The LED industry has entered the initial stage of a lighting boom

　　Global LED becomes a global priority for energy conservation and emission reduction

　　Promoting LED has become a key priority for energy conservation and emission reduction in countries around the world. The LED promotion plans of various countries are as follows: Japan launched the world's first "21st Century Lighting" plan in 1998 and completed the replacement of 50% of traditional lighting with white light-emitting diode lighting by 2006, with a total budget of 6 billion yen. The United States' "Next Generation Lighting Initiative" was divided into three phases beginning in 2002 and implemented according to the planned timetable. During the period from 2002 to 2020, the plan is expected to cumulatively save 760 GW of electrical energy, reduce 258 million tons of coal pollutant emissions, build 133 fewer new power stations (each 1,000 MW), and save 115 billion US dollars in fiscal expenditures. The European Union's "Rainbow Plan" ended in July 2003. Spanning 42 months, the Rainbow Plan primarily drove growth in two important markets: one is high-brightness outdoor lighting, such as traffic signals, large outdoor display boards, and automobile lights; the other is high-density optical disc storage, such as for multimedia environments. South Korea's "Solid-State Lighting Plan" was approved by the government. From 2004 to 2008, the government invested 100 million US dollars, with enterprises providing 30% matching funds. The goal of the plan was to achieve a luminous efficacy of 80 lumens per watt by 2008. In China, the Ministry of Science and Technology, together with the Ministry of Information Industry, the Chinese Academy of Sciences, the Ministry of Construction, the Light Industry Federation, the Ministry of Education, and other ministries and commissions, as well as eleven local governments including Beijing and Shanghai, established the National Semiconductor Lighting Project Coordination Leading Group, officially launching the "National Semiconductor Lighting Project." The plan called for an investment of 100 million RMB in guiding funds during the "10th Five-Year Plan" period, and industrial investment during the "10th Five-Year Plan" period has exceeded 1 billion RMB.

　　The incandescent lamp ban plans already announced by countries and regions around the world are as follows: Taiwan, 2012 complete ban on the use of incandescent lamps. Japan, 2012 ceased the manufacture and sale of high-energy-consumption incandescent lamps. The EU set minimum efficiency limits for lighting fixtures, with a complete ban on incandescent lamp use in 2012. Australia, 2010 gradual ban on incandescent lamps, 2012 complete ban on the use of incandescent lamps. Canada, 2010 gradual ban on incandescent lamps, 2012 complete ban on the use of incandescent lamps.

Upstream Chip Market Share Grew Significantly

In 2012, China's semiconductor lighting industry reached an overall scale of 192 billion yuan, growing 23% from 156 billion yuan in 2011. The growth rate slowed, making it the year with the lowest development speed of the domestic semiconductor lighting industry in recent years. Among these, the scales of upstream epitaxial chips, midstream packaging, and downstream applications were 8 billion yuan, 32 billion yuan, and 152 billion yuan respectively. In 2012, domestic enterprises' chip revenue grew 23%, reaching 8 billion yuan; in 2011, the utilization rate of domestic GaN chip capacity was around 50%, with an annual output of only 115 billion pieces and an output growth rate of 63%, far exceeding the value growth rate. Overall, the localization rate of chips reached 72%, and significant progress was made in lighting applications. In particular, the competitiveness of domestic chips for small and medium-power lighting applications gradually emerged. Although the market share of lighting chips remained relatively low, at about 25%, it grew significantly compared with 17% in 2011.

Midstream Packaging Production Grew 32% Last Year

In 2012, China's LED packaging industry reached a scale of 32 billion yuan, growing 12% from 28.5 billion yuan in 2011. Production increased from 182 billion units in 2011 to 241 billion units, a growth of 32%. From the perspective of product structure, SMD-LED packaging grew most significantly, accounting for about 50% of total LED device production, and has become the mainstream product of LED packaging. In 2012, Jufei Optoelectronics (300303, Guba), focused on small-size backlighting, and Ruifeng Optoelectronics (300241, Guba), focused on large-size backlighting, took the lead, and this trend is expected to continue in 2013.

Downstream Applications Grew Fastest but Prices Dropped Significantly

In 2012, the overall scale of China's semiconductor lighting application field reached 152 billion yuan, with an overall growth rate of 24%, making it the fastest-growing segment of the entire industry chain. However, affected by significant reductions in product prices, the growth rate also became the lowest in recent years. Among them, the output value of lighting application products grew by 40%, continuing to be the largest application segment in terms of market share at 28%. The output of LED lighting fixture products exceeded 300 million units, domestic market demand rose rapidly, and the product export ratio declined to 56%. Backlight applications grew by 32%, accounting for 19% of the output value of the entire application field. The most mature landscape applications saw a slowdown in growth in 2012, at 19%, with a proportion of 22% in the total application output value, lower than in 2011. The growth rate of LED displays also slowed, with their share in the application output value dropping to 13%. With further price declines, downstream application manufacturers have been the first to sense the warming trends, and deserve key attention.

The entire LED sector achieved growth in both gross margin and net margin quarter-over-quarter in the first quarter, with a few companies achieving substantial growth in sales and net profit, indicating that the entire sector has begun to bottom out and rebound. The development pattern of emerging industries is roughly 'industry emergence — high gross margin — strong government support — influx of competitors — overcapacity — decline in gross margin — terminal product price cuts — imminent industry explosion.' With the prices of lighting products falling to the sweet spot, the LED industry has now entered the initial stage of a lighting explosion, which can also be seen in the market performance of the first half of the year.