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Chinese LED Package Manufactures Restructure Situation in 2014

In general, China’s LED package performance was unideal in 2014. Although, the market maintained high growth rates, manufacturers revenue performance remained low, especially among small second-tier manufacturers.

Main Chinese LED package manufacturers’ gross margin started to decline in 2013. Manufacturers’ average gross margin in 3Q14 was a mediocre 24%, mainly due to LED lighting market’s intense market competition that spread to LED package market for lighting applications. These developments led to LED manufacturers lower gross margins. For instance, Jufei Optoelectronics LED lighting business gross margin was only 16% in 1H14, almost half of its LED backlight business’s 31% gross margin. Refond’s LED lighting business gross margin was also far below LED backlight business with only a mere 13%. Chinese LED manufacturers focused on LED lighting businesses all reported low gross margins including Honglitronics and Changfang Lighting. Yet, the majority of Chinese LED package manufacturers are scaling up LED lighting businesses, such as Jufei Opto, Refond, MTC and many second-tier LED package manufacturers. All these manufacturers are transiting into LED lighting package sector. Lighting is where the future of the LED industry lies, and is a sector where manufacturers are vying to enter, leading to the overtly competitive LED package market. The situation is expected to further worsen.

In the overtly competitive market, cost control is the decisive factor in market competition. Since the LED lighting market still has large growth potentials, manufacturers with technology and financing capacity will start mass producing products to lower costs. This is the main reason behind Honglitronic, Refond, Jufei Opto, and MTC production expansion plans.

Production expansions leads to unavoidable industry restructure

Business operations were challenging for Chinese LED package manufacturers in 2014. Companies faced low profitability and higher management risks. A company’s yearlong efforts could be futile if there were product quality issues, or a client complained. Manufacturers could face even graver financial consequences leading to their bankruptcy. LED package manufacturers will gradually escalate production capacity in 2015, making market competition even fiercer. Manufacturers lacking financial support will find business operations increasingly challenging.

Lighting is the LED industry’s future, but it will also become the fuse to explosive industry restructures in the LED package industry within the next two years. China’s LED chip industry might be in deep water right now, but LED package industry might become the next troubled market.

However, there will always be a calm after the storm. After the Chinese LED chip industry underwent massive restructures in the last few years, the market will gradually stabilize, and companies’ profitability soared. Similarly, the LED package industry will also reach this point. The most important thing for LED package manufacturers is ensuring the company still exists.

 

 

Remark: We focus on LED Lighting, and our products include T8 LED Tube Light,T5 LED Tube Light, LED Panel Light, LED Track Light, LED Down light, LED Ceiling Light, LED Flood Light, LED Emergency Lighting, LED Dimmer, etc.
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