this regard, in addition to further developing more technically difficult "ultra-fine pitch" products, the effective prescription is to build a more complete industrial chain and become a top priority.

From extending the industrial chain to building a brand ecology

Since 2014, the core word in the small-pitch LED industry has been "mergers and acquisitions". It mainly includes multiple acquisitions in entertainment performance equipment companies, application market channels, rental service companies, related business companies, etc., which constitutes a major feature of the small-pitch LED screen industry. Leyard's acquisition of American engineering large-screen supplier Planar in 2015 was one of the climaxes of this series of transactions.

"From 2010 to 2013, many traditional LED screen companies faced losses. What is the reason? On the one hand, it is vicious price competition; on the other hand, it is also due to the single mode of corporate market participation. After all, while screen companies are losing money, those channel vendors are still making money." The industry believes that the key reason why small-pitch LED companies are willing to extensively acquire downstream companies in the industry chain is that they have learned from the previous experience of traditional LED screen products falling into profit difficulties.

On the other hand, as a new display technology for small-pitch LED screen products, the expansion of its application market also requires brand manufacturers to control more industrial links. By entering the downstream application market and application service market, small-pitch LED products can rapidly achieve scale growth. This serves as a good example for the sustainable development of the industry.

Since 2016, the “mergers and acquisitions” of the small-pitch LED screen industry have entered the second quarter. Unlike the previous stage, which mainly sought absolute control over "channels and service providers" and expanded its own industrial chain, the new market integration is more symbiotic.

For example, entering the market of VR technology suppliers and software service system service providers through equity participation, extending the potential application areas of small-pitch LED screens. Industry leader Zhou Ming said that small-pitch LEDs have many distinct application segments. The best way to achieve "strength presence" in these areas is to form a broad value community.

The application of small-pitch LEDs is increasingly refined. Core technology partners with completely different needs in different industry scenarios. This pattern makes the previous one-size-fits-all mergers and acquisitions no longer feasible. New "joint vertical" models such as mutual shareholding, strategic investment, financial investment, and partnerships have become new business expansion methods for small-pitch LED companies. Such a rule is not only suitable for the domestic market, but also conducive to the development of the international market for small-pitch LEDs.

From the perspective of industrial process, the domestic small-pitch LED screen industry has led the international market for about 2 years. Chinese companies can export products, technologies, application models and market rules. However, to truly implement products in overseas markets, especially European and American markets, it will inevitably require the support of local channels and service providers. As for the latter, simple holding-type mergers and acquisitions are prone to conflicts and acclimatization. The way to quickly accept the other market is to "win-win cooperation and build an industrial value ecosystem."

In the first half of 2016, the small-pitch LED market has shown an "expansion model" transformation from the earliest "industrial chain philosophy" to the current "ecological philosophy". This change is considered to be conducive to the further "acceleration" of the industry market.

The theme of competition changes, and the industry focuses on new rules

Why can the leader in the small-pitch LED industry continue to maintain high profit growth? There are several reasons for this: 1. Profits from the downstream industry chain, such as leasing, entertainment services, etc.; 2. Profits from efforts to develop higher-end products; 3. Brand premium; 4. Profits from other businesses, such as lighting, etc. growth.

Some of these profit sources have shown unsustainable trends. Such as the profits of high-end products. As small-pitch screens enter the 1.2 and 1.0 eras, whether to develop products with smaller spacing and whether products with smaller spacing can be accepted by the market have become propositions that must be considered.

Whether it is from the perspective of technical difficulty, yield, or upstream cost, the cost of small-pitch LED screens will increase rapidly as the spacing becomes smaller. For example, 2.0 products can be made popular; the current market acceptance of 1.0 products is only "slightly better than nothing." At the same time, the mainstream application of small-pitch LEDs is large screens. The viewing distance of large-screen systems determines products below 1.0, with almost no clear visual experience requirements. ——Unless small-pitch LEDs can enter the small and medium-sized screen market (this market is currently occupied by cheap LCD TVs).

Therefore, small-pitch LED screens are actually approaching the "end of pitch technology." In other words, as the market price of existing products drops, there are no new products to fill the "profit gap."

For another example, in terms of brand premium, the advantage of the leader may not be sustainable. First, technological innovation of products has entered a slow period, and the significant product advantages of the leader have weakened. Second, the expansion and segmentation of the small-pitch LED screen application market has made "channel strength" increasingly strong, the share of leading companies has been diluted, and the leading companies' ability to control and influence channels has weakened. These two points determine that "brand premium excess profits" may encounter challenges.

For the challenge of profit sustainability, the prescription given by small-pitch LED screen companies is "value diversification." Including the shares and financial investment in channels and related partners mentioned above; it also includes the development of LED lighting, LED application system solutions, leasing business, LED creative cultural industry, etc. Unilumin's understanding of this is "group control" and "ecological incubation", which will be the way for small-pitch LED companies to grow in the future.

Overall, the laws of technology saturation and relative excess, product proliferation and homogeneous competition, long-term market growth slowdown, industry giants’ share dilution and declining discourse advantage, and the strength of channel and application scenario companies have replaced the decisive influence of the three elements of “technology, supply, and capital” on industry companies in the past few years. These changes will promote a new pattern of development of the small-pitch LED industry.

From following technology to following scenes

In the first half of 2016, what is the biggest change in the small-pitch LED screen industry? The author believes that there is nothing more important than enterprises “following the target” changes.

From 2013 to 2015, the most mentioned concept among small-pitch LED screen companies was "technology". In terms of technical indicators and display effects, keeping up with industry leaders has become the most important task for all market participants. Even industry mergers and acquisitions that disturb the market atmosphere from time to time cannot compete with "Following Technology" to compete for the spotlight.

The fundamental condition for forming the trend of “following technology” is that this period is at the critical stage of R&D and innovation of small-pitch LED products. New technologies and products are constantly emerging. Most participants in the industry are trying products with standards below p2.0 for the "first time". Moreover, industry enterprises are facing the pressure of declining market efficiency of traditional LED screens and lighting, and have sufficient motivation to proactively innovate and innovate. It is these conditions, together with the huge industrial scale of the local market, that have contributed to the era of small-pitch LED, and local LED screen companies have surpassed the technological leadership of international giants.

However, "chasing technology" will always encounter "bottlenecks". This is the stage now: one is the bottleneck of technological progress itself, and the other is the bottleneck of market demand (as explained above). In this context, the core leading trends of small-pitch LED screen companies are bound to change. This new trend is to “follow the scene”.

As mentioned above, the "capital investment" and "mergers and acquisitions" of small-pitch LED screen companies have entered the second quarter with the theme of "symbiosis" rather than "control"; it is also mentioned that market segmentation is becoming more and more serious. The essence of these changes can be summarized as "application scenario differences".

Stage, radio and television studio, dispatching and command center, mainly graphic and text display and VR display: all can have small-pitch screens behind them, but they have completely different customer needs and service supply relationships. This is scene differentiation and scene segmentation. In the future, whoever masters more "scenario resources" will grow faster and better. This has become a basic consensus in the industry.

"The work must be detailed enough and must reach the basic market." This is the voice of an industry leader. The essence of running according to the scene is to run more at the grassroots level, the basic market, the channels and integrated service providers. It means that we should no longer "I am a new technology, high technology, and high-level", but should "closely contact the masses and serve the people in a down-to-earth manner."