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It is one of the basic laws of development that a company or industry enters the stage of average profit from the stage of high profit and then enters the era of low profit. After the investment boom, price cuts, and the tide of goods, the LED chip field is quietly entering the meager profit or even the unprofitable era.
Industry experts told the "High-tech LED" reporter that as the price of LED chips continues to fall, some chip manufacturers have no profit at all. Small-scale, non-development-capable chip companies have encountered difficulties, but must rely on sales growth and technological progress to survive. “In early 2013, domestic LED chip companies will have a collapse, and companies with between 8 and 10 MOCVD devices will gradually be eliminated by the market.â€
Overcapacity is a foregone conclusion. From the perspective of the industry, industry insiders analyze that from the end of this year to the next two years, China's LED upstream chip field is likely to undergo a process from de-stocking to capacity-consuming. "This process will be more painful, and there may be a lot of mergers and bankruptcies."
The relevant person in charge of a chip company in China said to the reporter of "High-tech LED": "If the chip produced has no outstanding performance, the price will definitely drop to a critical point. Some manufacturers will lose money when they do it."
Price cuts come early
The change in the supply and demand relationship of LED chips is the main reason for this price war.
According to statistics from the High-Tech LED Industry Research Institute (GLII), the overall domestic LED industry continued to be sluggish in 2012, especially the overcapacity of LED upstream chips and midstream packaging. Compared with the beginning of the year, the price of LED chips dropped by more than 30% in the third quarter of 2012, and the price of low-end chips dropped by as much as 45%.
GLII described the current industry situation in the previous "2012 China LED Industry Upstream Epitaxial Chip Research Report": "In 2010, as long as LED epitaxial chip companies can produce chips that are acceptable in the market, there is basically no need to worry about sales. The problem, but by 2011, the above situation has ceased to exist. With the number of LED chip production enterprises and the large increase in MOCVD machines, the production capacity of China's LED chips has been greatly improved. The growth in market demand is far behind the enterprise. In the case of capacity expansion, market competition will begin to become increasingly fierce, and the sharp decline in LED chip prices is inevitable."
The three quarterly reports released in 2012 show that the performance of several listed companies with LED chips as their main business is eclipsed.
In the past few years, the company has been holding a high-margin throne in the field of red and yellow light chips. (300102.SZ) This year is also difficult to withstand the fact that the industry's gross profit margin has generally declined. The data shows that the company's chip gross margin in the first half of this year was 42.94%, year-on-year. The decline was 20.47%. In the first three quarters of this year, the company's LED chip sales increased by about 30% year-on-year, but the chip sales price has a large decline compared with the same period of last year, and the chip gross margin has dropped significantly.
As the largest chip manufacturer in China, Sanan Optoelectronics (600703.SH)'s semi-annual report data is quite intriguing. Looking at the financial disclosure data, Sanan Optoelectronics changed its previous practice of disclosing LED chip sales and gross profit margin data, and consolidated the high-margin LED application products and LED chips for the first time. "Using LED products as a statistical metric is obviously trying to balance the gross margin difference between chips and application products, or to cover the rapid decline in chip gross margin," an industry source said.
Despite this, Sanan Optoelectronics still raised the reason for the decline in the gross profit margin of the company's chip sales in its financial report. There are two main aspects: on the one hand, due to the impact of the economic environment, some chip prices have declined in a narrow range. On the other hand, the company's scale effect has not fully reflected the production cost. Although the production capacity of Anhui Sanan Optoelectronics Co., Ltd. has been gradually put into production, the complete release of production capacity requires a process, and the scale effect has not been clearly reflected; the part of the company's R&D and design “ The yield of new products has not yet reached the expected results and needs to be further improved.
"The most direct reason for the price reduction of LED chips is that supply is far greater than demand." Ye Guoguang, assistant general manager of Hualei Optoelectronics, said that the booming expansion has caused this price cut to come earlier.
Table 1: The gross profit margin of LED chips of listed companies: 
       
Inventory pressure to increase LED chips or will enter the era of low profit
[Source: "High-tech LED - Research and Review" October issue reporter / Liu Qiaomei]