Chinese LED Package Manufactures Restructure Situation in 2014

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.

(Author: Allen Yu, Analyst, LEDinside/ Translator: Judy Lin, Chief Editor, LEDinside)

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