The overcapacity problem of upstream enterprises (substrate, epitaxy, chip) in the LED industry is highlighted, and the price of downstream LED application products is declining, which makes the gross profit margin of upstream LED companies continue to fall. Compared with downstream applications, the upstream of the LED industry is a highly investment-intensive area, and profit margins have been at a high level. However, the rapid development of the domestic LED market in recent years has driven the rapid growth of sales of upstream enterprises. Under the dual stimulation of market environment and government subsidies, the capacity of LED upstream enterprises has been expanding and competition has become increasingly fierce. Most companies dilute production costs by expanding production scale, in order to lower prices in exchange for market share, resulting in LED chip prices continue to decline.
The upgrade of price competition has prompted LED chip companies to reduce costs by continuously reducing the size of LED chips, which not only makes the problem of overcapacity more serious, further leads to price downturn, and induces overcapacity and sapphire substrate enterprises to overcapacity and form prices. A vicious circle with capacity. In the face of the cost pressure caused by fierce price competition, in order to maintain competitiveness, LED upstream companies can break through the vicious circle of price and capacity from the following points.
By integrating the industrial chain to "bring a group to warm up"
The competitive pressure brought by the market downturn has caused many LED companies to set off a wave of integrated mergers and acquisitions. In 2015, nearly 40 mergers and acquisitions cases have occurred in the LED industry. On average, more than 3 mergers and acquisitions occurred every month, covering all aspects of the LED industry chain. The fierce market competition makes it difficult for small and medium-sized LED epitaxial chip companies to continue, and is expected to be horizontally integrated by other epitaxial chip companies. In 2009, there were more than 60 epitaxial chip companies in the mainland, but this year it has dropped to less than 20, and only 15 of them are actually operating normally. Bankrupt enterprises are eager to be integrated and merged by leading companies. For example, in 2013, Yuanrong Technology acquired Jiangxi Ruineng Technology and reorganized into Yuanrong Optoelectronics. Horizontal integration is undoubtedly a “back-to-back tree†for small businesses, and a way for large companies to expand capacity and maintain their market position at a lower cost.
LED upstream companies can also leverage the vertical synergy of the industry chain. LED epitaxial chip companies can vertically integrate related companies by extending to raw materials such as upstream sapphire substrates and chemical gases, thereby reducing procurement costs, creating synergies and enhancing their competitiveness. For example, Sanan Optoelectronics spent 126 million yuan this year to acquire 100% equity of Air Chemical Products (Wuhu) Co., Ltd. and 11 ISO containers of Air Chemical Products (Shanghai) Co., Ltd. to further strengthen the supply of upstream raw materials; Huacan Optoelectronics offered 1.08 billion yuan The acquisition of 100% equity of Yunnan Lanjing Technology effectively integrated the production capacity of sapphire substrate of Blue Crystal Technology.
Enhance product competitiveness by increasing R&D investment
In the case that the market gross margin continues to be squeezed, it is not a long-term solution to achieve competitive advantage through continuous price cuts. In order to cope with price competition, chip companies will dilute costs by cutting epitaxial wafers into more small-sized chips. However, as the chip size is reduced, in order to achieve the same luminous power, it is necessary to increase the injection current and increase the power density of the light, which puts higher requirements on the performance of the LED.
On the one hand, as the power density increases, the luminous efficiency of LEDs decreases, which requires the use of a more superior structure to offset the decline in light efficiency during LED epitaxy.
On the other hand, the decrease in LED light efficiency at high power density also means that more heat is generated, which puts higher requirements on the heat dissipation performance and reliability of the LED chip. If the enterprise simply shrinks the chip size without supplementing the supporting extension and chip design and development, it will not only lose the competitiveness of the product, but also cause the product to have super power work and create potential security risks.
Take high-end product routes through specific application markets
In the face of the LED "Red Sea" market, where the price war is intensifying, LED epitaxial chip companies should dare to rush out of the "Red Sea" and enter the "Blue Ocean" in the high-end segment. The automotive lighting market is a typical new "blue ocean" for LEDs. According to the National Bureau of Statistics, as of the first half of 2015, China’s car ownership reached 163 million. Such a huge automotive market has brought considerable development space for the automotive parts market. According to statistics, in 2014, there were 245,000 sets of LED headlights in the Chinese market. It is expected to increase to 907,500 sets in 2016, and the penetration rate of LEDs in automobile taillights is also very high.
