How LED companies solve excess capacity

In recent years, under the dual stimulation of market environment and government subsidies, LED upstream enterprises have continuously expanded production capacity and the industry has become increasingly fierce. Most companies dilute production costs by expanding their production scale, and lower their prices in exchange for market share, leading to the continuous decline in the price of LED chips. In particular, LED manufacturers in the Ministry rushed to purchase equipment before the completion of the subsidy policy in the mainland, which accelerated the release of new production capacity in the mainland, which led to a further deterioration of global LED production capacity.

Under the situation that LED companies in the Mainland are generally expanding their overcapacity, Jingyuan Optoelectronics, Samsung Electronics, and CREE have made decisions to selectively reduce production, so as to alleviate the current situation of supply and demand imbalances in the LED industry and pressures for falling prices. It can be seen that excess capacity has become a major obstacle to the development of the LED industry. However, in the face of overcapacity, how did LED companies break through?

Mergers and acquisitions to enhance competitiveness

The competitive pressure brought by the market downturn has led many LED companies to set off a wave of mergers and acquisitions. In 2016, more than 10 mergers and acquisitions integration cases have taken place in the LED industry. On average, more than three mergers and acquisitions cases occurred each month, covering all aspects of the LED industry chain.

Mergers and acquisitions integration can make the LED industry get better development. For small businesses, it is undoubtedly "backed by a good tree," and for large companies, it is also a way to expand production capacity at a relatively small cost and maintain its market position. LED companies can vertically integrate related companies to further expand the scale of the company, thereby reducing procurement costs, creating synergies, and enhancing their own competitiveness and industry influence. Such as Huacan Optoelectronics bid 1.08 billion yuan to acquire 100% stake in Yunnan Blue Crystal Technology, effectively integrating the Blue Crystal Technology sapphire substrate production capacity, and through the acquisition of Ruijing Optoelectronics, the formation of epitaxial chips, chips, terminal applications and other LED industry chain extension of development .

Improve the industrial system and persist in encouraging innovation

Due to the low barriers to entry in the LED industry, in the past few years, a large amount of capital influx, and even oversupply, the gross profit rate of the industry chain has dropped sharply at each end, and many manufacturers are facing losses or even eliminated. According to incomplete statistics, there were 4,000 LED companies that disappeared in the market in 2015. In 2016, the relationship between supply and demand in the LED industry will ease, and overcapacity will become more apparent. We should give full play to the guiding and restrictive roles of planning, policies, and standards, tighten access conditions, strengthen industry access management, improve the industry's monitoring system and overcapacity early warning system, and strengthen and improve industry management.

In the face of issues such as overcapacity, lack of industry standards, and uneven product quality in the entire industry, companies must strengthen product innovation while ensuring product quality. At present, many products in the entire LED industry are highly homogenized, and innovative applications are the best choice for the company to grow.

The importance of innovation can be reflected in all aspects of the LED lighting industry. Channel innovation reduces intermediate links and directly connects the channels between enterprises and consumers, which helps to alleviate the phenomenon of overcapacity in the industry. Product innovation helps enterprises to escape the trap of industry product homogenization. Innovation in the enterprise management model can help enterprises. Going out of the dilemma of rising operating costs; innovation in financing channels, such as the current P2P platform for online financial financing, allows companies to obtain more financing channels. Adhere to encourage innovation, encourage research and development, application of new technologies, help to rejuvenate the new vitality of the LED industry.

Increase R&D from manufacturing to creation

With market gross margins being continuously squeezed, it is not a long-term strategy to obtain competitive advantage through constant price cuts. In order to cope with price competition, chip companies will dilute the cost by cutting epitaxial wafers into more small-sized chips. However, as the size of the chip is reduced, in order to achieve the same light emitting power, it is necessary to increase the injection current and increase the power density of the light emission, which imposes higher requirements on the performance of the LED.

