"Cash shortage" makes industry nerves "fragile"; LED companies must "deleverage"

In just over a year, three LED companies with revenues of hundreds of millions of yuan—Junduoli, Bolunte, and Yuanjing Optoelectronics—have already closed down due to funding issues. Now, another crisis has emerged involving Haobo Optoelectronics. Shenzhen Haobo Optoelectronics Co., Ltd. had a revenue of 200 million yuan last year. In just one year, news has spread in the market that the company has suspended production and closed.

　　Operating problems lead to the rupture of corporate capital chains

　　On November 5, media reports stated that Haobo Optoelectronics had closed down due to owing suppliers huge amounts of money and owing employee wages. After the report came out, Haobo Optoelectronics Chairman Zhao Hui responded that the company had not stopped work but had only taken a rest break. He also promised to quickly resolve the owed employee wages and gradually repay the amounts owed to suppliers.

　　记者并没有联系到赵辉，不过联系到了浩博光电的股东之一王先生。王先生介绍，浩博光电前身是一家成立于2006年的技术公司，从2008年到2011年，企业发展态势一直非常良好，去年营业额达2亿元。

　　目前公司遇到何种难题呢?“主要是资金问题。”王先生说他了解到的情况是，今年9月公司延迟发工资，而10月份时公司资金链出了问题，“资金转不动，买不到材料”。王先生认为导致公司资金链断裂的最主要原因是管理混乱、财务混乱，是经营问题导致了企业资金链断裂。据介绍，浩博光电的订单一直都很充足，工厂停工的主因是公司拖欠供应商货款，由此导致供应商集体断供。

　　到底有没有复工?王先生介绍说：“大部分工人都走了，企业暂时没有复工，目前公司要等待引入新的投资人，才会有新进展。”

　　王先生表示他非常看好LED行业，从浩博光电这几年的表现来看，LED发展态势也是非常良性，一旦公司重新开工盘活，他有信心企业会逐步偿还拖欠供应商的款项。

　　多少钱才能让浩博光电正常运转?“大约要1000万元至2000万元。”王先生介绍，公司的设备都在，市场也在，在行业的影响力还在，这些只要运作得好，浩博光电未尝不能“东山再起”。

　　Reporters found that after Haobo Optoelectronics fell into an operational crisis from September to October, when it was urgently seeking financial assistance, news emerged that Baishi Optoelectronics would intervene. Reportedly, after Baishi Optoelectronics contacted Haobo Optoelectronics, it placed a batch of orders to allow Haobo Optoelectronics to resume work and maintain operations, and hoped to take over its production line.

　　The reporter contacted Wang Peng, Deputy General Manager of Baishi Optoelectronics Technology Co., Ltd. Wang Peng revealed that there were plans to intervene in early November. At that time, a supplier conference was held, and some suppliers were united to place an order with Haobo Optoelectronics, intending to maintain its normal operation. However, due to disagreements among the shareholders of Haobo Optoelectronics, Baishi Optoelectronics officially withdrew at the end of November.

　　There are many reasons for the withdrawal, but it is not difficult to see that the capital issues of Haobo Optoelectronics' shareholders are complex. Not only are there bank loans, but also "triangle debts" such as supplier arrears. How much is owed in total? What are the accounts receivable and accounts payable? During the investigation, "I don't know" was the most common answer.

　　The reporter found that Haobo Optoelectronics' products have a certain recognition in the market, following a high-end route, and its production capacity and reputation are well-known in the industry. Otherwise, Baishi Optoelectronics would not have intended to intervene. "When the lid is covered, no one knows how deep the water is." An insider revealed that due to disagreements among shareholders and complex financial entanglements, withdrawal was a wise choice.

　　LED industry overcapacity

People familiar with the matter revealed that four LED enterprises valued at over 100 million yuan have successively encountered financial difficulties — this is merely the tip of the iceberg. In fact, over the past year, many small LED companies have closed down due to funding problems. These enterprises quietly shut their doors with little impact, so the media did not report on them, and society remains largely unaware. The LED industry is currently experiencing a wave of closures.

Where lies the core problem of the LED industry? Mainly "overcapacity". In interviews, most companies pointed this out. The huge market potential of LED has attracted many enterprises to rush blindly into the LED industry. A securities firm introduced in a research report that, according to forecasts, during the "Twelfth Five-Year Plan" period, the LED industry is expected to achieve the goal of quadrupling, with China's LED lighting penetration rate reaching 20% by the end of 2015, and industry estimates are even more optimistic.

Data shows that the LED industry, as one of the three major breakthrough points for Guangdong's current strategic emerging industries, has been developing extremely rapidly.

