LED Lighting Accelerates Consolidation; "Revenue Growth Without Profit Growth" Situation Hard to Reverse in the Short Term
The market is about to break through 100 billion yuan, having undergone another round of consolidation, yet the LED lighting industry's dilemma of "rising revenue without rising profits" persists.
At the Gaogong Industry Research Emerging Industry Investment Strategy Conference held on February 19, Zhang Hongbiao, director of the Gaogong LED Industry Research Institute, believes that the LED lighting industry will enter a new golden period this year. He told a reporter from China Business News yesterday that the cost-performance ratio of LED lighting has reached the critical point for widespread market adoption. Combined with the large-scale phase-out of incandescent bulbs, China's indoor and outdoor LED lighting market size is expected to surpass 100 billion yuan for the first time this year.
Following Elec-Tech International's merger with NVC and Sanan Optoelectronics' acquisition of Taiwan's Formosa Epitaxy, Tongfang Co. recently prepared to acquire Neo-Neon. The intensity of consolidation in the LED industry this year will be greater than last year. Around this year's Spring Festival, domestic LED chip leader Sanan Optoelectronics completed a private placement, planning to double its LED chip production capacity, expecting that some smaller chip manufacturers will be squeezed out.
Zhang Hongbiao predicts that accelerated survival of the fittest upstream, expanding downstream lighting demand, and accelerated industry mergers and restructuring will be the three major highlights and investment opportunities for the LED lighting industry in 2014.
Indoor Lighting Demand Continues to Expand
With falling prices and improved quality, LED lighting has begun to enter ordinary households.
"The cost-performance ratio of LED lighting has been accepted by the market, generating real demand without government promotion. The phase-out of incandescent bulbs has played a facilitating role," said Zhang Hongbiao. The critical point was reached last year and will be more evident this year, with the market developing rapidly.
Over the past two years, LED lighting prices have dropped by 60%~80%, and prices will continue to fall this year, though the decline will narrow. Currently on the market, low-end LED lamps are cheaper than energy-saving lamps.
Research data from Gaogong LED shows that last year the domestic LED application market reached 208.1 billion yuan, with indoor lighting accounting for 30%; by 2015, indoor lighting's share will further rise to 41%. Indoor lighting has become one of the biggest drivers of growth in China's LED application market.
The successive large-scale phase-out of incandescent bulbs in various countries has promoted the application of LEDs in indoor lighting. Zhang Xiaofei, president of the Gaogong Industry Research Institute, estimates that the global replacement demand for 500 million to 1 billion incandescent bulbs this year, calculated at $3 to $5 per LED bulb, represents a significant market.
Consequently, China's LED lighting exports are also growing rapidly. Zhang Hongbiao revealed that last year, Chinese companies with LED lighting exports exceeding 1 billion yuan appeared for the first time. Last year there were 50 Chinese companies with LED lighting exports exceeding 100 million yuan, and the number is expected to exceed 100 this year. Last year there were 500 Chinese companies with LED lighting exports exceeding 10 million yuan, and the number is expected to reach over 800 this year.
Industry Consolidation Wave Even More Ferocious
Currently there are 1,500 LED packaging companies and 13,000 LED application companies in China. Due to fierce competition and falling prices, the LED industry experienced the phenomenon of "rising revenue without rising profits" last year. With the golden period arriving this year, can this situation change?
"This situation will still occur this year, but it will improve," said Zhang Hongbiao. He believes that industry consolidation is accelerating simultaneously: as the market heats up, companies that have not increased supply in time will seek acquisitions; some projects being negotiated last year will also be finalized this year.
Before the Spring Festival, Tongfang Co. announced plans to acquire 51% of Neo-Neon for 700 million yuan. This is similar in approach to Elec-Tech International's merger with NVC Lighting. Zhang Xiaofei believes the difference is that Elec-Tech valued NVC's domestic channels, while Tongfang values Neo-Neon's overseas channels.
Headquartered in Jiangmen, Guangdong Province, Neo-Neon is a major exporter of LED decorative lighting, once accounting for 50% of the global LED decorative lighting market share. Zhang Xiaofei told a reporter from China Business News that Tongfang had invested heavily in LED chips in the past, and the acquisition of Neo-Neon is now intended to open up downstream "outlets."
