LED chip profits are decreasing

The development of any enterprise or industry is from the high-profit stage into the average profit stage, and then enters the era of meager profits. After the heat of investment and price reduction, the LED chip industry is quietly entering a meager or even unprofitable era.

Industry experts told the "High-tech LED" reporter that with the continuous decline in the price of LED chips, some chip manufacturers have no profit at all. Small-scale chip companies with no R&D capabilities have encountered difficulties, and they must rely on sales growth and rely on technological advances to survive. "At the beginning of 2013, there will be a domestic closure of LED chip companies. Enterprises with MOCVD equipment between 8 and 10 will gradually be eliminated by the market."

Overcapacity is a foregone conclusion. From the perspective of the industry, industry analysts have analyzed that from the end of this year to the next two years, China's LED upstream chip industry may experience a shift from destocking to capacity reduction. "This process will be painful and there may be a large number of mergers and bankruptcies."

Relevant person in charge of a domestic chip company admitted to the "High-tech LED" reporter: "If the chips produced do not have outstanding performance, the price will surely go down to a critical point, and some manufacturers will continue to lose money."

The change in the supply and demand relationship of LED chips is the main reason leading to this price war.

According to statistics from GLII of the China National Engineering Research Institute for Advanced Industrial Products, the overall LED industry in China continued to be sluggish in 2012, especially the overcapacity of LED upstream chip and midstream packaging. Compared with the beginning of the year, the price of LED chips decreased by more than 30% in the third quarter of 2012, and the lowest price of low-end chips dropped by as much as 45%.

GLII released the previous “China LED industry upstream epitaxial chip research report in 2012” and described the current industry situation as follows: “In 2010, as long as LED epitaxial chip companies can produce chips that the market can accept, basically do not worry about sales. However, the above situation has ceased to exist in 2011. With the increase in the number of LED chip mass production companies and the substantial increase in MOCVD machines, China’s LED chip production capacity has been greatly improved. With the expansion of production capacity, market competition will start to become increasingly fierce, and the sharp decline in the price of LED chips is inevitable."

The 2012 third quarterly report released in succession shows that the performance of several listed companies with LED chips as the main business seems to be eclipsed and it seems to be verifying this speculation.