The Chinese LED package
industry entered another production expansion peak in 2H14, with many
large LED package manufacturers announcing production expansion plans.
Refond Optoelectronics used its own finances to invest in full color
LED displays in August 2014. The company plans to invest a total of RMB
430 million (US $69.25 million) to expand production of LED lights and
full color LED displays. The new production capacity is expected to be
delivered by mid-2016. After reaching the expanded production capacity,
EMC package production capacity is to reach 300 KK/month, while LED
filament bulb products 30K filaments per month. Low and mid-power LED
package products reached 700 KK/month, while full color LEDs 80
KK/month.
In early September, Honglitronic announced the company signed a LED
manufacturing base investment agreement with Nanchang, Jiangxi Province
in China. Honglitronic planned to invest in Nanchang Airport Economic
Zone (NAEZ) located in Jiangxi Province, China. The company acquired
49.44 acres of land from NAEZ authorities for the new LED manufacturing
base, which will be reserved for three years. An estimated RMB 1.01
billion will be invested in the LED manufacturing base, which will cover
R&D, production and sales of LED components and lighting products.
Another Chinese company, Nationstar, announced plans of using private
equity to finance small pitch and outdoor LED display production
expansions during late September this year. An estimated RMB 210 million
will be invested to expand the company’s small pitch LED display
production capacity to 3,600 KK/year, and outdoor LED displays to 3,000
KK/ year.
A month later, Jufei Optoelectronic also announced plans of using private equity to finance production expansion of its LED lighting and
backlight products. A total of RMB 320 million will be injected into
LED backlight production expansion, while LED lighting production
expansions will reach RMB 214 million. The company’s annual LED
backlight package production capacity is expected to be raised to 1,300
KK, LED backlight bars to 28KK, and LED packages for lighting
applications to 2,200 KK.
Manufacturer
|
Expansion Project
|
Investment (RMB )
|
Business operations
|
Annual production capacity expansion
|
Jufei Opto
|
LED backlight and LED lighting production expansion
|
530 million
|
LED package (includes backlight, lighting)
|
Backlight LED:
1,300 KK
Backlight light bars:28 KK bars
Lighting LED:
2,200 KK
|
Honglitronic
|
Jiangxi LED manufacturing base project
|
1.01 billion
|
LED package and LED lighting
|
LED package:
16,200 KK
LED lighting: 90 KK
|
Nationstar
|
Small pitch LED display and LED display component production expansion project
|
210 million
|
LED package (LED display)
|
Small pitch LED display: 3,600 KK
Outdoor LED display:3,000 KK
|
Refond
|
LED lighting and full color LED displays
|
430 million
|
LED package (Lighting, LED display)
|
Lighting products
LED-EMC: 2,880 KK
LED filament:
360 KK filaments
Small and mid-power LED: 8,400 KK
Full color LED display:
960 KK
|
(Source: LEDinside)
Production expansions necessary in economics of scale era
In general, China’s LED package performance was unideal in 2014.
Although, the market maintained high growth rates, manufacturers revenue
performance remained low, especially among small second-tier
manufacturers.
Main Chinese LED package manufacturers’ gross margin started to decline
in 2013. Manufacturers’ average gross margin in 3Q14 was a mediocre
24%, mainly due to LED lighting market’s intense market competition that
spread to LED package market for lighting applications. These
developments led to LED manufacturers lower gross margins. For instance,
Jufei Optoelectronics LED lighting business gross margin was only 16%
in 1H14, almost half of its LED backlight business’s 31% gross margin.
Refond’s LED lighting business gross margin was also far below LED
backlight business with only a mere 13%. Chinese LED manufacturers
focused on LED lighting businesses all reported low gross margins
including Honglitronics and Changfang Lighting. Yet, the majority of
Chinese LED package manufacturers are scaling up LED lighting
businesses, such as Jufei Opto, Refond, MTC and many second-tier LED
package manufacturers. All these manufacturers are transiting into LED
lighting package sector. Lighting is where the future of the LED
industry lies, and is a sector where manufacturers are vying to enter,
leading to the overtly competitive LED package market. The situation is
expected to further worsen.
In the overtly competitive market, cost control is the decisive factor
in market competition. Since the LED lighting market still has large
growth potentials, manufacturers with technology and financing capacity
will start mass producing products to lower costs. This is the main
reason behind Honglitronic, Refond, Jufei Opto, and MTC production
expansion plans.
Production expansions leads to unavoidable industry restructure
Business operations were challenging for Chinese LED package
manufacturers in 2014. Companies faced low profitability and higher
management risks. A company’s yearlong efforts could be futile if there
were product quality issues, or a client complained. Manufacturers could
face even graver financial consequences leading to their bankruptcy.
LED package manufacturers will gradually escalate production capacity in
2015, making market competition even fiercer. Manufacturers lacking
financial support will find business operations increasingly
challenging.
Lighting is the LED industry’s future, but it will also become the fuse
to explosive industry restructures in the LED package industry within
the next two years. China’s LED chip industry might be in deep water
right now, but LED package industry might become the next troubled
market.
However, there will always be a calm after the storm. After the Chinese
LED chip industry underwent massive restructures in the last few years,
the market will gradually stabilize, and companies’ profitability
soared. Similarly, the LED package industry will also reach this point.
The most important thing for LED package manufacturers is ensuring the
company still exists.