High industry growth coupled with mergers and acquisitions integration has created a boom in the LED industry

The LED industry will maintain high growth in 2015. The luminous efficiency of LED lighting products has improved, and sales have maintained rapid growth. The prices and costs of downstream products have dropped simultaneously, corporate profitability has begun to stabilize, and the entire industry is in a period of rapid growth. In addition, there will be a trend of mergers and acquisitions in the upstream of the LED industry in 2015. With the withdrawal of a number of LED chip and packaging companies, it is expected that the upstream market concentration will further increase in 2015, with leading companies having technological advantages and economies of scale.

The LED industry continues to grow at a high rate

Thanks to the ban on the sale of incandescent lamps by various governments and the decline in the price of LED lighting products, the LED lighting market is expected to achieve rapid growth in 2015, with a year-on-year growth rate of 28.5%. China, as the world's second largest LED lighting market, grew by more than 40% year-on-year in 2015, making it one of the fastest growing markets in the world. At the same time, in the first half of 2014, the LED penetration rate in my country's physical channels has reached 59%, and LED sales in e-commerce channels have doubled. These have laid a solid foundation for the explosion of my country's LED lighting market. The second is the street light market.

At the same time, my country's LED street light market size will reach 23 billion yuan in 2015, a year-on-year increase of 56%, and the market potential is huge. As a substitute for traditional large-screen splicing products above 60 inches, LED small-pitch screens have brought market opportunities of more than 20 billion yuan to LED screen manufacturers. As the penetration rate of the domestic market increases, overseas markets will become the focus of competition for powerful Chinese-funded manufacturers. Companies with high-quality products and overseas sales experience will gain first-mover advantages.

In the context of the rapid development of the industry, the development of the LED industry has shown three major changes, and the advantages of mainland enterprises have begun to highlight. First of all, the year-on-year growth rate of operating income of Mainland-funded LED chip and packaging companies in 2014 was better than that of Taiwanese counterparts, and the gap was large. This shows that the balance of power between Mainland and Taiwanese LED companies has reversed. Mainland companies can use their geographical and cost advantages to gain more shares in the rise of the mainland lighting market, thus crowding out the development space of Taiwanese counterparts. Secondly, the global influence of mainland LED chip manufacturers is constantly increasing. It is expected that about 74% of the new MOCVD equipment in 2015 will come from mainland-owned enterprises. After the expansion, the total production capacity of mainland's leading chip companies will account for more than 20% of the world. The market concentration of the mainland's LED chip industry has also increased. In 2014, the top five chip manufacturers' combined market share reached 67%, an increase of 3 percentage points from 2013, forming an industry oligopoly pattern. Finally, due to the low market concentration and fierce industry competition in the LED packaging and application industry, mergers and acquisitions will become one of the main ways to develop as an industry leader.

Mergers, acquisitions and integration help the growth of the LED industry

In 2014, the domestic LED chip industry increased its integration efforts, and small companies are gradually withdrawing. Royal Philips Electronics of the Netherlands announced on June 30, 2014 that the company's Lumileds LEDs components department and the automotive lighting division would merge to form a new company. The sales of these two business units in 2013 reached US$1.9 billion. On the same day, Taiwan's LED chip leader Epistar Optoelectronics acquired Canyuan Optoelectronics through a share swap, making the latter a share-holding subsidiary of Epistar Optoelectronics. It is expected that this trend will continue in 2015. Leading companies are expected to win in the competition relying on their advantages such as technological level, customer resources and production capacity scale.

The LED chip segment has significant scale effects and requires high capital investment and technology research and development. Small businesses have become targets for mergers and reorganizations or have withdrawn from the industry. Since 2009, some well-known LED chip companies such as Dalian Lumei, Shanghai Sapphire, and Fangda Guoke have withdrawn amid fierce competition. Correspondingly, leading LED chip companies will further increase their efforts to expand production. According to relevant statistics, domestic MOCVD units are expected to increase by 250 units in 2015, mainly due to the expansion of production by the top leading companies, and the total number of MOCVD units will reach about 1,500 units. The LED chip industry emphasizes technical strength and scale effect. Based on this, leading companies have gradually eroded the market share of their competitors. It is expected that the competitive situation in 2015 will be more favorable to larger LED chip companies. Although chip prices are still declining to a certain extent, as market share becomes concentrated and corporate equipment operating rates and product yields increase, it is expected that the profitability of leading companies will gradually rebound from the trough.