Chinese LED capacity expansion takes the next step
As we have noted over the last two years, Chinese LED chip producers have continued to expand capacity during a time when others, particularly Taiwanese competitors have not, despite the over-capacity situation that has faced the industry. With the goal of increasing Chinese independence from worldwide suppliers, as it is also doing in the display industry, the capacity increases have accomplished their goal, with domestic LED chip manufacturing at ~76%. The Chinese upstream LED chip market, which grew ~9% y/y in 2016 to ~$2.02b US, with the top 10 taking a 77% share, but the Chinese LED packaging market has yet to capture such a top ten share, at a meager 43% last year.
Growth in the Chinese LED packaging market is expected to outpace the overall LED packaging market this year (~4%), as the Chinese LED industry refocuses on packaging for more specific applications such as IR and small pitch LEDs as iris recognition becomes more popular and VR applications gain some traction. Micro-LED applications are also getting focus, as some producers and packagers see this technology as a substitute for OLED, but despite the optimistic view, actual high volume commercial CE products with the technology are still far away as we mentioned in our note on HKC (248.HK) last week. Rather than seeing micro-LED applications in mobile consumer devices this year, we would expect to see them in very large screen signage displays where placement is less of an issue, and in some very small (watch size) devices, where the number of micro-LEDs is small.
As is noted in the above comment on smartphone component pricing, the prices of LEDs have been rising, less on demand, although small pitch LEDs have seen demand increases, than on component and material cost increases. As producers have not benefited from these increases, the need to find packaging applications that have some premium over generic LED applications will drive the industry this year, particularly in China, and while the Chinese government can tout the lessening dependence on the importation of LEDs to the mainland, we note that a significant portion of the Chinese LED production industry is made up of JVs with non-Chinese companies. Should the battle between Taiwan and China over LED chip pricing take a turn toward profitability rather than share, there is a chance the expansion by Chinese packaging companies might help the industry rather than hurt it, with the alternative being lower demand as prices continue to rise.
Growth in the Chinese LED packaging market is expected to outpace the overall LED packaging market this year (~4%), as the Chinese LED industry refocuses on packaging for more specific applications such as IR and small pitch LEDs as iris recognition becomes more popular and VR applications gain some traction. Micro-LED applications are also getting focus, as some producers and packagers see this technology as a substitute for OLED, but despite the optimistic view, actual high volume commercial CE products with the technology are still far away as we mentioned in our note on HKC (248.HK) last week. Rather than seeing micro-LED applications in mobile consumer devices this year, we would expect to see them in very large screen signage displays where placement is less of an issue, and in some very small (watch size) devices, where the number of micro-LEDs is small.
As is noted in the above comment on smartphone component pricing, the prices of LEDs have been rising, less on demand, although small pitch LEDs have seen demand increases, than on component and material cost increases. As producers have not benefited from these increases, the need to find packaging applications that have some premium over generic LED applications will drive the industry this year, particularly in China, and while the Chinese government can tout the lessening dependence on the importation of LEDs to the mainland, we note that a significant portion of the Chinese LED production industry is made up of JVs with non-Chinese companies. Should the battle between Taiwan and China over LED chip pricing take a turn toward profitability rather than share, there is a chance the expansion by Chinese packaging companies might help the industry rather than hurt it, with the alternative being lower demand as prices continue to rise.
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