Sanan Optoelectronics successfully completed a new round of private placement around this year's Spring Festival, raising 3.3 billion yuan, planning to approximately double its current LED chip production capacity. Zhang Xiaofei believes this is driven on one hand by market demand, and on the other hand by Sanan's desire to squeeze out smaller companies.
Zhang Hongbiao predicts that there will be mergers and restructuring across the upstream, midstream, and downstream of LED this year, with listed companies and state-owned enterprises being the main players.
The trend of LED chips seeing the weak eliminated and the strong retained is evident. Currently there are over 50 LED chip companies nationwide. As large enterprises continue to expand, smaller ones face operational pressure. Last year, Dalian Lumei, Lanbao, and others exited the LED chip industry.
Sapphire Oversupply Risk
While LED is developing rapidly, supporting concepts such as sapphire substrates have also been influenced by rumors that Apple's next-generation iPhone 6 will use them, sparking a wave of capital market enthusiasm. However, Zhang Xiaofei, in an interview with this newspaper, believes that the application of sapphire in next-generation smartphones is still in the introduction stage and has not been used in bulk.
According to preliminary statistics from the Gaogong LED Research Institute, the size of China's LED sapphire substrate industry will grow from less than 1.5 billion yuan in 2013 to approximately 2 billion yuan in 2014. Zhang Hongbiao estimates that domestic demand for LED sapphire substrates was 23 million pieces last year, with domestic supply accounting for over half; demand this year will reach 33 million pieces, with domestic supply share rising to 65%~70%.
Despite this, domestic sapphire production capacity remains excessive. Zhang Hongbiao revealed that current domestic sapphire substrate capacity is 80 million pieces, which will expand to over 100 million pieces by the end of 2014, exceeding the total demand of 33 million pieces.
"The application of sapphire in smartphones is still just a concept," said Zhang Hongbiao. Once Apple applies it, other brands' high-end phones will follow suit. "This is both an opportunity and a risk," he said. Whether Apple will apply it, whether domestic sapphire companies can provide suitable products, and whether phone companies will accept them—all remain question marks.
At the Gaogong Industry Research Emerging Industry Investment Strategy Conference held on February 19, Zhang Hongbiao, director of the Gaogong LED Industry Research Institute, believes that the LED lighting industry will enter a new golden period this year. He told a reporter from China Business News yesterday that the cost-performance ratio of LED lighting has reached the critical point for widespread market adoption. Combined with the large-scale phase-out of incandescent bulbs, China's indoor and outdoor LED lighting market size is expected to surpass 100 billion yuan for the first time this year.
Following Elec-Tech International's merger with NVC and Sanan Optoelectronics' acquisition of Taiwan's Formosa Epitaxy, Tongfang Co. recently prepared to acquire Neo-Neon. The intensity of consolidation in the LED industry this year will be greater than last year. Around this year's Spring Festival, domestic LED chip leader Sanan Optoelectronics completed a private placement, planning to double its LED chip production capacity, expecting that some smaller chip manufacturers will be squeezed out.
Zhang Hongbiao predicts that accelerated survival of the fittest upstream, expanding downstream lighting demand, and accelerated industry mergers and restructuring will be the three major highlights and investment opportunities for the LED lighting industry in 2014.
Indoor Lighting Demand Continues to Expand
With falling prices and improved quality, LED lighting has begun to enter ordinary households.
"The cost-performance ratio of LED lighting has been accepted by the market, generating real demand without government promotion. The phase-out of incandescent bulbs has played a facilitating role," said Zhang Hongbiao. The critical point was reached last year and will be more evident this year, with the market developing rapidly.
Over the past two years, LED lighting prices have dropped by 60%~80%, and prices will continue to fall this year, though the decline will narrow. Currently on the market, low-end LED lamps are cheaper than energy-saving lamps.
Research data from Gaogong LED shows that last year the domestic LED application market reached 208.1 billion yuan, with indoor lighting accounting for 30%; by 2015, indoor lighting's share will further rise to 41%. Indoor lighting has become one of the biggest drivers of growth in China's LED application market.
