The overall market demand growth slowing down, the new capacity quickly released, and the inventory cleared... Under so many factors, a number of LED industry chain companies experienced a decline in performance in 2018. What is the trend of the LED industry in 2019? Where are the investment opportunities in the industry chain?
The reporter of Shanghai Securities News learned from various sources that in the short-term, as the industry ushers in the inflection point of reducing inventory and the high-end demand, such as for automobiles, increases, the LED industry is expected to bottom out; in the medium and long term, the fine-pitch market will continue to maintain the fast growth, Mini-LED is about to mature, and Micro-LED has already entered the dawn of industrialization. All in all, new technology will bring a new round of high growth to the LED industry.
The industrial expected to bottom out
With the 2018 annual reports releases, the performance of LED companies such as HC Semitek, Ledman Optoelectronics, and Changfang Group slumped. The gloomy LED industry has once again attracted the attention of the community.
According to statistics of East Money’s Choice, in 2018, among the 68 LED concept stocks, only 32 were profitable, accounting for less than 50%. Take HC Semitek as an example. The company achieved operating income of RMB 2.732 billion in 2018, a year-on-year increase of 3.87%. The net profit attributable to shareholders of the company was RMB 244 million, down 51.43% year-on-year.
What was the reason for the LED industry to fall into a downturn again? An insider said in an interview that the most direct reason was that in the case of continued growth in market demand in 2016, the domestic whole-industry-chain giants of LED entered a new capacity expansion period in 2017. With the release of the new capacity, the industry chain entered a new round of surplus in 2018.
“The overall market demand growth slowed down, the capacity of small and medium chip manufacturers was released quickly, and the inventory was reduced...” HC Semitek explained for the decline in performance in the 2018 annual report. It is understood that in addition to HC Semitek, Xiamen Changelight, Aucksun Cuoda Group, Shenzhen MTC, and other LED chip epitaxial wafer companies announced expansion in 2017. According to statistics from LEDInside, in 2017, there were 401 new MOCVDs (metal organic compound chemical vapor deposition), the LED chip production devices, in the world, which was the peak of expansion since 2011.
Will the LED industry still be overcast in 2019? “As the industry ushers in the inflection point of reducing inventory and the high-end demand, such as for automobiles, increases, the LED industry is expected to bottom out.” The industrial insider believed that although the LED industry would not have much growth in 2019, its structural opportunities were worthy of attention.
“We expect that as the industry further integrates, the concentration increases, and the inventory clears, the industry will have a balance between supply and demand in the second half of the year.” Wang Jiangbo, vice president of HC Semitek, gave an optimistic expectation in an interview.
In LEDInside’s view, the deep reason for the downturn in the LED industry is that the replacement cycle of LED lighting is coming to an end, and the demand of the entire market is switched to innovation driven. LED companies could no longer compete on price or scale as before. Under the new competitive landscape, leading companies will accelerate the launch of innovative applications and seize more market share.
Wang Jiangbo said that in 2019, HC Semitek would increase the research and development of new technologies and new products, increase the shipment of products with high luminous efficiency, backlight, and fine pitch, and reduce the proportion of low-end lighting products. Moreover, it would actively explore new application markets, including the acquisition of overseas orders and the expansion of overseas customers with MEMSIC’s overseas accumulation and cooperation with European and American companies.
“Another advantage of ours is that the semiconductor (MEMS sensor) business has entered a rapid growth period,” Wang Jiangbo told reporters. It is reported that MEMSIC’s geomagnetic sensors and accelerometers have passed the client verification of many well-known mobile phone manufacturers and auto manufacturers, and it is expected to achieve the maximum sales volume in 2019.
New technology leading the next round of high growth
Sanan Optoelectronics announced on April 26 that it planed to invest RMB 12 billion to build a Mini/Micro LED epitaxial and chip product project in Hubei Province.
Why will Sanan Optoelectronics invest a lot in Mini/Micro LED? A senior LED source told reporters that the excess capacity of the LED industry was only the low-end lighting capacity; the Mini/Micro LED was regarded as the next-generation technology in the industry, which would bring a new round of high growth to the industry.
Mini LED is regarded by panel factories and LED factories as the key to the survival in a desperate situation. Special applications such as fine-pitch LED display, Mini LED backlight, automotive lighting, and high-efficiency LED lighting are expected to drive demand in 2019, according to a report released by LEDInside.
According to the data, the development trend of the emerging LED display technology is miniaturized display screen, which is currently undergoing the evolution path of fine pitch, Mini LED, to Micro LED. In terms of Mini LED, it is mainly applied in the fields of television, mobile phones, car display, and digital display. Micro LED is a further development of Mini LED. LEDInside believes that the biggest application of Micro LED in the future is large size display.
“Fine pitch will continue to maintain high growth this year.” Wang Jiangbo said that the fine pitch of HC Semitek was aimed at chip products of p1.5 and below. The main application areas were security monitoring and large-size TV. It is reported that the growth of small-pitch LED displays has been reflected in the performance of some listed companies. For example, Leyard’s net profit growth in the first quarter of 2018 and 2019 was respectively 4.53% and 12.13%. Leyard believes that in 2019, fine pitch will continue to drive the growth of smart display.
“Mini LED will achieve the maximum sales volume this year, but the Micro LED industry chain may take three to four years to mature.” For the technical node, Wang Jiangbo’s judgment has its own practical support. He said that HC Semitek’s Mini LED chips have passed the client verification of many well-known terminal customers in 2018, and have achieved volume shipment. The next step will be to focus on improving product performance, reliability and yield optimization, and further reducing costs. “HC Semitek has also achieved significant breakthroughs in Micro LEDs. Micro-LED epitaxial wavelength uniformity and surface defect density continue to be optimized, and forward-looking research and development of ultra-large size (6-inch and 8-inch) epitaxial technology has been carried out.”
It is understood that the world’s major LED chip companies and panel manufacturers are betting on Micro LED. Among them, Apple acquired LuxVue, a Micro display technology company, in 2014, to develop better screen display technology. Semiconductor and panel manufacturers such as Sony, LG, Epistar, AUO, and Innolux are also actively investing in research and development.
“HC Semitek adheres to the development strategy of double main businesses, which are LED and sensors.” Wang Jiangbo emphasized that in the next three years, in addition to continuously increasing the revenue of the sensor business, HC Semitek would continue to expand its LED epitaxial wafer and chip business in the LED field, and to extend to the field of compound semiconductors, such as VCSEL (vertical cavity surface emitting laser), continue to promote the development and industrialization of Micro LED, and strive to further increase the share of high-end products and the proportion of quality customers.
