MLS also raises prices! Is the LED industry really experiencing a "price hike" wave?
In mid-May, Epistar announced a 15% price increase for some chips. Subsequently, Sanan Optoelectronics, Xinda Optoelectronics, Anpu Light, and Huacan Optoelectronics also recently had news of product price adjustments, and multiple companies' price adjustment notices circulated on the internet. Yesterday, the price adjustment notice of packaging giant MLS suddenly appeared online.
The MLS price adjustment notice shows that, due to market changes, product costs have been continuously rising. In order to coordinate the production development of both parties and maintain good business relationships, based on the actual situation of raw material price increases, and following the principle of mutual benefit, the price of display screen RGB lamp beads will be uniformly increased by 5% starting from September 1, 2016.
It is worth mentioning that, previously, the relevant person in charge of MLS had stated that, considering the long-term cooperative relationship with customers, MLS would not easily adjust prices, and that doing a good job in product quality is the best competitive weapon.
Looking back, Xinda Optoelectronics' price adjustment letter shows that due to significant price increases in upstream chips and brackets (generally exceeding 10%), combined with continuously rising labor costs, the company has specifically raised the prices of its RGB lamp bead products by 5% on top of the current level. The price adjustment will take effect from September 1. This adjustment covers products from four subsidiaries, namely Fujian Xinda, Guangdong Xinda, Anpuguang, and Xiamen Xinda, all with a 5% increase.
Sanan Optoelectronics' price adjustment letter shows that raw material prices have rebounded from the bottom, with gold (up over 27% from the beginning of the year) and substrates (up over 30% since June); meanwhile, because small and medium-power chips are small in size, the back-end process consumes substantial sorting and testing capacity, and unit labor costs have risen, resulting in a sharp decline in back-end process output value. Currently, prices for some small and medium-size products are raised by 10%, effective from August 25.
What are the reasons for the price increase?
Is the price increase actually a good thing?
This wave of price increases this year started as early as March. Board manufacturer Kingboard and packaging manufacturer MLS raised prices on some of their products earlier this spring.
It is understood that the main reason for the price increase given by various manufacturers is the recent rise in various raw materials and labor costs, which has exceeded the cost accounting price. To maintain profitability, they can only choose to raise prices.
Looking back at the events, first, Epistar's sole official sales agent in mainland China, Jingyuan Baochen Optoelectronics (Shenzhen) Co., Ltd., issued a price adjustment letter announcing its plan to gradually raise the prices of some series of chips currently on sale. The reason given in the official letter is that various raw materials and labor costs have recently risen, exceeding the company's current cost accounting price, and in order to maintain profitability, this is the only option.
Subsequently, it was revealed that a senior executive of Sanan Optoelectronics stated in a Korean news report that "since May, the prices of some LED chips have increased by 10%." Sanan's explanation was more subtle, saying that "market prices are influenced by the law of supply and demand," and that the price increase is to bring market supply and demand into balance.
Analysts say that the shortage of LED chips since the second quarter of this year, from the demand side, some packaging plants have been forced to turn to second-tier chip manufacturers for procurement; from the supply side, since the new models of the top two MOCVD equipment manufacturers, which account for nearly 90% of the market, have seen significant price increases after product upgrades, chip manufacturers are cautious about expanding production due to cost factors. The industry expects that chip supply tightness may continue until the end of this year. Currently, the decision on whether to raise prices must take into account the release of chip production capacity. Due to technology updates and equipment commissioning, a release cycle of one to two years is required. At the same time, midstream packaging capacity has continued to expand rapidly in recent years, so as a chip company, they will still comprehensively assess the next market direction.
Regarding views on price increases, industry insiders said that price increases are normal market rules, which is a good thing for enterprises. In the future, each company will produce products with their own characteristics, which will promote the research and development of the entire industry.
Some also believe this price increase is due to the fact that companies such as Epistar and Sanan have occupied most of the market share through earlier price wars and have a certain say. Now, in order to increase corporate profits, they have chosen to raise prices, which is a strategic adjustment.
Regarding the impact on the downstream, some believe that the price increase is good for everyone — with rising costs, finished lamps can naturally be sold at higher prices. But others point out that the prices of end-product manufacturers have already been suppressed. As upstream chip and lamp bead prices rise, finished-product manufacturers actually have no way to raise prices accordingly. Procurement costs have gone up, but the profit of finished lamps cannot rise, ultimately squeezing the profits of end-product manufacturers. In other words, no matter how many mid- and upstream chip and component companies follow the price hike and by how much, the transmission effect is difficult to manifest for current downstream lighting application companies.
Earlier, comments left under the article on China Light Network titled "Sanan and Epistar LED Chip Prices Rise — A Roundup of Recent Events at LED Chip Manufacturers"
Due to years of price wars suppressing the industry, calls within the industry for price increases are even stronger (see the comments above). As the aforementioned companies have successively adjusted their prices, it cannot be ruled out that a batch of chip packaging companies may follow suit next. But will this round after round of price hikes this year trigger a collective price increase across the entire supply chain, and will LED prices stop their downward trend and rebound from the bottom? What chain reaction will the price increases ultimately trigger in the market? Let's keep watching together.
Will LED prices bottom out and rebound?
Is the LED industry recovering?
As soon as the price increase news broke, many industry experts predicted that the "recovery" process would arrive this year, with LED industry prices set to bottom out and rebound. Whether this conclusion is premature remains to be seen, but from price hikes by packaging manufacturers to those by chip makers, one can basically see that the overall supply-demand relationship in the LED industry is gradually improving, and LED prices will not experience the cliff-like decline seen in previous years.
After successively experiencing the "investment boom" and "overcapacity", the LED chip industry seems to be gradually returning to a rational stage. Considering various factors comprehensively, the market's return to rationality is inevitable.
Indeed, judging from the half-year performance forecasts recently released by listed LED lighting companies, there are quite a few enterprises that achieved year-on-year profit growth. Many companies stated that the price hike incident may accelerate the reshuffle of the industry.
But it was also during the same period that news came of well-known companies such as Pinyi Lighting and Zhongzhou Optoelectronics, as well as many small and medium-sized enterprises, going bankrupt and closing down. Regarding this situation, Zhong Shuihua, Sales Director of Xiamen Ouwanglai Electronic Technology Co., Ltd., believes it reflects the polarization situation as the LED lighting reshuffle approaches its end: "Now in the industry, big companies are getting bigger and small ones are getting smaller, because for large manufacturers, the gap caused by chip price increases can be spread out through procurement volumes, but small companies simply don't have the strength to absorb the gap in production costs caused by the price hikes," he said. At the same time, he also said that this year may be "colder."
Against the backdrop of further popularization of LED lighting and accelerated industry reshuffling, this reveals a development trend in which the strong remain strong.
As for the years-long price wars, the time has come to reach a definitive verdict. With LED lamp prices bottoming out and the transparency of market prices and costs of electronic components in LED lamps, industry insiders all agree that price wars are no longer meaningful. Unless a company wants to seize market share but cannot achieve quality, it can only disrupt the market with low prices regardless of cost. The fact that chip packaging can raise prices also shows that the industry will no longer engage in price wars.