The successive large-scale phase-out of incandescent bulbs in various countries has promoted the application of LEDs in indoor lighting. Zhang Xiaofei, president of the Gaogong Industry Research Institute, estimates that the global replacement demand for 500 million to 1 billion incandescent bulbs this year, calculated at $3 to $5 per LED bulb, represents a significant market.
Consequently, China's LED lighting exports are also growing rapidly. Zhang Hongbiao revealed that last year, Chinese companies with LED lighting exports exceeding 1 billion yuan appeared for the first time. Last year there were 50 Chinese companies with LED lighting exports exceeding 100 million yuan, and the number is expected to exceed 100 this year. Last year there were 500 Chinese companies with LED lighting exports exceeding 10 million yuan, and the number is expected to reach over 800 this year.
Industry Consolidation Wave Even More Ferocious
Currently there are 1,500 LED packaging companies and 13,000 LED application companies in China. Due to fierce competition and falling prices, the LED industry experienced the phenomenon of "rising revenue without rising profits" last year. With the golden period arriving this year, can this situation change?
"This situation will still occur this year, but it will improve," said Zhang Hongbiao. He believes that industry consolidation is accelerating simultaneously: as the market heats up, companies that have not increased supply in time will seek acquisitions; some projects being negotiated last year will also be finalized this year.
Before the Spring Festival, Tongfang Co. announced plans to acquire 51% of Neo-Neon for 700 million yuan. This is similar in approach to Elec-Tech International's merger with NVC Lighting. Zhang Xiaofei believes the difference is that Elec-Tech valued NVC's domestic channels, while Tongfang values Neo-Neon's overseas channels.
Headquartered in Jiangmen, Guangdong Province, Neo-Neon is a major exporter of LED decorative lighting, once accounting for 50% of the global LED decorative lighting market share. Zhang Xiaofei told a reporter from China Business News that Tongfang had invested heavily in LED chips in the past, and the acquisition of Neo-Neon is now intended to open up downstream "outlets."
Sanan Optoelectronics successfully completed a new round of private placement around this year's Spring Festival, raising 3.3 billion yuan, planning to approximately double its current LED chip production capacity. Zhang Xiaofei believes this is driven on one hand by market demand, and on the other hand by Sanan's desire to squeeze out smaller companies.
Zhang Hongbiao predicts that there will be mergers and restructuring across the upstream, midstream, and downstream of LED this year, with listed companies and state-owned enterprises being the main players.
The trend of LED chips seeing the weak eliminated and the strong retained is evident. Currently there are over 50 LED chip companies nationwide. As large enterprises continue to expand, smaller ones face operational pressure. Last year, Dalian Lumei, Lanbao, and others exited the LED chip industry.
Sapphire Oversupply Risk
While LED is developing rapidly, supporting concepts such as sapphire substrates have also been influenced by rumors that Apple's next-generation iPhone 6 will use them, sparking a wave of capital market enthusiasm. However, Zhang Xiaofei, in an interview with this newspaper, believes that the application of sapphire in next-generation smartphones is still in the introduction stage and has not been used in bulk.
According to preliminary statistics from the Gaogong LED Research Institute, the size of China's LED sapphire substrate industry will grow from less than 1.5 billion yuan in 2013 to approximately 2 billion yuan in 2014. Zhang Hongbiao estimates that domestic demand for LED sapphire substrates was 23 million pieces last year, with domestic supply accounting for over half; demand this year will reach 33 million pieces, with domestic supply share rising to 65%~70%.
Despite this, domestic sapphire production capacity remains excessive. Zhang Hongbiao revealed that current domestic sapphire substrate capacity is 80 million pieces, which will expand to over 100 million pieces by the end of 2014, exceeding the total demand of 33 million pieces.
"The application of sapphire in smartphones is still just a concept," said Zhang Hongbiao. Once Apple applies it, other brands' high-end phones will follow suit. "This is both an opportunity and a risk," he said. Whether Apple will apply it, whether domestic sapphire companies can provide suitable products, and whether phone companies will accept them—all remain question marks.