The LED industry's prosperity slightly improved in September, and the market in the fourth quarter is expected to remain stable during the off-season.

In September 2015, the total revenue of seven LED chip companies in Taiwan (Jingdian, Dingyuan, Guanghong, Guanglei, Huashang, Taigu, and New Century Optoelectronics) was NT$3.242 billion (equivalent to approximately RMB 633 million), a year-on-year decrease of 21.23% and a month-on-month increase of 5.91%. The total revenue of nine LED packaging companies (Baihong, Dongbei, Hongqi, Huaxing, Lizhou, Longda, Yiquan, Yiguang, and Addison) was NT$5.779 billion (equivalent to approximately RMB 1.129 billion), a year-on-year decrease of 18.94% and a month-on-month increase of 3.62%.

In the third quarter of 2015, the total revenue of seven LED chip companies in Taiwan was NT$9.548 billion (equivalent to approximately RMB 1.865 billion), a year-on-year decrease of 30. 58%, a month-on-month decrease of 10.7%; the total revenue of the nine LED packaging companies was NT$16.729 billion (equivalent to approximately RMB 3.267 billion), a year-on-year decrease of 19.71%, and a month-on-month decrease of 5.58%.

In September, the industry boom was slightly upward, and the market in the fourth quarter is expected to recover and achieve a steady recovery from the off-season

In September, Taiwan’s chip and packaging prices both increased slightly month-on-month, but still declined sharply year-on-year. The main reason for the year-on-year decline is that due to the price war launched by Philips in April, Taiwan's LED industry revenue has declined significantly since May. The year-on-year trend has not reversed since September, but the chip side and packaging side began to rebound slightly in September, which shows that the industry boom began to recover in September, which was due to the lighting entering the peak season, and both Epistar and Lextar said that backlight demand rebounded slightly in September.

Jingdron Revenue in September was NT$2.147 billion (equivalent to approximately RMB 419 million), a year-on-year decrease of 5.4% and a month-on-month increase of 11.8%. Jingdian said that after revenue first increased and then decreased in July and August, revenue recovered in September due to the peak lighting season and a slight recovery in backlight; but overall, revenue in the third quarter. A total of NT$6.178 billion (equivalent to approximately RMB 1.207 billion), but compared with NT$6.77 billion (equivalent to approximately RMB 1.322 billion) in the second quarter, single-quarter revenue still decreased by 8.74%, and the traditional peak season performance is flat.

Outlook 4. In the third quarter, Epistar believes that the order visibility for LED lighting applications is good, and overall shipments are expected to grow compared with the third quarter. However, the demand for LED backlights is still weak. Overall, although the fourth quarter is the traditional off-season for the LED industry, it seems that there will be opportunities to receive orders during the off-season.

Yiguang achieved revenue of NT$2.492 billion (equivalent to approximately RMB 487 million) in September, a year-on-year decrease of 18.19% and a month-on-month increase of 6.72%. Yiguang said that with the return of LED lighting orders, revenue has returned to the growth track since August. Looking forward to the fourth quarter, Everlight expects that the lighting market will enter the peak season for shipments at the end of the year, and the off-season is expected to be the same as in the third quarter.

We judge that the temperature recovery of LED manufacturers in Taiwan in September is mainly due to the lighting entering the peak season. Looking forward to the fourth quarter, the peak season for lighting shipments will continue, and the LED industry is expected to survive the off-season. However, it is expected that the price war between major international manufacturers and the continued increase in mainland production capacity will lead to the unresolved LED oversupply problem. Under such circumstances, the year-on-year decline is difficult to reverse. We previously judged that the gap between mainland LED chip companies and Taiwan has been very small, seizing Taiwan's share; in the fourth quarter, as lighting enters the peak shipping season, mainland LED manufacturers should perform better than Taiwan manufacturers, and it is worth looking forward to the off-season.

We are optimistic about the development prospects of LED lighting and small spacing. After display, the main growth driver of LED applications comes from lighting. The continuous price war has made the price of LED lighting basically close to that of traditional lighting, and it is expected to achieve rapid replacement. However, the oversupply of the LED industry intensified in 2015. It is estimated that the oversupply ratio of production capacity in 2015 and 2016 will be 10% and 12% respectively, a significant increase from 4% in 2014. The industry competition is fierce, and leading companies with technology and scale advantages will win.

In addition, although the growth rate of the LED display market has slowed down, small spacing has suddenly emerged and its share continues to rise. In 2015, the penetration rate of small spacing in the large screen splicing market is expected to increase from 12% to 25%, and it is in a period of rapid penetration.

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