Chinese LED suppliers add capacity as LED lighting demand increases
According to Digitimes, supply of low to medium power LED chips has fallen short of demand by 30% to 50% as demand for LED lighting continues to increase. This has prompted Chinese producers to order 120 MOCVD tools, with 60 to 80 coming on line in 1H 2017 and the balance in the back of the year. As we have noted over the last few months, chip pricing has improved as utilization rates rise, with the outcome a push toward additional capacity.
Citing HC SemiTek (300323.CH), Sanan (600703.CH), Aucksun (002245.CH) and Changelight (300102.CH) as the basis for such capacity increases, and projects ranging from specific product line expansions to greenfield fabs, the expansion will be rather rapid. While in the past, Chinese LED producers expanded capacity so quickly that oversupply became a significant issue, we see Chinese LED supply in a slightly different situation. After a number of years in the aforementioned oversupply situation, the Chinese LED producer market has shrunk; not necessarily in overall capacity, but in the number of actual players.
Through M&A and outright company failures, we believe the Chinese LED industry has become narrower, with the 2015 price wars taking their toll on smaller producers that had been only marginally profitable at that time, and this more concentrated industry should be better able to manage expansion without falling back into an oversupply situation. That said, Chinese component producers are extremely competitive, and have not been willing to put the industry’s health on par with profitability, but the smaller base, the past struggles for profitability, and (so far) the lack of Chinese government subsidies, gives us hope that Chinese supply will stay close to demand during the 2017 year. “Hope springs eternal”[i].
[i] Alexander Pope - 1734
Citing HC SemiTek (300323.CH), Sanan (600703.CH), Aucksun (002245.CH) and Changelight (300102.CH) as the basis for such capacity increases, and projects ranging from specific product line expansions to greenfield fabs, the expansion will be rather rapid. While in the past, Chinese LED producers expanded capacity so quickly that oversupply became a significant issue, we see Chinese LED supply in a slightly different situation. After a number of years in the aforementioned oversupply situation, the Chinese LED producer market has shrunk; not necessarily in overall capacity, but in the number of actual players.
Through M&A and outright company failures, we believe the Chinese LED industry has become narrower, with the 2015 price wars taking their toll on smaller producers that had been only marginally profitable at that time, and this more concentrated industry should be better able to manage expansion without falling back into an oversupply situation. That said, Chinese component producers are extremely competitive, and have not been willing to put the industry’s health on par with profitability, but the smaller base, the past struggles for profitability, and (so far) the lack of Chinese government subsidies, gives us hope that Chinese supply will stay close to demand during the 2017 year. “Hope springs eternal”[i].
[i] Alexander Pope - 1734
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