A closer look at the adjustment of domestic LED chip expansion plans

With the huge domestic subsidies for MOCVD equipment will come to an end this month, while the overall LED terminal market performance is not as expected and LED epitaxy prices fell significantly and other factors, it is expected that the domestic upstream LED chip manufacturers will expand production plans in the second half of this year. A substantial correction has occurred.

The domestic LED chip makers' substantial expansion of production capacity last year was due to the promising market prospects and the huge subsidies from local governments for MOCVD equipment. It can be said that the market prospects and government subsidies have become the main thrust of this round of expansion. In OFweek's view, the current situation is predictable, after all, the current market demand is not enough to support such a large capacity expansion.

Just as a large number of domestic companies successively launched the MOCVD last year, the industry’s discussion on LED excess capacity has plagued them. However, there has been an end demand power that exceeds market expectations, and the need for backlighting has seen blowout developments in the past year, which can be said to offset the market's pressure on overcapacity to some extent. As OFweek's previous analysis, in the field of LED backlighting, domestic companies rarely involved, let alone can consume the capacity of domestic manufacturers to expand the issue. However, foreign LED manufacturers, especially Taiwanese manufacturers, have increased their emphasis on the field of LED backlighting and, to a certain extent, have eased the competitive pressures of the domestic LED companies.

However, the good times are not long. In 2011, the demand for LED backlighting was weak, and the performance of LED-related companies in Taiwan fell sharply. At the same time, South Korean manufacturers also terminated related expansion plans due to the slow growth of LED-backlit TVs. At present, the backlight market is the main driving force driving the growth of the entire LED industry, and the weak demand for backlight will inevitably strongly impact the growth of the entire LED industry. Although domestic companies do not have large fluctuations in their markets, foreign companies have begun to seek adjustments in the structure of LED products, and gradually shift products from the backlight to the lighting direction.

According to OFweek analysis, this move by foreign manufacturers will bring a strong impact on domestic LED manufacturers. The actions of foreign companies will strongly stimulate the nerves of domestic LED companies. If foreign companies will focus on LED lighting, then under the circumstances that LED general lighting has not yet been turned on, the pressure on the domestic related LED manufacturers will further increase. Therefore, although the adjustment of the domestic LED chip makers for the expansion plan is an impulse result, it is indeed a wise move in terms of the current situation.

On the other hand, domestic huge subsidies for MOCVD equipment will not continue. Therefore, in July this year (that is, this month), Yangzhou will stop subsidizing MOCVD equipment. At the same time, it is expected that other local governments in China will have corresponding actions. This will bring enormous profit pressure to the LED chip manufacturers in the expansion period, and the large number of launches of MOCVD will be affected by the weak demand. Currently, the utilization rate of some LED chip manufacturers in the country is reduced to 50%. This is a huge waste of resources for the introduction of MOCVD equipment. At the same time, the lack of relevant professionals is also a cause of low capacity utilization.

So, what adjustments will be made to the adjustment of domestic LED companies' expansion plans? What will happen next? We will wait and see!