In 2016, demand in the downstream lighting market was driven, and the supply of upstream LED chips continued to exceed demand. Starting from May, prices of chips with certain specifications began to increase and were accepted by downstream packaging plants. The industry predicts that as the shortage intensifies, LED chip prices are expected to increase across the board.
In the past two years, as policies have continued to focus on the field of energy conservation and environmental protection, energy conservation and emission reduction efforts in various places have been significantly enhanced. People's awareness of energy conservation and environmental protection has continued to increase. The prices of LED lighting products have become more and more affordable. The end application market demand has begun to increase. This year will bring a new wave of growth peaks in the LED lighting market.
Since the second quarter of this year, the supply of LED chips has exceeded demand. From the demand side, some packaging factories have been forced to switch to second-tier chip factories for procurement; from the supply side, since the top two MOCVD equipment manufacturers, which account for nearly 90% of the market, have seen a significant increase in the price of new models after product upgrades, chip factories are cautious in expanding production due to cost factors. The industry predicts that chip supply may continue to be tight until the end of this year.
In addition, market concentration is becoming more concentrated.
The second half of the year is a good time for many manufacturers to take the opportunity to push up shipments.
Fierce market price competition and continuous release of production capacity have caused the gross profit margin of many companies' products to continue to decline.
Earlier this year, Taiwan Epistar Optoelectronics and some LED packaging manufacturers successively sent out product price adjustment contact letters. Sanan Optoelectronics, the largest LED chip factory in China, and Cinda Optoelectronics, also based in Xiamen, have also recently sent out product price adjustment information.
Different from previous years, behind the price increase this time is that the LED industry has experienced several years of fierce market price competition, coupled with the continued release of production capacity, resulting in the continued decline of the gross profit margin of many companies' products. Many companies have even relied solely on large-scale shipments to make up for profit losses in recent years.
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Upstream and midstream LED companies adjusted their prices in response
Up, up, up!
1. The overall concentration is gradually increasing
Multiple statistics show that the output value of the LED lighting market in the first half of this year was approximately 212.7 billion yuan, and is expected to reach 457.6 billion yuan in 2016, a year-on-year increase of 15.35%. Data show that the revenue of 38 LED-related listed companies in the first half of the year accounted for 10.7% of the entire industry's revenue, breaking through the 10% mark for the first time, showing that the overall concentration of the LED industry is gradually increasing.
Many LED people said that price increases are a good thing. Although they will face short-term pressure, in the long term, it will help accelerate the integration of the packaging industry and accelerate the emergence of economies of scale. The price increases of some companies may be due to the fact that they had previously set prices too low in order to seize a certain market share. After a period of time, it was discovered that the company was under too much pressure and had to make adjustments.
At present, the release of chip production capacity must be taken into consideration when deciding whether to increase prices. Due to technology updates and equipment debugging, a release cycle of one to two years is required. At the same time, midstream packaging production capacity is still on a rapid expansion trend in recent years, so chip companies will still comprehensively evaluate the next market trend. Due to the gradual release of overall production capacity and the trend of market concentration, the second half of the year is a good time for many manufacturers to take the opportunity to push up shipments.
Sanan Optoelectronics’ price adjustment letter shows that raw material prices have bottomed out, including gold (up more than 27% from the beginning of the year) and substrates (up more than 30% from June). At the same time, due to the small size of small and medium-power chips, the back-end process consumes a lot of sorting and testing capacity, and unit labor costs rise, resulting in a sharp decline in the output value of the back-end process. The price of some small and medium-sized products is now increased by 10% and will be implemented on August 25. In the price adjustment letter issued this time, Cinda Optoelectronics stated that due to the sharp increase in the prices of upstream chips and brackets (generally above 10%), coupled with the continued increase in labor costs, the price of the RGB lamp beads produced by the company will be increased by 5% on the current basis.
2. Price increase events may promote a reshuffle
Liu Lin, deputy general manager of Tongfang Optoelectronics, said that the small increase by the upstream chip factory will not affect the normal operation of Tongfang and will keep the original price unchanged. Because in addition to chips, packaging factories also have auxiliary materials, gold wires, glue, etc., as well as equipment. In addition, chips currently account for a small proportion of the device cost. Many companies said that the price increase may accelerate the reshuffle of the industry.
In the future, the LED industry will undergo a major adjustment, and now is an inflection point. At the same time, the situation is different from the situation two years ago. Lamp beads account for a small proportion of the entire lamps, so they have little impact on the downstream lighting industry. At the same time, some major domestic lighting manufacturers, especially export-oriented companies, have imported chips from abroad. For these companies, they have more competitive advantages. Now the LED industry is technology-oriented rather than price-oriented in the past few years. Especially with the promotion of intelligent lighting products, this effect is even more obvious. Overall, price increases in the mid- and upper reaches will have little impact on the first-tier downstream LED lighting companies. On the contrary, for some small and medium-sized lighting companies, the pressure will become greater.
3. Reject price war and praise quality control
Although the price increases of some companies will definitely trigger a series of chain reactions in the market. The relevant person in charge of Mulinsen said that some packaging factories that are currently increasing their prices do not have a large market share, and it is impossible to see the general rules of the industry behind the price increases of these companies. Taking into account the long-term cooperative relationship with customers, Mulinsen will not adjust prices easily. Improving product quality is the best competitive weapon.
Regarding the price increase of upstream chips, Bian Difei, vice president of Huacan Optoelectronics, said that the LED chip industry was still in short supply throughout the first half of the year. Due to the rapid growth of demand in the two major markets of downstream lighting and display screens, chip companies were often unable to deliver goods. Wang Gaoyang, deputy general manager of Hongli Zhihui, also holds the same view. In his opinion, the possibility of a collective increase in the packaging industry is not too great, and judging from the current price trend, it may be a high probability event that it will gradually stabilize. At present, it can still be defined that this is a node. Taking into account a variety of factors, it is inevitable that the market will return to rationality.
However, as Jingdian, Sanan, and Cinda have successively adjusted their prices, we cannot rule out that a number of companies may also follow suit in the future. On the one hand, it is almost impossible for the prices of downstream lighting products to rise, and the price increases in the midstream and upstream will not be easily transmitted directly to the market and end users; on the other hand, due to the needs of industry competition and reshuffle, some manufacturers with weak anti-risk capabilities will accelerate their exit. This statement seems to be evident from the performance of LED listed companies in the first half of this year.
No matter how many companies in the mid-to-upstream chips and devices will follow the rise, or how high it will rise, for the current downstream lighting application companies, the conduction effect is difficult to show. At the recent performance briefing of Sunshine Lighting's semi-annual report, the person in charge of the company said that the overall price decline of LED lighting products this year is less than that of the previous year, and the price reduction is probably around 20-30%. There is still room for price decline in the next two years, but the decline will slow down.
ANNA