Half of all LED chipmaking companies in China will go bankrupt owing to a slump in global demand and cuts in subsidies to certain manufacturers, according to a piece of research by Reuters.
Analysts say oversupply and the economic downturn has depressed prices to below production levels, meaning large numbers of small companies have already closed their businesses. Under a new government resolution to reduce subsidies, these businesses may be left with no choice but to integrate or declare bankruptcy.
Over the past three years, the Chinese government has been instrumental in providing support to Chinese LED chip companies in the form of tax breaks and free land use. It has also provided $1.6 billion of funds to companies to purchase the MOCDV (metal organic chemical vapour deposition) tools, which are necessary to make LEDs.
Due to government support, global share of the market for packaged LED components rose from 2 per cent in 2010 to 6 per cent in 2011.
But the boom years are coming to an end, with many of China's LED chipmakers operating their factories at 50 per cent capacity. Around half of the 700 or so factories that received government help have been left idle.
Now the Chinese government is said to want to reduce the expenditure given to smaller companies focussing instead on larger ones like Elec-Tech International Co Ltd and Sanan Optoelectronics Co Ltd, China's top LED chipmaker with a market value of $2.8 billion.
Nomura analyst Anne Lee said, "That's China's strategy. In this restructuring, they want their biggest companies to survive."
Baoen Zhong, Deputy Secretary-General of Shenzhen LED Industry Federation, said: "China's monetary policy is not enough support to give small and medium-sized enterprises. We will see more business failures."
