Profitability for LED products is shrinking due to continual price drops along with increasing competition, and more than 100 relatively small China-based LED packaging service providers will be forced out of the market in 2014 and the number will increase to over 300 in 2015, Taiwan-based LED makers have cited industry sources in China as indicating.
As technological and capital barriers for LED packaging are much lower than for the production of LED epitaxial wafers and chips, there are much more of the former in China.
Along with decreasing profitability, large China-based LED packaging houses have become increasingly competitive in terms of cost compared to smaller ones due to economies of scale. MLS, the largest China-based LED packaging house, is expected to reach a production value of CNY3.5-3.8 billion (US$572-621 million) in 2014, while Foshan Nationstar Optoelectronics and Shenzhen Jufei Optoelectronics will each top CNY1 billion, and Shenzhen Refound Optoelectronics and Shenzhen Changfang Lighting will each reach CNY800-1,000 million.
In addition to production scale, large makers account for most of the total capacity expansion among all China-based LED packaging houses. MLS, for example, is expanding its monthly LED packaging capacity to 22 billion chips at the end of 2014 and further to 30 billion units in 2015.
International LED vendors including Philips Lumileds Lighting, Cree, Seoul Semiconductor and Osram have either set up factories in China or increased outsourcing to China-based makers, which is expected to push mergers of large China-based LED packaging houses with smaller ones or drive the smaller ones out of the market.
China-based LED packaging houses are expected to generate total production value of over CNY60 billion to take up more than 40% of the global total in 2015, and global market share is likely to rise to over 50% in 2-3 years.
