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China's Maturing LED Industry

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The Chinese LED industry is changing. A multitude of rivals is giving way to a smaller number of larger and ever-expanding LED chipmakers that are targeting growth of domestic and overseas sales, says IHS analyst Alice Tao during a wide-ranging interview with Richard Stevenson.
Q: How would you describe the state of the LED industry in China today?

A: I don't think I can describe it in one sentence, but I can choose some words. The first is expansion, and then price erosion and bankruptcy. There are still companies "“ major, public and large companies "“ that are expanding their capacity.

For price erosion, it is mostly due to the competition among Chinese companies. Sometimes they have exactly the same products, so they can only compete with each other on price. Bankruptcy is mostly related to smaller companies without enough funds or a technical advantage. It becomes difficult to survive, due to the bigger players.Q: How is the Chinese government supporting LED manufacturing right now?

A: It actually depends on the local government. If an LED company decides to invest a lot in the city, maybe the local government will have some subsidies, mostly on the technical and innovation side, like R&D. There may also be tax abatement or the providing of free land.Q: Does the Chinese government, or local government, still offer subsidies on MOCVD reactor purchases?

A: I think that there are still some cities that are offering MOCVD subsidies. But it is not recent subsidies. Companies that signed a co-operation agreement with the government three or so years ago are still keeping adding tools, based on their contracts.Q: A few years ago there was a massive ramp in the number of LED chipmakers in China. Has this lead to a significant number of mergers and acquisitions?

A: Most smaller companies went bankrupt. However, there were mergers amongst smaller companies "“ for example, NationStar acquired Invenlux. These two companies are very small chipmakers. They have around ten-to-twenty MOCVD tools. For larger companies, which have more than 50 MOCVD tools, I don't think there will be any acquisitions. The larger ones are all expanding their own capacity, and they don't want to acquire the smaller ones. 

Q: Is LED chip manufacture centred around a few cities, or a particular region?

A: It is spread around the country. The locations of LED chipmakers depend on the local government, and whether it provides subsidies. If the local government provides subsidies, the manufacturer will choose to have a factory there.Q: How good is the quality of most of the LEDs made in China today? 

A: It depends on the application. LEDs are good enough for most applications, like LED video walls or signage. Chinese LEDs are also good enough for general lighting, because there are a lot of different lamps and luminaires.

For some high-end applications that need a very high CRI, or for other applications like automotive headlamps, maybe they are not good enough. Q: How would you describe the LEDs made in China, in terms of their output power? Are most mid-power devices?

A: Chinese manufacturers can produce both, but most are mid-power. 


For some high-end applications that need a very high CRI, or for other applications like automotive headlamps, maybe they are not good enough. 

Q: How would you describe the LEDs made in China, in terms of their output power? Are most mid-power devices?

A: Chinese manufacturers can produce both, but most are mid-power. 

Q: Are most of the LED sales associated with backlighting, or general illumination? 

A: General lighting. Backlighting, compared to general lighting, is a very small market.Q: Are LED bulb manufacturers in China buying their LEDs domestically, or importing them?

A: Both, because there are too many lamp and luminaire manufacturers "“ maybe tens of thousands. It depends on the company's target market. If the target market is the US or Europe, maybe the bulb maker will choose an LED chip from Korea or a Taiwanese company.

For most lighting companies, their main market is domestic, so they just use Chinese LED chips.Q: Is LED lighting big in China? Or are most homes and offices using fluorescent sources? 

A: I think in most homes and offices it is not LEDs.Q: Who are the leading LED makers, in terms of quantity and quality?

A: Definitely San'an.Q: Are most companies making chips and packaging them? Or is the packaging outsourced?

A: For chipmakers in China, they usually don't do packaging themselves. I don't think it's easy to do vertical integration in China. There is always too much competition, so companies focus on one area. If you want to do integration, you need a lot of funding.Q: Is manufacture in China predominantly on 2-inch sapphire?

A: Most companies have moved to 4-inch. Essentially these are the big players. Q: Are many companies developing GaN-on-silicon LEDs? 

A: Some companies might be doing R&D on this topic. But for companies that really have a production line, in China it is probably just Lattice Power.Q: How seriously are Chinese LED makers taking IP issues?

A: It depends. I think smaller companies are not that concerned, because they only sell their products in China. For larger companies, because they need to expand their business overseas, they have to work on this issue. Maybe most of them use the easy strategy of acquiring a company with lots of patents.

Q: Is there a strong relationship between universities and LED makers to support the development and manufacture of high-performance LEDs?

A: I have heard that Lattice Power "“ it is the only company doing GaN-on-silicon LEDs in China "“ have cooperated with Nanchang University. For other companies, I believe that there must be some partnership, but I don't know this for sure.Q: MOCVD reactors are a significant expense for LED chip manufacture. Are LED makers in China still buying from Aixtron and Veeco, or are Chinese MOCVD firms starting to compete?

A: They are still buying from Aixtron and Veeco. Previously in China, the sale price was relatively high, but because Aixtron and Veeco have been competing with each other, the tool price has dropped a lot compared to what it was three or four years ago. However, this tool is still very expensive. Maybe reliability is very important, and LED makers don't believe the quality of the Chinese-made MOCVD tools.Q: Due to high levels of bankruptcy, are there lots of second-hand MOCVD tools being bought and sold?

A: Not many. Currently, only large LED chipmakers can survive. These large companies are all expanding their own capacity. They don't want to purchase old tools.

Some of the small companies that started in the LED business were motivated by getting the subsidy from the government. The MOCVD tools actually belong to the government, rather than the small companies. I think there are some second-hand tools, but not many. Also, Veeco and Aixtron announced their next-generation tool about a year ago, and some companies don't want the earlier reactors.

Chinese LED chipmaker San'an is second on the list for the top 10 merchant MOCVD customers by the end of third quarter of 2015.

Q: What about Taiyo Nippon Sanso?

A: I don't think that they have supplied MOCVD tools to China. Maybe five or six years ago I heard of some sales with China, but recently no.Q: What about the supply of substrates, ammonia and metal-organics? Is that domestic, or imported?

A: For substrates, they are mostly sapphire. There are lots of sapphire manufacturers in China, so most of the substrates come from domestic suppliers. But sometimes, for 4-inch, companies want patterned sapphire, so sometimes they purchase from Taiwanese or Korean companies. But that's not a large amount.  

For others materials, especially speciality gases, I think it is still dominated by Western companies.



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