Demystifying the survival methods of three different small and medium LED chip companies

LED chip companies have two levels of differentiation capacity increase

In the first half of 2015, the industry scale of China's LED chip industry was nearly 8 billion yuan, a year-on-year increase of 15%, showing a steady growth trend. As of 2014, the number of MOCVD equipment in China reached 1,172 units. In 2014, it purchased 150 MOCVD units, a year-on-year increase of 36%. For the fourth consecutive year, it has become the region with the largest number of MOCVD equipment purchased worldwide. It is estimated that in 2015, China will continue to purchase nearly 200 MOCVD units, and the number of equipments is expected to increase to 1,372 units. However, the number of upstream epitaxial chip companies has plummeted from more than 60 in 2009 to less than 20, and according to statistics, there are only about 15 companies that are actually operating normally. At the same time, the market concentration of leading companies in the chip industry has further improved. The market share of the top 5 chip companies has increased from 64% in 2013 to 67% in 2014. The production capacity accounts for nearly 70% of the country's total capacity, gradually forming an oligarchy. situation.

There are three main reasons for the further increase in the concentration of the chip market: First, the acquisition of equipment to establish a new chip manufacturing production line requires a high amount of continuous investment. In the early days, due to government subsidies, many LED companies purchased MOCVD equipment, built factories, and launched large-scale LED chip projects, forming a group of industry leaders such as Sanan and Dehao Runda. With the gradual withdrawal of government subsidies, new entrants will have difficulty to afford the equipment they need to compete with industry leaders. At the same time, in order to expand the scale of efficiency, it is necessary to continue to invest funds to expand production or improve equipment performance, and to purchase equipment with a price of 4 inches and above. Some small LED chip companies with poor economic conditions are difficult to make follow-up investment due to lack of cash flow, and lose subsidies. It will also be eliminated by the market.

Second, increasing the competitiveness of products requires a large amount of research and development investment. LED industry is in the stage of rapid development, LED technology is developing rapidly, domestic and foreign technical equipment and production processes are constantly updated, and chip light efficiency has risen by one step every quarter. In order to reduce production costs in a short period of time to occupy the market, enterprises need to invest a lot of manpower and material resources for product development and technology investment, which puts pressure on the production and operation of smaller companies.

Third, the decline in chip prices has made it difficult to make a profit. With the further release of domestic chip production capacity, the competition in the chip market has intensified, resulting in a price drop too fast, and the profit space of a large number of enterprises has been squeezed, which further reduces the profit of LED epitaxial chip companies, which is even more unbearable for SMEs. Leading companies further strengthen their industry control capabilities with stable customers and bargaining power, thus establishing a stable industry competition.

In the face of competitive pressure, small and medium LED chip companies have different prospects

Domestic LED enterprises can be roughly divided into three categories: first, private enterprises, which are established by private capital investment such as domestic and foreign investment companies; second, group companies, which are invested by the group or the head office; third, the establishment of state-owned capital. the company.

For the first-class small and medium-sized LED chip companies, seeking mergers and acquisitions has become an important way in the case of poor business conditions. However, such enterprises often have small production scale, old equipment, and insufficient technical patent capacity. Due to the characteristics of the chip industry, it is difficult to integrate with the acquisition company. At the same time, small and medium-sized enterprises are generally non-listed companies, which is inconvenient for consideration. These factors lead to high M&A costs and weak M&A benefits. Few large companies are willing to buy. These SMEs can only go bankrupt and close out of the market.

For the subsidiaries of the second group of companies, in the face of business pressure, due to the backing of the big tree of the group company, it can maintain the existing scale operation for a period of time with financial support. In the long run, the group companies will formulate different development strategies according to market conditions. Group companies in the semiconductor field will use the advantages of channels to help LED chip subsidiaries expand upstream and downstream and expand the LED chip market through mergers or acquisitions. Group companies involved in multiple business areas will reduce their investment in the LED field with limited profit, maintain the existing scale of operation with limited funds, and expand investment after the market demand increases.

The situation of the third type of company is relatively embarrassing. Due to the state-owned capital involved, shareholders are reluctant to apply for bankruptcy liquidation for their own interests. Coupled with various complicated reasons such as old equipment and local government relations, it is difficult to be acquired. Become a "zombie" company with little or no production.

Leveraging national strategy LED chip companies to find a way out

Under the pressure of large enterprise products, brands and capital advantages, small and medium-sized LED chip companies should seek future development paths based on their own characteristics.

First, promote independent innovation and technological progress, and tap into market segments. In the case of market profits being squeezed, relying on low-price competition is not a long-term solution. LED applications range from backlighting, display and lighting to eco-agriculture, smart lighting , automotive, healthcare and many other applications. This also sets different requirements for upstream chips. SMEs can develop large, medium and small for emerging application needs. Power LED chip products, enhance independent innovation capabilities, avoid low-cost vicious competition in the same product market.

The second is to seize the development opportunities of the “Belt and Road” and accelerate the products to go out. The overcapacity of domestic LED chips has brought great pressure on SMEs, while emerging markets such as Russia, India and Southeast Asia are increasingly demanding LED lighting, and there is a general lack of LED product industry chain. In the future, with the development of various infrastructure projects such as national streetlights and high-speed railways along the “Belt and Road”, more demand for LED chips will be generated. Domestic SMEs should take advantage of the overseas market to expand their brand awareness and products overseas. Market share, seeking international cooperation and improving the competitive advantage of enterprises.

The third is to leverage the national strategy of "Made in China 2025" and "Internet +" to realize the intelligent development of LED chips. The "Made in China 2025" strategy emphasizes that the future manufacturing industry will be green, energy-saving, environmental protection and intelligent development. "Internet +" focuses on promoting technological progress, efficiency improvement and organizational change, which have brought development opportunities for the LED chip manufacturing industry. On the one hand, small and medium-sized LED chip companies can use the new technologies such as Internet, cloud technology and big data to realize platform management of raw material procurement, production and sales, expand online sales channels and reduce enterprise costs; The advantages of strategic emerging industries, seize the market demand brought about by the transformation and upgrading of other industries, such as the renovation of factory buildings for energy-saving LED lighting, intelligent buildings that achieve automation control, etc., to expand the market share of LED chip products.