Guoqing Tang, China President of LED BU, Samsung, who is also Chairman of SEMI China LED Committee, gives an in depth analysis of the LED industry developments and categorization in this article.
Chinese baby boomers born in the 1950s and 60s will probably remember Mao Zedong “Three Worlds Theory”. Mao believed U.S. and Russia belonged to the first world; while in the middle Japan, Europe, and Canada; while other Asian countries, Africa, and Latin America belonged to the third world. Surprisingly, this theory is also applicable to the LED industry today.
Categorized in the first world are U.S., Europe, and Japanese companies. These companies are characterized as the inventors of AlInGaP and InGaN. They have relied on patented advance technology and continuous technological breakthrouoghs, although the pace of technological breakthroughs have eased over the last few years.
Belonging to the second world includes Chinese, Taiwanese, and South Korean companies. Large companies from these countries might be on par with first world companies when it comes to production sales volume. However, these companies are still slightly behind when it comes to brand recognition and technological advancements.
In the third world are the numerous SMEs, mostly Chinese companies scattered throughout the country. These companies are still making the transition from manufacturers to “smart manufacturer”.
At the China SSL 2013 forum closing ceremony on Nov. 12, 2013, I said, “The world is looking towards the East, and the East is looking at China and South Korea”. The forum was organized by China Solid State Lighting Alliance (CSA). Chinese and South Korean companies here includes Chinese companies San’an Opto, Elech-Tech International (ETI), Taiwan’s Epistar, Genesis Photonics Inc. (GPI), South Korean companies Samsung, LG and others. Large Japanese enterprises are much stronger, but Japan’s economy has been plagued by a series of government issues. Although, these Japanese companies have been working diligently they have been keeping a rather low profile, and are rarely seen at important events this year. Japanese companies should not be overlooked, as once this formidable force is released it could create huge impacts in the aftermath.
Although 10 years is nothing more than a few drops of water in history’s long flowing rivers, for the LED industry it will become a life or death matter. There are three reasons as why 2014 will be an extraordinary year:
A competitive year
The lighting market is a limited market, and LED manufacturers are really just substitutes at the moment. No new markets have been created, and with the addition of a huge industry like LED, the conventional lighting market and LED are being merged into one. How can cutthroat competition be avoided if a LED army group is crossing over a single plank bridge, and these newcomers are stealing cheese from others? For traditional lighting industries this is equivalent to deliberate self-harm, but for emerging LED manufacturers this is a much more difficult phase of establishing new channels. From this perspective, in the next decade the LED industry will still mostly be replacing existing lighting industry in the first three years, and this period will be the most competitive.
From chaos to order. There is no such thing as lowest price, but even lower prices, a relation determined by market demands. Everyone has the same concept that initial competition will be over market channels. LED industries entering the lighting market have the advantages of technological understanding, but are at a disadvantage in terms of market channels. Companies that know how to make LED die and components do not necessarily know how to make LED lights. These two are completely different fields that require separate set of technologies with dissimilar sales targets. LED companies are especially rookies in establishing lighting distribution channels. “LED chip components have B2B channel models, while LED luminaires have B2C models,” said Liu Jingwei, Former Chairman of Shanghai Yaming Lighting Co. How many LED companies have succeeded in their lighting market channel strategies? Some have invested billions, 10 millions and maybe smaller investments of millions of Renminbi, but very few have succeeded. The only way for companies to quickly succeed in the next few years, depends on their core competitiveness.
A year of integration
When high ranking officials from IKEA spoke to me a few days ago, they told me they hoped an 8W LED bulb would cost only a couple of bucks. They hoped this target could be met in 2014. At the time I told him, if we could make bulbs at that price in 2014 it would destroy the entire industry. How can a few dollars cover costs for LED components, drivers, luminaire sets and workers? Their opinions, however, provide us an observation that innovative technology can quickly lower costs and will definitely become a future trend. Companies without large technology breakthroughs will be facing integration and acquisitions. Therefore, we believe in the next few years there will specifically be a year for integrations. Funds will emerge to acquire companies short in funds. A portion of companies will definitely become insolvent, even companies with over billions of Renminbi investments will not be exempted. Long gone has been the heightened era of Chinese government and local government subsidiaries, it is no longer possible for companies to reduce costs by relying on government subsidiaries. In addition, many companies are pushing back equipments amortization dates to increase profits and to provide a nice looking financial report. From my perspective, these methods are the wrong solutions to the problem. Of course there are more options for companies with full pockets. If you enter the market a step earlier, you will have higher winning chance, but the key is to finding the right direction and using the right people.
The year of innovation
Two decades ago, Samsung Electronic Chairman Lee Kun-Hee had a vision of becoming a leading enterprise. Lee’s new management moto: “Starting from me everything must change, except for changing my wife and children.” Since then, the Korean company has created innovative technologies that led it towards success. Aside from technological innovations, creating market channels is even more important. However, back to basics, creative thinking is essential. No changes can take place if you wear new shoes, but still tread the old road. For innovative strategies, Osram made a key decision to lay off 8,700 employees globally (equivalent to one fifth of the company’s total employees) in Nov. 2013, but still injected EUR 100 million (US$ 137.62 million) to establish a new LED factory in China. That was a very important key decision.
Another important point worth mentioning is Large Scale Integrated Circuit (LSI) related industries including Samsung and Taiwan Semiconductor Manufacturing Company (TSMC). At the bottom line LED still belongs to semiconductor technology, and is just a branch of semiconductors. Those with deeper understanding in the semiconductor industry have better opportunities of becoming stronger and more powerful companies. Integrated Circuit (IC) are often packaged in 60 to 70 types of packages. In LED package, the most often used package types have been COB, flip-chip, Plastic Leaded Chip Carrier (PLCC), Surface-mount Device (SMD) and others. All these packages can trace their origins to IC. During talks with a large Chinese LED chip manufacturer, I suggested they should use IC, chip and package technology as reference. This can surely help Chinese LED manufacturers technologically take off.
Recently, Online Shopping Day on Nov. 11, has become a nationally celebrated Chinese holiday. Lighting products sold on the day set new historical records. According to lighting industry statistics, Opple sales revenue reached RMB 50 million (US$ 8.24 million) and Unilumen revenue even exceeded RMB 20 million on that day. Lighting products outstanding sales performance during “double 11 holiday” has inspired us that integrating and developing online, offline, and general market channels is still a focus of contention. For B2B LED chip and packagers, this new space is not a particularly wide channel. However, for lighting manufacturers, this type of B2C market still contains a lot of potential. Currently, the lighting industry is still to see the emergence of manufacturers valuing RMB 10 billion. This is because lighting is segmented into so many fields that it is difficult for one company to become a monopoly. Most companies are focused on niche markets, some particularly focused on lighting for metallurgic industries, mines, oil fields and others. Whoever thinks of a lighting application field and conquers it, will conquer a new high point.
