Foshan’s “large, medium and small” LED companies present three sentiments

According to reports, the performance of A-share listed LED companies has increased by 65%. It can be seen from the reports recently released by Foshan enterprises Nationstar Optoelectronics and Xuelite that both companies have shown rapid growth. Driven by the demand of the terminal lighting market, Nationstar Optoelectronics' operating income and net profit in 2014 increased by 35% and 28% year-on-year respectively. Sherlite's operating income and net profit in 2014 increased by 12% and 7% year-on-year. In 2014, the trend of mergers and acquisitions and integration in the industry was prominent. The relevant person in charge of Nationstar Optoelectronics, which has deployed a "vertical integration" strategy for many years, said: "Mergers and acquisitions are not done deliberately, but to find the right people at the right time."

But at the same time, news of small and medium-sized LED companies going bankrupt and running away has come out from time to time. In October last year, the "lost contact" between the owner of Zhongshan Hualiang Lighting (Fengguang Legend) and his relatives brought the LED company's capital chain problem to the forefront. The industry generally believes that the LED industry has overcapacity and will face a "reshuffle."

Mergers and acquisitions by large companies are frequent

Foshan has three LED listed companies, but Foshan Lighting has not yet published its annual report.

Nationstar Optoelectronics delivered a beautiful report card in 2014. Last year's operating income reached 1.54 billion yuan, a year-on-year increase of 35.07%; the net profit attributable to listed shareholders was 145 million yuan, a year-on-year increase of 28.13%. According to its third quarter financial report of 2014, Nationstar Optoelectronics has basically completed its 2013 full-year performance in the first three quarters of last year alone. Xuelite, which began to focus on automotive LED lighting products, also maintained double-digit growth. In 2014, its operating income was 440 million yuan, a year-on-year increase of 12.7%, and its net profit attributable to listed shareholders was 17.26 million yuan, a year-on-year increase of 7%. Foshan Lighting, which has not yet released its annual report, said that sales of lamps and lighting products bucked the trend and increased by 400% in 2014.

Behind the performance growth, it can be seen that the three LED companies in Foshan in 2014 were all inseparable from the same move - mergers and acquisitions. On January 30 this year, Sherlite announced that it had completed the transfer procedures and related industrial and commercial registration of 100% equity of the underlying asset Fushun Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Fushun Optoelectronics"), and Fushun Optoelectronics has become a wholly-owned subsidiary of Sherlite. According to data, Fushun Optoelectronics is a domestic provider of LED lighting and display application products and system solutions.

This transaction was foreshadowed as early as September last year. Snow White, which has not made any mergers and acquisitions in three years, has made obvious moves to seize the LED market. First, it released a restructuring plan on September 10, 2014, planning to spend 495 million yuan to acquire 100% equity of Fushun Optoelectronics. On September 15, it also announced that it would invest RMB 10.856 million to acquire 57.42% equity of Shenzhen Yike Optoelectronics Technology Co., Ltd., which focuses on automotive LED lighting products.

In addition, two other Foshan LED companies are also making frequent moves. Foshan Lighting, which made a profit of 300 million through the backdoor listing of Guoxuan Hi-Tech, announced on November 28 last year that it planned to invest in a proposal to subscribe for additional shares of Quanfeng Optoelectronics Technology (Hong Kong) Co., Ltd., but the proposal was later rejected because the assessed net worth rate was too high. Nationstar Optoelectronics announced on September 29 last year that Guangdong Guangsheng Asset Management Co., Ltd. and its wholly-owned subsidiary Electronics Group subscribed for 20.07% of the company's shares and became the largest shareholder.

Regarding the mergers and acquisitions of LED companies, Dr. Wang Sen, director and general manager of Nationstar Optoelectronics, said in an interview with reporters: "Mergers and acquisitions are not done deliberately, but to find the right people at the right time." Tang Guoqing, general manager of Samsung LED China, also told the media before that for listed companies, as long as there are suitable objects and opportunities, whether it is a strong or weak alliance, they should do it.

“Last year, the national LED industry mergers and acquisitions focused on upstream companies acquiring application companies.” Wu Yulin, president of the Foshan Lighting Association, believes that vertical integration is the first choice for most LED listed companies. He described such mergers and acquisitions as “defeating yourself.” Regarding the transformation of Foshan Lighting to LED, Wu Yulin believes that it is very successful.

The profit margins of small and medium-sized enterprises are squeezed

Compared with the excitement of large enterprises, in 2014, almost all small and medium-sized LED enterprises were shrouded in the shadow of the "escape gate". On October 22 last year, the owner of Zhongshan Hualiang Lighting (Fengguang Legend) lost contact and owed more than 70 million yuan in accounts. On December 6, the boss of Guangzhou Juliang Optoelectronics "ran away" and the supplier was owed 200 million yuan in payment.

