The LED market has broad prospects
LED products are mainly used in three major fields: backlight, color screen, and indoor lighting. Since backlight is the largest application market for LED at this stage, it has driven the rapid growth of the LED industry in recent years. In the future, under the influence of factors such as falling product prices and the rise of a new round of global ban on incandescent lamps, indoor lighting will replace backlight sources and become the fastest-growing LED segment in the future. In addition, in recent years, driven by product upgrades such as small-pitch displays, the growth rate of LED products has also continued to increase, showing a steady growth trend. Taken together, the total demand for LEDs will continue to grow in the future, and related companies have medium and long-term investment value.
At present, my country is gradually becoming a global LED industry base. Statistics show that the total output value of my country's lighting industry in 2013 was 480 billion yuan. This includes an export market of 35 billion US dollars and a domestic market of more than 200 billion yuan. Compared with the incremental market of more than 200 billion yuan, industry insiders believe that the lighting stock market formed after 30 years of reform and opening up will have market space of trillions of yuan. It is expected that LED lighting will reach a peak in industry output value in the next 3 to 5 years, maintaining a compound annual growth rate of 100%, and the total industry output value is expected to reach one trillion yuan.
In addition, overseas emerging markets are bringing greater opportunities to domestic LED companies. In the first half of this year, my country's LED lighting product exports amounted to approximately US$4.35 billion. Among them, the BRICS countries accounted for approximately US$440 million, a year-on-year increase of 350%. The rapid growth of overseas emerging markets will continue to benefit domestic LED manufacturers.
Exploring the LED industry chain from three perspectives
The LED industry chain can be divided into three parts: chip manufacturing, packaging and application. According to the degree of benefit, upstream chip manufacturing has undoubtedly become the most beneficial link. In the explosive growth of the LED lighting industry, the upstream epitaxy and chip links have the greatest upward performance elasticity. Because chip manufacturing has a high technical content in the LED industry chain. Therefore, companies with R&D technology, patented technology, and scale advantages will benefit the most.
Xinhaiyi officially entered the field of LED chip manufacturing in 2011. Thanks to its cooperation with the Institute of Nanotechnology of the Chinese Academy of Sciences, the company is in an industry-leading position in technical indicators such as chip luminous efficiency and yield rate. In the third quarter, all 20 MOCVD equipment of the company are expected to reach production, and the growth rate of LED product revenue will continue to accelerate in the second half of the year. In addition, the company recently announced that it will expand the Xinnajing LED epitaxy and chip production capacity (Phase II) investment projects. Establish a new generation of epitaxial wafer, chip, and packaging production lines. In this regard, Huatai Securities analyst Kang Zhiyi predicts that LED production capacity will double next year, and the company's MOCVD equipment output will reach 40 units by the end of the year.
As the listing platform of Fujian Institute of Material Structure, Chinese Academy of Sciences, Fujing Technology undertakes the scientific research results of major shareholders. Its subsidiary Wanbang Optoelectronics is a comprehensive lighting company integrating LED chip design, LED packaging and sales. In addition, recently stimulated by the news of the restructuring of the Chinese Academy of Sciences, the company has been sought after by secondary market funds. As the reform begins, the company is expected to receive asset injections from major shareholders in the future.
Due to the high degree of standardization of equipment and manufacturing processes in the LED packaging process, manufacturers generally have small investment scales and low technical requirements, so there are a large number of manufacturers in the packaging field. With the continuous development of packaging technology, packaging technology has developed from formal packaging to vertical and flip packaging. Flip chip extends from chip to packaging, so in the future chip manufacturers will directly complete the packaging process. The packaging market space will be compressed. Transformation will become the main focus of packaging companies.
Changfang Lighting is an LED packaging company. In recent years, the company has extended to downstream lighting applications on this basis. Involving the research and development, production and sales of LED lighting source devices and LED lighting products. The company currently has established dealer channels in more than 30 provincial-level administrative regions across the country, and its sales network radiates across the country.
Zhongfa Technology is an enterprise engaged in the production of semiconductor packaging molds and LED brackets. Operating income performance was poor in the first half of this year. Among them, LED bracket revenue decreased by 20.67% year-on-year. However, it is worth noting that the company's LED surface mount bracket development and industrialization project is expected to be completed in 2015. After completion, the expected production capacity is 40 billion brackets per year. The average annual sales revenue is about 1.5 billion yuan, and the average annual total profit is also expected to reach 150 million yuan.
With the explosion of LED lighting applications in my country and the improvement of brand service status, the added value of downstream applications and brand service links will gradually increase. Among them, industry leaders with brand advantages, channel advantages and scale advantages will benefit the most.
Although Shiyida’s original business is EMS, in recent years the company has focused on its own brand businesses such as LED lighting as a key value growth point. Recently, Shiyida has been engaged in mergers and acquisitions at a constant pace. After investing 10 million yuan in Firefly Energy Saving, the company also invested in setting up a subsidiary with Firefly Energy Saving. Cooperating with Firefly Energy Saving will achieve complementary technical resources, brand and channel resources. In addition, the company recently joined hands with Shenzhen Jiupai Capital Management Co., Ltd. to establish a special merger and acquisition fund. The company revealed that in the future, it will focus on industrial integration and mergers and acquisitions around LED lighting.
The profit in the third quarter report continues to improve
Previously, due to technological advancement and the impact of multiple factors such as fierce competition in the industry, the gross profit margin of LED products has been in a downward trend. The gross profit margin is only 15% to 20%, which is lower than the 20% to 30% gross profit margin of traditional lighting such as incandescent lamps. While gross profit margins continue to be sluggish, LED manufacturers have delivered impressive results this year. Among the LED manufacturers that have disclosed their third quarterly performance forecasts, double profits have become a common situation in the industry. And Taiwan’s LED manufacturers recently announced that their August revenue performance was still impressive.
“There are three main reasons for the continued improvement in performance,” an anonymous analyst told reporters. First, downstream demand is growing rapidly. The era of small profits but quick turnover in the LED industry is coming, and inventory destocking is better. As a result, LED product prices have also stabilized. Data shows that in August, the price of LED bulbs equivalent to traditional 60W products in my country increased slightly by 1%. Second, large-scale production also reduces costs for enterprises, improves production capacity utilization, and improves the profitability of LED manufacturers. Third, as domestic chip manufacturers improve their technical capabilities, LED products gradually adopt chips from domestic manufacturers. According to LEDinside statistics, in terms of sales volume, it is estimated that the market share of chips produced by mainland manufacturers has reached 80%.
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