Falling LED quality problems may emerge

As one of the strategic emerging industries, the LED industry has triggered an investment boom in the country in recent years and has once become the darling of the capital market. However, since 2012, the industry has witnessed an embarrassing situation of “being applause”, and recently the 2012 financial reports issued by various companies are not satisfactory.

Compared with 2011, a number of LED companies showed a significant decline in revenue or net profit in 2012. For example, BDO Runda, a well-known LED chip company, reported revenue of 2.824 billion yuan in 2012, a year-on-year drop of 8%; net profit was 168 million yuan, a year-on-year drop of 57%. Silan Micro's revenue in 2012 decreased by 12.74% year-on-year, and net profit decreased by 88.07% year-on-year. In 2012, the revenue of China Star Optoelectronics decreased by 11.87% year-on-year, and net profit decreased by 66.45% year-on-year. For the reasons for the declining performance, the explanation given by the company is that due to the intensified competition in the LED industry, the price of the company’s products has dropped significantly, and this has squeezed the profit margin.

Overcapacity caused by structural overcapacity

In 2012, the growth rate of China's LED industry reached 34%, indicating that the market growth rate remained at a relatively high level. However, the entire LED industry's capacity expansion is much faster than the speed of scale growth, and intense price competition has led to a burst of “chillyness” in the entire LED industry.

In 2012, the average price of LED chips in China dropped by 32% year-on-year. For some products, such as low-power LEDs for displays, the average price of blue-green chips dropped by more than 50%. In 2012, China's LED chip industry showed a breakeven or even a loss, which ultimately caused most of the companies to lose money.

In the packaging industry in the middle reaches of the LED industry chain, the average price of China's LED lighting white-packaged components decreased by more than 30% in 2012, and the LED packaging industry has already gone through the high-margin era. In the downstream application industry, the average price of indoor lighting products such as Chinese LED fluorescent tubes, LED bulbs, LED panel lights, and LED downlights decreased by 23% in 2012.

Quality problems may emerge

The blind expansion of existing companies and the continuous entry of SMEs without any technological background will drag this industry into a quagmire. Low-quality products will cause the entire industry to suffer a crisis of confidence. However, it should be noted that although the LED industry shares many similarities with other crisis-prone industries, it also has different factors. Unlike other industries, demand has been declining due to the impact of the macro economy. As a result of the decline in demand, excess production capacity has led to a crisis in the entire industry.

The demand of the LED industry has not been severely hit by the macro economy. As the country has recently encouraged infrastructure investment and energy conservation and environmental protection, urban investment plans introduced by cities have more or less involved the transformation of street lamps, night lighting and other facilities. However, the demand for LED devices is on the rise. The LED industry has a long history of overcapacity, which is mainly caused by the excessive incentive system of the local government in the past. Even if no economic crisis occurs, the shuffling in the industry is an inevitable trend. This round of economic slowdown has only accelerated this process and is not a bad thing for the entire industry. In the future, high-quality companies in the industry will create monopoly advantages for the entire industry after casting barriers to entry.