Technical Insight
LEDs: China readies for global domination
Following strong MOCVD reactor sales, analysts across the board predict LED manufacturers in China will rapidly ramp up production. Compound Semiconductor investigates.
2014: IHS predicts double digit growth for LED production in China
Today, China is the world’s largest producer, consumer and exporter of electrical lighting. China-based high-tech analysis hub, OfWeek, claims more than 10,000 lighting manufacturers are based in China, accounting for a third of global incandescent lamp and more than 80% of global compact fluorescent lamps production.
But while the sheer market size is breathtaking, without a doubt the leading light is the LED. Generous government subsidies and strong domestic policy have triggered strong MOCVD reactor sales with LED development following suit. And while industry players have questioned the sustainability of this market, unwavering growth is now widely predicted.
Earlier this year, LEDinside revealed LED chip revenues of China-based manufacturers reached $992 million in 2013 with production expected to rise by 17% in 2014, driving revenues up to $1.2 billion.
And now, in a report that will only fuel Chinese LED market expectations, IHS Technology predicts double digit growth for China LED production in 2014. Senior analyst, Alice Tao, reckons LED die production levels will grow by 36.6% to reach nearly $1.5 billion this year, with packaged LED growth coming in at 14.8% to reach $4.8 billion.
As she highlights: "World growth rate is much much lower; for example our forecast for packaged LED revenues is only around three to four percent for 2014."
"The highest growth rate in the LED supply chain belongs to chips simply because current capacity hasn't yet peaked," she adds. "Although China installed the most MOCVD tools in the world, average utilisation rate still remains low."
Beyond 2014, growth rates for both LED die and packaged LED production will slow down, but right now, and hardly a surprise, lighting is the major driving force for China LED market growth. Tao cites the falling costs of LED lamps in general, the rising acceptance of LED replacement T lamps and the phasing out of incandescent lamps as being key to current growth. Meanwhile, backlighting also continues to fuel LED die and packaged LED revenues as China-based companies loot to replace imported components from Taiwan and Korea. But as LED penetration increases, the market will change.
For starters, the 2014 driving forces will drop away. As Tao highlights: "When cost is no longer a problem, consumers will pay more attention to the advanced performance of LED technology."
Crucially, China's international sales - currently low - are expected to rise. Key players such as Sanan Optoelectronics are developing own-brands to bolster international presence, and according to Tao, the intellectual property issues that have hampered LED-related exports will soon be solved.
"The main issue for Chinese LED companies boils down to Intellectual Property," she says. "However, as these IP issues are resolved through better regulation and provisioning of protection for IP, international sales will grow. Although these won't grow significantly in the short-term."
Of today's key China-based LED players, Tao expects we will definitely see more of Sanan Optoelectronics. Having being cited on the Forbes Asia's 200 Best Under A Billion list, the LED wafer and chip developer currently leads the market for LED dies in China.
"Sanan is retaining its top position... and is by far the most important LED company in China given its hold on the market," says Tao. "This is not likely to change in the next year or two."
Meanwhile, for packaged LEDs,Tao reckons MLS Electronics is the clear leader while Elec-Tech and Nationstar are also dominant in the same market. But consolidation is imminent. Tao is not the first analyst to predict mergers amongst LED manufacturers, in what is ultimately a complex, over-crowded sector comprising more than 5000 players. Still the likes of Sanan and MLS should remain.
"The top players are likely to hold their leading positions for the near term," concludes Tao. "But market consolidation will follow as smaller companies give way to the strongest players."