However, the automotive LED market is not intended to enter. At present, more than half of the domestic automotive LED lighting market is dominated by foreign companies, especially the chip end, which is almost swept by Osram and Philips. In the domestic automotive headlamps, the product industry lacks the entire industry chain from chip to module. The two giants, Osram and Philips, have been cultivating in the headlight market for many years, have a rich product line of headlights, and have long-term cooperation with world-class auto companies, thus establishing their own high-end positioning. In the early days of the LED industry, the mainland LED chip technology was still difficult to meet the performance requirements of LED headlights, so it missed the opportunity to enter this market. In recent years, domestic LED chips have made great progress in both light efficiency and reliability, and their market share has rapidly increased. In 2014, the domestic LED chip companies had a market share of 83%. LED chip companies represented by leading companies such as Sanan and Huacan actively carry out technological research and development, and have the ability to impact the automotive LED headlamp market. In addition, LED-FLASH flashlight for smart phones, special-wavelength LED lights for plant lighting and other high-end applications are also the blue-green LED applications that domestic LED upstream enterprises need to enter.
Actively explore overseas markets by “going outâ€
The “One Belt, One Road†strategy proposed by the Chinese government provides a favorable policy environment for domestic LED upstream enterprises to “go globalâ€. At present, the domestic LED replacement market is becoming increasingly saturated, LED chip production is overcapacity, small and medium-sized LED companies are generally operating difficulties, and emerging markets such as India, Southeast Asia and Russia have entered a period of strong demand for LED lighting replacement. The implementation of the “One Belt, One Road†strategy will drive the infrastructure construction of countries along the route, and LED lighting products will have a broad market by then.
Take the Russian market as an example. In 2014, the Russian LED lighting market grew substantially, with a penetration rate of about 30%. In 2016, its market size will exceed US$5 billion and its penetration rate will be nearly 50%, making it the fourth largest LED market in the world. Moreover, Russia's preferential policies have also provided convenient conditions for domestic LED upstream companies to explore overseas markets. In addition, the mainland LED industry chain is perfect, can make up for the incomplete defects of the above-mentioned regional industrial chain, and thus have the opportunity to gain a huge market share. While actively exploring overseas markets, LEDs need to strengthen product quality control, improve technical patent reserves, improve after-sales service levels, establish corporate brand image, and make China's LEDs illuminate the “Belt and Roadâ€.
Use LED technology to accumulate and explore potential market
As the most upstream of the LED industry, the domestic sapphire substrate enterprise has international competitiveness both in terms of technology level and production capacity. However, this wave of LED price cuts has not allowed sapphire companies to survive, and there has been a serious overcapacity in sapphire production. The price of 4-inch sapphire flat-panel substrates has dropped below $18.
In response to overcapacity and falling prices, sapphire companies are looking for non-LED substrate applications, such as consumer electronics screens and optical windows. At present, the overcapacity of the sapphire industry can be interpreted in two aspects: First, if sapphire is only used as an epitaxial substrate material for LEDs, its production capacity is far excess. The production capacity of the domestic Orient family can almost meet the current market demand; Second, if sapphire is used on smartphone screens, its production capacity is far from enough. Roughly estimated, Orient's production capacity of about 55 million pieces per year, even if it is all used to produce 6-inch mobile phone screens, can only meet about 6 million mobile phones, less than 1/10 of iPhone shipments, so the future sapphire is There is a large market space in the consumer electronics field, which is the transformation direction that upstream sapphire companies can consider.
For epitaxial chip companies, you can get involved in the field of UV LEDs with broad application prospects. Ultraviolet LED can theoretically replace all mercury light sources, and it has the characteristics of high light efficiency, environmental protection, energy saving and compact structure. Deep ultraviolet light below 280nm has the function of sterilization and can be applied to health fields. Recently, Yuanrong Optoelectronics acquired Qingdao Jiesheng Electric, which has been deeply involved in deep-UV LED chips and MOCVD equipment for many years, and cooperated with MOCVD equipment manufacturing company Zhonghao Optoelectronics to develop MOCVD equipment for epitaxial deep ultraviolet LED materials, and officially entered the big health industry. It has become one of the few "Healthy China" concept stocks on the New Third Board.
Domestic LED epitaxial chip companies can also get involved in the field of compound semiconductor power devices. The compound semiconductor is a semiconductor material typified by GaAs, GaN, SiC, etc., and can be used not only for optoelectronic products, but also for power semiconductor devices widely used at present, such as Schottky barrier diodes, MOSFETs, IGBTs, and the like. Compound semiconductors have high frequency, high radiation resistance and high temperature characteristics relative to Si, and are the development direction of power semiconductor devices in the future. Moreover, the fabrication of compound semiconductor devices is based on MOCVD technology and has similarities with existing GaN-LED epitaxial technologies. Therefore, the development of compound semiconductor devices has both the technical foundation accumulated by domestic and foreign companies for many years, and can fully utilize the excess capacity of domestic epitaxial equipment. .
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