As LED market penetration rate continues to increase, global LED market growth has slowed down in recent years. In China, domestic LED chip manufacturers have exceeded a dominant 70% market share. In addition, global companies have increased their packaging capacity in China. It is expected that Chinese LED packaging manufacturers will continue to expand production capacity in 2017.
LED Industry Undergoing Structural Change
After years of rapid growth, the global LED industry has begun to plateau. However, the importance of Chinese manufactures have increased with continuous growth in market share.
According to LEDinside, in the upstream LED chip sector, China’s market size increased by 9% YOY to RMB 13.9 billion in 2016, and 76% of LED chips were made by domestic manufacturers. In addition, market share of the top ten companies increased to 77%. In the midstream packaging sector, market size has increased by 6% YOY to RMB 58.9 billion. The share of domestic products increased to 67%, and market share of the top ten companies increased to 43%.
LEDinside analyst Yu Bin said in terms of technology, Chinese LED manufactures are catching up with their Taiwanese rivals, and Chinese products have higher cost performance ratio. Currently, more Chinese companies are expanding production capacity than their Taiwanese rivals. Thus, Yu estimated that more and more products will be made by Chinese suppliers in the future.
In fact, both the upstream LED chip sector and the midstream packaging sector have seen flat growth. It is estimated that the LED packaging market would only grow at a CAGR of 6% from 2015 to 2020, which is slightly lower than previous years.
"Although the industry has clearly undergone slower growth, the share of Chinese manufactures in global LED packaging capacity has increased rapidly as well,’’ Yu added. Global giants including Philips Lighting and Samsung have increased production capacity in their Chinese OEM factories.
Due to higher costs, some Chinese LED companies have also shifted part of their production from Pearl River Delta to other regions. For instance, MLS has built factories in Jiangxi Province and Jiangsu Province. Moreover, the LED market in China has matured with leading companies taking up majority of the market share. Therefore, some small and medium-sized enterprises have transformed and moved to other industries.
New Technology and Applications Generate Growth
Roger Chu, Research Director at LEDinside, estimated that in 2017, LED markets will still face intense competitions, causing manufacturers to turn to profitable niche markets including small pitch LED displays, IR LEDs and UV LEDs. Chu forecast the total output value of the global LED market will increase by 4% to USD 15.4 billion in 2017.
"Small pitch LED displays,” as Roger Chu pointed out, “will become the sought-after market for companies.” This is because those displays have contributed to exponential growth in LED adoption. Several Chinese LED packaging companies have thus expanded production capacity to compete in this market. Furthermore, Chu estimated that developments in security surveillance systems, iris recognition technology and VR-based motion sensing applications will generate a new wave of demand for IR LEDs.
Experts forecasted that Micro LED products may hit the market in 2017 and are expected to replace OLED to become the next generation displays. Global giants have already poured a lot of their resources into research and development.
In fact, there is still a long way to go before Micro LEDs can replace existing TFT-LCD panels and OLED ones, and there are also new display technologies coming out one after another. However, some manufacturers have planned to launch Micro LED applications. LEDinside estimated that Micro LED products will successively come into the market in 2017.
Zhaojun Liu, Assistant Professor at SYSU-CMU Joint Institute of Engineering, said Micro LED is ideally the next-generation display technology. It would be applied to applications like medium to large-sized indoor/outdoor screens, monitors for desktops and PCs, panels for smartphones, digital cameras and portable projectors as well as wearables including smartwatches and smart bands.
In addition, niche markets like industrial lighting, automotive LEDs and LED filament bulbs are under the spotlight. LEDinsdie analyst Vita Wang estimated that in 2016, market size of global industrial lighting was USD 2.932 billion. Over the next few years, it will grow at a CAGR of over 15%. By 2020, the estimated market size will be USD 5.204 billion.
"Currently, automotive exterior LED lighting products are the most profitable. For instance, turn-signal lights and tail lights are gradually replaced with LEDs. With its small size and brightness, LED lighting adds an aesthetic touch to car design,” C.W. Wang, Deputy Director of Automotive Department, EVERLIGHT, said.
Prices for LEDs May Rise Slightly
Due to increasing material costs, there has been a wave of price increases throughout the LED businesses. In May 2016, Taiwanese LED chip maker Epistar first raised prices of LED chips, followed by China’s Sanan Optoelectronics and HC Semitek. So far, even prices of consumer applications have increased as well. It is estimated that prices will remain high in 2017 and may even move slightly higher.
According to Figo Wang, LEDinside Brand Director, since 2016, there have been five phases of price surge in the LED industry. From a supply-demand point of view, Wang analyzed that the main factors behind the price hikes are rising material costs and increasing demand for small pitch LED displays.
Wang pointed out that from 2014 to 2015, prices of LED chips in China once dropped significantly and hit the bottom, so the price hike in 2016 was actually a price bounce-back. On the other hand, due to price increases, supplies for some LED products have been tight. However, this does not mean that supply has surpassed demand in general; it only suggests a shortage of certain products (LED chips for small pitch LED displays, to be specific.)
Since price hike was mainly driven by higher costs, not many manufacturers actually benefited from this increase in demand. Only players in supply chains of small pitch LED displays and manufacturers who could pass costs on to downstream divisions were benefited. Most companies in the midstream and downstream sectors were challenged by weak demands and skyrocketing costs of raw materials, which further affected their profitability.
Figo Wang also dug into the pricing war between Sanan Opto, China’s biggest LED chip supplier, and Taiwan’s Epistar. Wang suggested that in 2017, companies should focus on cooperation instead of competition to ensure prices maintain uptrend and avoid falling into a price war again.