China government's subsidy programs for upstream LED firms have been causing oversupply of LED chips, inflicting losses on Taiwan-based LED chipmakers. However, the subsidy programs for upstream LED firms are about to end and China-based firms have shifted investment focus to downstream segments, and hence the oversupply problem in the market is likely to ease.
Taiwan-based LED chipmaker Epistar has reported 2012 net loss of NT$2.33 billion (US$77 million), while Formosa Epitaxy's 2012 net loss came to NT$594 million. Genesis Photonics saw 2012 net loss reach NT$715 million. LED firms noted that the overall capacity utilization rate fell in the fourth quarter of 2012 due to weakened demand while price competition remained, causing LED firms to suffer losses.
According to Epistar chairman Biing-Jye Lee, the LED market had an average price fall of 35% in the past two years due to price competition and oversupply stemming from the rising number of China-based firms. The industry hopes the price falls in 2013 will narrow to 15-20%. In addition, Lee stated, the industry hopes demand for LED lighting and backlighting products will grow and market balance can be restored in 2013.
The LED subsidy programs in China aim to help the LED industry by providing ample funds for equipment procurement. However, many MOCVD tools in China have not idle. LED firms pointed out that China-based LED firms have begun to shift focus to downstream integration in 2013, which can help to ease the price falls of LED chips.
Robert Yeh, chairman of Taiwan-based LED packaging house Everlight Electronics, noted that the LED industries in Taiwan and China have different strengths. China-based firms have access to a large consumer market while Taiwan-based firms have competitive advantage in upstream segments. Hence the firms in Greater China should cooperate and build a single brand to compete with international firms such as Osram, GE and Philips.