On the one hand, as the power density increases, the luminous efficiency of the LED is declining. This requires the use of a more superior structure to offset the decrease in the luminous efficiency when the LED is epitaxially grown. On the other hand, the drop in LED luminous efficiency at high power density also means that more heat is generated, which puts higher requirements on the thermal performance and reliability of the LED chip. If companies only blindly shrink the chip size, and do not supplement with complementary epitaxial and chip design R&D, they will not only lose the competitiveness of the product, but also cause the product to suffer from overpowering work and create potential safety hazards.

Under the background of the industry reshuffle, the LED industry will begin to enter “rationality” from the previous "stuff", and technology research and development has become an important means of corporate transformation. To this end, enterprises should be encouraged to increase investment in R&D and increase the content of technology in products to increase the added value of products.

For example, Jingneng Optoelectronics (Jiangxi) Co., Ltd. and China Energy Conservation Jinghe Lighting Co., Ltd. cooperated with Nanchang University to complete the "Silicon-Based High-Efficiency Gallium Nitride Based Blue Light-Emitting Diode Project" and won the first prize of National Technological Invention; Together with Tsinghua University, the project “Building Three-Dimensional Free Optical Surfaces to Regulate Light Behavior and Its Application in Semiconductor Lighting” won the 2014 National Technology Invention Award, etc. These all embody the importance that companies attach to R&D, increase R&D, and build autonomy. The innovative value chain system of intellectual property rights has made innovation and research and development capabilities the core competitiveness of enterprises, thereby realizing "Made in China" to "Created in China."

Take the route of high-end products and develop market segments

In the face of the price war, LED lighting has become increasingly "Red Sea" market, LED companies should focus on the development of "blue sea" in the high-end segment by upgrading technology. Such as automotive lighting, LED-Flash flash for smart phones, UV LED, special wavelength LED lights for plant lighting and other high-end applications market. For example, Harmony Technology acquired Jason Electric and worked hard in the field of deep-UV LEDs. Huacan Optoelectronics has also deployed high-margin market segments such as small-pitch display chips and flip-chips, and has achieved good results.

In recent years, the price war has caused a sharp drop in profits, and the high revenue generated by the huge demand in the general lighting application market is only an illusion. For this reason, LED products produced by enterprises must not only meet the needs of existing market segments, but also have technical reserves for meeting the needs of emerging markets in the future, respond to market changes at any time, and provide customers with non-homogeneous products. Only by adapting the product to the market can the long-term go.

Strengthen patent protection and expand overseas markets

The "Belt and Road" strategy proposed by the Chinese government provides a favorable policy environment for domestic LED upstream enterprises to "go global". At present, the domestic LED replacement market is becoming increasingly saturated, LED chip overcapacity, LED business is generally difficult to operate, while India, Southeast Asia and Russia and other emerging markets have entered the era of strong demand for LED lighting replacement. The implementation of the “Belt and Road” strategy will drive infrastructure construction in countries along the route, and LED lighting products will have a vast market by then.

However, most of the current LED core patents are monopolized by international lighting giants. Domestic LED lighting companies “going out” not only need to pay high patent licensing fees to the international giants who control the core patents, but also face patents that come back in front of them at any time. litigation. To this end, domestic companies need to have intellectual property awareness and use intellectual property as a means of self-protection; the government or industry alliance needs to guide domestic LED patents at a macro level and help companies to make targeted patent supplements.

Visible, LED companies in the active development of overseas markets, at the same time need to strengthen product quality control, improve technology patent reserves, improve after-sales service level, establish a corporate brand image, so that China's LED lighting "Belt and Road."

Conclusion: LED excess capacity is a double-edged sword. This will not only bring about a series of problems such as "price wars" and "business failures." At the same time, it will also promote low-end companies to reshuffle. Some unqualified, weak-capable and weak-funded LED companies gradually withdraw from the market, leaving behind powerful powerful companies. Therefore, the development of LED companies needs to strengthen their own technology, through continuous reform and innovation, in order to strengthen their own strength, in order to withstand squalls.