The upstream of LEDs, once spurred by capital, is paying for the enthusiasm of the past. According to data obtained by the reporter from the High-tech LED Industry Research Institute, the upstream supply of the LED industry is seriously oversupply, and the operating rate is less than 50%. Some insiders pointed out that it is expected that the upstream LED field will still face inventory pressure next year, and reshuffle is inevitable.

Production equipment is idle
In recent years, LED upstream investment overheating is the most obvious, as local governments have the largest MPCVD subsidies for LED upstream equipment. “(LED upstream chip) has been in short supply from 2009 to the basic supply and demand balance in 2010. In 2011, there was an oversupply, and by 2012 it had been oversupply.” At the high-tech LED summit, Zheng Tiemin, general manager of Inspur Huaguang Optoelectronics Co., Ltd. said bluntly.

Along with the serious overcapacity is the price war. According to the statistics of the High-tech LED Industry Research Institute, the price of LED upstream substrate and chip has dropped by more than one-third compared with the beginning of the year, resulting in a serious compression of upstream profits. On the one hand, there is insufficient demand. On the one hand, profits are meager, and many upstream enterprises choose to cut production. According to statistics from the High-tech LED Industry Research Institute, nearly 50% of the entire LED upstream is idle.

In recent years, the Dehao Runda three quarterly report, which is investing in the upstream of LEDs, shows that only 38 of the 80 MOCVD equipments of its two subsidiaries are in mass production, except for another 5 for R&D, and another 37. The machines are still in the process of installation and commissioning, and the operating rate is only slightly higher than 50%.

"Shuffle Tide"
A number of companies said in an interview with reporters that the industry has not yet recovered, and the upstream will still be in destocking next year, so prices will continue to decline. On the other hand, with overcapacity, the government's subsidies for purchasing equipment have also become cautious, and companies will really start to kill at the market level.

In fact, the three quarterly reports of listed companies have already revealed clues. Due to the continuous decline in product prices, Huacan Optoelectronics reported that its revenue and net profit decreased by 25.7% and 49% respectively. In recent years, the third quarter report of Dehao Runda, which has been relying on subsidies to maintain the scenery, shows that its net profit in the first three quarters fell by 57.41% compared with the same period of last year. The company said in the report that the main reason for the decline was the company’s government subsidy ratio during the reporting period. The decrease in the same period last year and the increase in expenses.

Zheng Tiemin believes: "It is foreseeable that in the next few years, there will be a phenomenon of shutting down production, reorganizing assets, mergers and acquisitions, and launching new projects." Zhang Xiaofei, director of the High-tech LED Industry Research Institute, predicts that there will be less than 30 companies remaining in epitaxial chip companies next year. Home, shuffling will continue to deepen.

Link: upstream investment flows downstream
According to the statistics of the High-tech LED Industry Research Institute, the new planning for the LED industry reached 194.5 billion in 2011, which dropped sharply to 100 billion this year, a decrease of nearly 50% year-on-year. Zhang Xiaofei believes that this shows that the industry is gradually becoming more rational.

The data also shows that due to the overcapacity in the upstream, the capital that originally flowed to the upstream chip has turned to the downstream application sector this year. The planned investment in epitaxial chips has dropped from 46% last year to 10%, while downstream applications have risen from 21% last year to 53%. Zhang Xiaofei said that the concentration of capital downstream will aggravate the polarization of the downstream.

It is understood that this year, Dehao Runda, which originally used epitaxial chips as its main business, is also accelerating its extension to the application side. At the same time, midstream packaging companies such as Hongli Optoelectronics are also actively cutting into downstream applications. Zhang Xiaofei believes that after more capital flows into the lower reaches, enterprises that are large in scale and have excellent products will continue to expand in size, while small enterprises will rely on low-cost dumping strategies to obtain a part of the market. “The most sad thing is that both scale and product level are at Mid-stream enterprises."

(This article is reproduced on the Internet. The texts and opinions expressed in this article have not been confirmed by this site, nor do they represent the position of Gaogong LED. Readers need to verify the relevant content by themselves.)

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