In Guangdong Province alone, there are more than 20 listed LED companies, with enterprises such as Kingsun Optoelectronics and Hongli Optoelectronics having successively entered the capital market, with a combined market capitalization exceeding 20 billion yuan. The total investment in five provincial LED industry bases — including Huizhou, Dongguan, Jiangmen, Nanhai and Zengcheng — exceeds 50 billion yuan. Among them, a number of heavyweight industrial investment projects, including Huizhou Cree, Zhoulei Technology, the Zhongjing LED chip project and the Guangzhou Zengcheng LED epitaxial wafer project, have a combined investment exceeding 20 billion yuan. Other industry giants are also flocking to the LED industry. Statistics show that BYD, Tsinghua Tongfang, IRICO Group, Changhong, China Electronics Technology Group (CETC), Skyworth and others have also entered this field one after another.

The rush has led to overcapacity. In particular, the global economic downturn has plunged domestic LED enterprises — which rely mainly on exports to make profits — into difficulties, and the fact that the domestic market has yet to open up has also made life very hard for LED companies. Yesterday, reporters reviewed the third-quarter reports of several listed LED companies and found that LED company profits have declined sharply.

The winter will still last for more than half a year

"We are currently in winter." Wang Peng, deputy general manager of Borsony Optoelectronics Technology Co., Ltd., believes that the LED industry needs six months to one year to come out of winter. To change this predicament, Wang Peng believes there are only two ways: first, to digest overcapacity and let those funds and enterprises in the industry seeking quick money withdraw from the sector, leaving only those companies truly refined by the market's touchstone; second, to "deleverage" the entire LED industry. When capital no longer exerts a high-leverage effect on the LED industry, only then can such an industry become an enterprise capable of healthy development.

While investigating LED companies, the reporter found an interesting phenomenon: the entire LED industry, including listed companies, is "short of money." On the listed-company side, in 2011, Unilumin Technology's accounts receivable stood at 42.92 million yuan, accounting for 8.06% of operating revenue; Leyard was at 118 million yuan, accounting for 23.47% of operating revenue. As of September 30 of this year, the accounts receivable of Unilumin Technology, Leyard, and Lianchuang Optoelectronics all remained at "high levels."

Listed companies are "short of money," and even enterprises with revenues exceeding one hundred million yuan are "short of money." An industry insider was quite "frank" when discussing the operating conditions of Haobo Optoelectronics' display screens: display screens are generally "shipped on credit," and after delivery, less than half of the payment is recovered. According to the introduction, based on the payment conventions of the LED industry: for downstream customers, they are required to pay a 30% deposit first, then pay a portion after the display screen leaves the factory, and finally settle the balance after passing acceptance; on the supplier side, they generally give assembly manufacturers a 60–90 day credit period.

#p#分页标题#e#
Being "short of money" has left the nerves of the entire industry extremely "fragile." In the LED industry, when a company runs into capital problems, it is most prone to being besieged by suppliers; when all suppliers refuse to supply raw materials, "the capital chain snaps at the slightest touch."

　　Reporters investigating LED companies found that the entire LED industry, including listed companies, is "short of money." The lack of funds has made the nerves of the entire industry extremely fragile. "We are in winter." Wang Peng, Deputy General Manager of Baishi Optoelectronics Technology Co., Ltd., believes that it will take six months to a year for the LED industry to emerge from winter.

　　LED industry must "deleverage"

　　Reporters found that in the LED industry, capital has an unusually huge magic, and the "leveraging" of capital has been used to its fullest extent in this industry.

　　What is "leveraging"? Simply put, it is borrowing money to invest and operate, using less principal to obtain high returns. This model has been adopted by many companies in the LED industry. When the economy is doing well, the high returns brought by this model cause LED companies to ignore the existence of high risks. When the economy begins to decline, the negative effects of the leverage effect begin to emerge, and risks are rapidly amplified. For companies that use excessive leverage, once product prices fall, the losses will be enormous, and a slight carelessness may quickly lead to bankruptcy. In the LED industry, many companies adopt the "leveraging" model, that is, using 1 million yuan of capital to do business worth 4 million or even 5 million yuan.

　　The reporter learned that in 2008, Haobo Optoelectronics had a registered capital of only 2 million yuan, while in 2011, its sales reached 200 million yuan. Undoubtedly, the LED industry has low entry barriers and a bright future, which has attracted a lot of capital. There are also no shortage of "short-selling" actions. When the industry develops healthily, many funds only see the surface prosperity and flock to it; when the industry encounters a crisis, such a leveraged capital structure will inevitably lead to a crisis in the entire LED industry.

According to informed sources, 80% of companies in the industry, including listed companies, have this kind of capital structure. Although reporters cannot investigate the capital structure of all LED companies, the fact that many LED companies use leverage in their capital to do business has become an unwritten rule in the industry, and this has led to an industry crisis. "You only know who has been swimming naked when the tide goes out," Buffett said.

The risk of high "leverage" is beginning to be recognized by more LED companies, and "deleveraging" is an even more difficult process. For LED companies to develop in a healthy way, they must go through the painful ordeal of "deleveraging."