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The Market For LED Chips Will Keep A Dangerous Balance In The Future
Sep 25, 2017

The market for LED chips will keep a dangerous balance in the future


The competition among LED chipmakers has been much more modest than in the back of the factory, largely thanks to the relatively modest expansion of chip capacity over the past two years. China added 2014 MOCVD machine number 2014 (multi-cavity and high yield machines are converted into 54 pieces 2 inch machine capacity), although this number is still not small, but only 21% YoY, consider to the exit of the old machine, the size of the actual new capacity is quite limited, now the market scale is enough to digest this part of the expansion of production capacity. Moreover, the new production capacity mainly focuses on the large and medium-sized chip enterprises which are competitive in the market, and avoid the situation that the chip with low quality and low price will flood the market.


And back in 2010, in 2011 China MOCVD capacity expansion, several times as high as 2010, 2011 YOY also is as high as 153%, and in proportion to the market demand completely impossible to grow, so will appear in 2012 chips of excess production capacity, prices continue to collapse.


According to LEDinside statistics and observation, the price of LED chips is mainly in 4Q14 for a large area of systematic price reduction. And by the second quarter this year, although the high price of the unit price still has a certain margin, but the varieties of lower prices have shown a certain defensive, the overall market price distribution space tends to converge, but not yet have the collapse of the crisis.


In 2014, the biggest change in the chip market is comprehensive rise, Chinese chip companies market share in the top five won 4 seats, crystal electricity for enterprise survives the non-native chip in the top five. The company's revenue in China's LED chip market exceeded that for the first time.


But considering the layout of the international market relatively late and the limitation of the patent, the Chinese chip companies outside of the home market share is still very small, from the perspective of the scope of the global market, the output value in the top five big enterprise only three Ann a chip. Therefore, entering the international market and entering the supply chain of the international packaging brand factory is still the opportunity and challenge for the future of Chinese LED chip enterprises in the global market.


But for chip market, there are still a hanging on the blade of the dharma of Banks, that is three is the construction of phase ii project, as many as 200 sets of production capacity once put on the market, now the fragile balance of the whole chip market will collapse at any time.


However, if we consider that sanan is a listed company of rational operation, assuming that the target is profit maximization, we have a formula:


 R=Q*P-Qc-F


Consider three Ann's market share has been China's first, its production is large enough to affect the chip market price, therefore after a certain production stage three Ann price is negative correlation between yield and the market, has established formula 2:


  P=-aQ

The relationship between profit and yield can be found in formula one.

  R=-aQ2-Qc-F

For formula three R the extremum of linear programming for profit, because the formula quadratic coefficient is negative, the profit function curve is a parabola going downwards, the output of the profit maximization is less than a point of maximum yield.


A reasonable guess is that new capacity will be gradually released to avoid hitting the market price of the existing business, and target incremental profits enough to cover new fixed asset depreciation.


But are based on the above three goal is profit maximization assumption, if three Ann in market share or absolute stable oligopoly as the goal, emptying the price war, the fragile balance can sustain lived very much remains to be seen. Especially when HuaCan restructuring, bdo, in a rights issue, and lattice lighting in jinsha river planning, integration of Lumileds resources to compete for the chip market third pole goal is very obvious, this a few new way is likely to break three Ann and electric struggled to maintain balance of power in duopoly, when will there be some kind of fighting hard to predict.


In addition, the expansion of the production capacity of sanan is divided into two sides, which has at least three positive meanings for the industry:


First, it is a capacity deterrent strategy for the three countries, effectively deterring rivals' expansion plans and reducing the industry's competitive intensity. Three over the years, every time a high-profile expansion plans, unsettle rivals quite, not only Chinese companies, including South Korea and Taiwan chip companies seemed more cautious on the chip capacity expansion, and so on industry slowdown this year, the LED chip companies is relatively easy.


Second, it is also an entry blocking strategy, effectively preventing new competitors from joining the industry. This strategy was used in his early years, TSMC by building large Numbers of excess production capacity, reduce the new entrants to enter the industry after the earnings expectations, to reassure potential competitors into the plan. Through these years of observation, we have seldom found any enterprises willing to enter the LED chip industry, and more are recombining resources through merger and reorganization industry.


Thirdly, the capacity expansion of sanan also has the value of counter-cyclical operation on the operation level of the enterprise. LED chip industry is very volatile because the downstream demand fluctuation is quite unstable, so it shows a strong periodicity. This cyclical swings the enterprise stable earnings expectations, reduces the value of the asset under this business model, the market out of stock, the satisfaction of needs are not being effective, profitability is restricted, excess supply, enterprise and to bear the high idle equipment and personnel. The establishment of a certain capacity reserve, according to the market cycle reverse release production capacity, effective suppression by the supply and demand cycle of the market fluctuation, can improve the profitability of the industry to a certain extent.