After a 5-year Uphill Struggle Absen Quits LED Lighting Sector

No manufacturer wants to easily give up on the lighting sector because of the bright prospects ahead. Yet, Absen a Chinese LED manufacturer that previously heavily invested in the LED lighting sector decided to put a stop to bleeding losses, and terminate investments in the LED lighting businesses.

On Monday night, the company announced the board approved a plan to terminate readjusting investments, related funding, and replenishing liquidity for its LED lighting business and related constructions, and permanently halting developments in the sector. Its current LED lighting resources will be integrated into LED technology R&D center. An estimated RMB 47.42 million (US$7.64 million) funds raised for the above two investment projects will be used by the company to replenish liquidity.

Company stops investing in unprofitable LED lighting business

As for terminating LED lighting projects, Absen revealed the LED lighting market has become a hotly contended market. The market sector’s low technology and finance entrance level has led to surging number of enterprises investing in the sector, which has led to soaring production expansions leading to rapidly declining product prices. Aside from small number of LED brands with the technology and distribution channels, most manufacturers rely on cutthroat pricing competition, leading to generally low gross margins in the industry.

Absen entered the LED lighting market as early as 2010, and after five years of developing the market, its LED lighting business has slowly grown. From 2012-2014, the company’s annual revenue was respectively RMB 32.31 million, RMB 39.50 million and RMB 42.06 million. However, gross margin during those three years declined by 20.21%, 11.61% and 5.22% respectively. In 1Q15, the company’s LED lighting order value amounted to a mere RMB 6.4 million. The company did not profit from investing in LED lighting business, on the contrary it incurred annual losses. The situation is irreversible in the foreseeable short run from a market competition and company resource aspect. Hence, if the company continues to invest in LED lighting businesses, it would only affect its main business and hurt the company and shareholders profitability. The company decided to terminate LED lighting product construction projects to improve efficiency of using funds raised, and optimize the company and shareholders profitability.

LED lighting businesses consist a very small proportion in the company’s business, and most of its revenues and profits are from LED display businesses, said Absen. LED display business and developments indicate there is still plenty of room for growth, and by ending the LED lighting construction projects and directing finances raised in the company’s main LED display business developments, it can help the company concentrate its resources, which is beneficial for its business development. The company would also be able to improve its funding usage efficiency, optimize shareholders benefits, and save the company’s manufacturing and production from being negatively impacted.

The company’s LED technology R&D no longer includes lighting products

According to the company’s original plan, its LED technology R&D will be focusing on seven research fields including EMC technology, lighter and production technology for thinner LED displays and reliable LED display technology. Other research fields included, energy saving technology for LED displays, cold and warm color automated LED indoor lighting system designs, color tunable LED grow lights, and light solar LED streetlights. According to a feasibility report at the time, the company planned to invest RMB 15.76 million.

The company has decided to terminate LED lighting business, and LED lighting construction projects. The company’s R&D center will no longer be developing cold white and warm white tunable indoor LED lighting systems, color tunable LED grow lights, thin and light solar LED streetlights, and other LED lighting related products. Therefore, Absen’s LED technology R&D center will undergo extensive adjustments and stop purchasing related equipments.

(Author: Flora Wu, LEDinside, China http://Translator: Judy Lin, Chief Editor, LEDinside)

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