The emergence of a series of "escape gates" and "wave of bankruptcies" reflects the worrying survival situation of small and medium-sized LED companies. In Wu Yulin's view, there are policy reasons for the polarization of performance between large companies and small companies. "In 2010, the state promoted energy conservation and emission reduction and provided technical subsidies to the LED industry, which led to a large number of companies rushing to transform into LED. Now that the state has canceled subsidies for LED chips and equipment, there will naturally be financial impacts." On the other hand, the "cold air" brought about by the downturn in the upstream real estate industry has further expanded, and the broken capital chain has made many small and medium-sized LED companies struggling. In addition, labor and land factors also squeeze the profit margins of small and medium-sized LED companies. "Labor is getting higher and higher, and rents are also increasing at a rate of 5%-10% per year." Wu Yulin, general manager of Guangdong Casio Lighting Co., Ltd., expressed the worries of entrepreneurs.

Unlike other traditional industries, the LED industry, which is an electronic product, is also faced with the troubles of "Moore's Law". That is, every 18 months, product performance doubles, but the price drops by half, and it is still looking for a way out in the Red Sea. "The prices of LED products basically change every two months." Wang Tiancai, chairman of Foshan Jinxiu Tomorrow Building Materials Co., Ltd., told reporters that Jinxiu Tomorrow has suffered inventory losses. "The lampposts cost 8 cents each when they were bought. They haven't been used up yet, and they have dropped to 5 cents each in less than a year."

Technological progress brings more than just "good news". For most small and medium-sized LED companies, the capacity of the market is actually slowly shrinking. "Traditional light bulbs cost only a few yuan each and can only be used for three months, while LED lights have a lifespan of up to three years and are not much more expensive than traditional light bulbs," Wu Yulin said.

One-third of 2015 has passed. When small and medium-sized LED companies are facing the "pain of transformation", many companies have already taken the step of personalized customization.

Personalized customization seizes market segments

Foshan Jinxiu Tomorrow Building Materials Co., Ltd. was originally a company that made ceiling building materials. In 2010, Chairman Wang Tiancai tried to apply LED flat-panel lights to ceiling pendants. Within two years, LED flat-panel lights swept the entire market. Having tasted the sweetness, Wang Tiancai started the road of personalized customization. According to the needs of customers, he launched LED plant specimen lamps and artificial jade lamps to make the patterns of LED flat lamps more personalized.

There are not a few companies like Jinxiu Tomorrow that have transformed into lighting products. Many companies in Nanhai have begun to transform into lighting accessories or lighting installation.

Using personalized customization as the entry point for differentiation in the LED industry is a good choice in the opinion of Wang Sen, director and general manager of Nationstar Optoelectronics. “The so-called customization means providing different solutions based on different technologies and different needs of customers. "The market is a segmented market, and large companies that focus on mass production are more inclined to occupy the mainstream market." Wang Sen made an analogy. In the market, large companies are like big ships that cannot enter when they encounter narrow tributaries, while small and medium-sized enterprises are like small ships with more flexibility and advantages.

Baotuan O2O platform expands channels

In July last year, Jinxiu launched an integrated light trough tomorrow, which can install Bluetooth speakers according to customer needs. "In the future, central air conditioning, air purification and other functions will be introduced." Wang Tiancai said. Integration with the home is another form of LED’s future. Wu Yulin said: "With the development of technology, LED lights can be combined with furniture in the future to form a pan-home industry alliance." In his vision, the design of a single product in the future will depend on the design of the entire home space.

Under the concept of "pan-home", it is necessary to sell LED lights through traditional channels. Wu Yulin believes that this is obviously undesirable. "Now Foshan's individual product advantages no longer exist, but the overall advantage is still great. If we attack in the form of a 'combination punch', the company will have a greater chance of winning." In Wu Yulin's view, channels are still very important, but the current situation has changed.

So how do small and medium-sized LED companies break through and develop? Wu Yulin believes that only by integrating resources in a group can we truly broaden channels. Taking O2O as an example, it is easy to build an online e-commerce platform, but it is difficult to develop offline channels. "If we use crowdfunding to jointly build online and offline platforms and create the concept of home, it will better highlight the advantages of Foshan enterprises." Last year, Casio and dozens of Foshan small and medium-sized enterprises established "Taojia" with the concept of building a home decoration platform, which is a step for LED companies to move towards a "pan-home industry chain".