Honglizhihui Reaps Benefits from Restructure and Dual-track Strategy Approach

(Author: Terri Wang, Analyst, LEDinside/ Translator: Judy Lin, Chief Editor, LEDinside)

The LED industry was volatile throughout 2016, but started to rebound during first half of the year following soaring upstream chip prices. Despite positive growth in the industry, companies were still shutting down or exiting the market, while more were paying attention to industry developments. Under current market situations, leading manufacturers’ development strategy also come under the lime light.

How can companies keep on top of market developments, defend their market positions, while continue stable developments? LEDinside interviewed Alex Wang, the Vice President of Honglizhihui to share his observations on industry developments and future strategy.

Alex Wang, the Vice President of Honglizhihui. (LEDinside)

LED package industry becomes centralized, complimenting each other to secure leading position

Since most upstream LED chip and material manufacturers are unwilling to sacrifice profits by lowering prices, there was an uptick in LED package costs. Yet, there were no substantial price increases in downstream lighting applications and demands as previously forecasted, hence LED package manufacturers did not follow with price raises. This placed greater profit and order pressure on the midstream sector.

In the long run, this pressure severely impacted some smaller to mid-sized LED package manufacturers, and will accelerate the package industry’s restructure causing increased industry concentration. At the same time, larger companies such as Hongliopto are starting to utilize advantages in mass production to secure profits under current market conditions, and have been deploying niche market applications. These companies have been able to expand their market shares and further develop through capital fusion.

Honglizhihui acquisition of Smalite in the LED industry proved rather successful, with the former company forecasting a positive outlook on Smalite’s EMC technology and production capacity. The company’s younger management is very competitive making rather bold decisions. Merging with Smalite has assisted Honglizhihui in developing complimentary technologies, distribution channels, product structures. Honglizhihui also further solidified its leading position in LED packages for lighting applications.

Based on the developments following the acquisition, Honglizhihui will be integrating resources from its three LED manufacturing bases in Nanchang, Guangzhou and Shenzhen by 2017. These will provide the company with better implementing strategies and allocation of production capacity, for instance the Nanchang facility constructions were completed in July 2016, and its monthly LED package production capacity reached about 1.2 billion to 1.5 billion, and will continue expanding production capacity in the future to transform it into the company’s largest production base.

Hionglizhihui's automotive LED products branded under its LED business Honglitronic.(Photo courtesy of Honglitronic)

LED lighting business grows steadily, company delivers stellar performance in niche market applications

Hongliopto business revenue continued to grow steadily for the first nine months of 2016, leading its LED market value to reach RMB 1.57 billion (US $227.52 million). The company is also working on other applications including automotive, grow lights, UV LED and others which have shown accelerated growth. For instance, automotive LED revenue soared in 2016, contributing to a revenue share of 8% in 2016, and gross margin between 40% to 50%.

The Chinese company is primarily targeting the exterior decorative lighting application market, with products covering COB, high power ceramic LEDs, and small power SMD LEDs. The company’s products passed China, Europe and American automotive lighting standards, reliability tests, and filed more than 20 patents. The company uses flip chip technology for LED headlights, DRL applications, and high power small sized ceramic LED packages, which have high reliability and are impact resilient. These are also markets that have shown rapid growth.

Since automotive supply chains are a closed market, where large international manufacturers monopolize the OEM market, the company has mainly exported its products to Europe and U.S. after market (AM) by selling its products through specialized retail franchises or automotive component experiences. In the future, the company is also very optimistic about Chinese automotive LED market with plans to optimize its market and client structures. Honglizhihui aims to enter the LED automotive lighting module market, actively develop its domestic automotive lighting market, and gradually move into the AM supply chain. The company formed a joint venture with car manufacturers and directly collaborated with them to supply LED package products for dashboard lights and other applications.

Additionally, Hongliopto is moving into niche lighting application markets including plant grow lights, IR, and UV markets to accelerate its product deployment. The company upholds a positive outlook for UV LED health and mobile sterilization applications.

Connected automobile business runs full-speed ahead

Speaking of future developments, Hongliopto continued to develop LED packages, while using multiple solutions to actively deploy its market strategy in connected automobile technology. The company is striving to become the second major company in connected automobile industry. In 2015 the company invested in DiNa Technology to kick off intelligent automobile network solutions. The company then established a connected automobile fund to accelerate its market deployment in the connected car industry through professional structures and investments.

This year Hongliopto scaled up its investments in the connected automobile industry, by July its subsidiary Hongzhou Investment pumped RMB 980 million to launch Anhui Hongliopto New Energy Systems, and hold 49% share in cars that run on new energies, and battery systems, core components in automated driving systems and others. On Nov. 28, 2016 the company announced it will be injecting RMB 9.15 million to Hozon New Energy Automobile to expand its connected automobile industry, distribution channels, and technology.

Observations of Honglizhihui’s development strategies indicate the LED industry is accelerating industry restructure, and the company’s dual development strategy is effectively solidifying its market position. The company can maintain its profitability while transforming business model, while establishing a firm foundation in the connected automobile industry. It is anticipated the company will further integrate businesses in the future.

Moreover, China is a leading LED package manufacturer that led to Hongliopto’s positive LED package business developments. Initiation of the company’s Nanchang LED manufacturing site will also further spur the company’s technology, scale, and advantages in the LED package industry, allowing the company to cast a rather positive outlook.

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