With the price increase coming, will the LED industry return to healthy development?

Since August, there has been a price increase in the LED industry. Starting with upstream chips, first-tier chip manufacturers such as Sanan Optoelectronics and Huacan Optoelectronics have made price adjustments for small and medium-sized chips. Then, domestic packaging leaders Mulinsen and Nationstar Optoelectronics also raised the prices of some LED packaging devices for display screens. Finally, this "price increase trend" has naturally spread to the downstream industry. At the end of August, many LED screen companies such as Jingcai Optoelectronics, Trina Optoelectronics and Helilai also adjusted the prices of some products.

The author believes that the current price increase trend sweeping the LED industry will not stop for a while.

First of all, the price increases of upstream chip companies are bound to fluctuate the entire industry chain. As the purchase cost of chips rises, midstream packaging and downstream application companies will inevitably be unable to bear the cost pressure caused by this, so there should be more packaging companies and downstream application companies participating in the price increase.

Secondly, starting from the second half of the year, the LED industry will slowly enter the peak demand period, which will boost corporate demand for LED materials. Last year, many companies in various aspects of the LED industry chain closed down. In addition, the production expansion projects of Sanan, Huacan, Mulinsen and other companies have not yet been put into production, and the increase in demand and production capacity have not truly synchronized, so price increases will be inevitable.

Finally, after the "price war" crisis in 2015, it can be said that the prices of most LED products have repeatedly hit bottom, and the vast majority of companies are basically making money at a loss. Especially in the chip industry, the finished product price is almost the same as the cost price, leaving no room for price reduction. However, if a company wants to survive, what should it do? Price increase!

Therefore, looking at the entire industry chain, price increases are not a sudden trend, but the demand for healthy development of the industry. However, in response to this price increase controversy, the LED circle has exploded. Some people are optimistic about the price increase, and some have praised it.

Of course, as for the root cause of the price increase, OFweek The Industry Research Center believes that it can be analyzed from three major aspects.

First, in the second half of the year, major companies are rushing to improve their performance, and the mid-year performance report is quite different from the goals set at the beginning of the year;

Second, the price increase crisis is related to the business adjustments of many large international companies. Philips and Osram have successively divested their general lighting business. Philips focuses on health lighting and commercial lighting, while Osram focuses on automotive lighting, industrial lighting and special lighting. Recently, GE announced its withdrawal from the Asian and Latin American markets, focusing on North America, Europe and the Middle East market. The adjustment of the business of large international LED companies has given Chinese LED companies more opportunities.

Third, LED market demand is growing. Judging from the export data of LED products in 2015 (January-June) and 2016 (January-June), the export volume of LED products in the first half of 2016 increased compared with the same period in 2015, and is gradually improving.

Data source: OFweek Industry Research Center

In summary, price increases are a choice made by the market. However, the author suggests that capital from all parties should avoid blind optimism to avoid leading the industrial chain into another quagmire.

Why?

First of all, from the data point of view, although the LED market demand is growing, the momentum is not strong enough, which shows that the LED market is in a period of steady growth. If the intervention speed of capital (expansion of production or LED transformation) exceeds the market growth rate, it will inevitably lead to a new round of overcapacity.

In addition, judging from the current situation, the price increase of this stock may also be due to the LED companies' "gathering in cliques" approach. The price increase may promote further reshuffle of the LED industry. The small price increase of upstream chips may have little impact on the first column companies, but some small and medium-sized enterprises may be unable to bear the pressure.

But in any case, price increases have begun, and the production capacity of the LED industry will be further released. At the same time, it will also guide the industry to transition from price competition in the past to quality competition.