10% of LED Companies in China Are Expected to Withdraw From The Segment Soon

Due to heavy losses resulting from weak demand as well as over expansion, about 10% of LED companies in China are expected to withdraw from the segment soon. The rapid growth of the LED industry in China has been attracting many firms to enter the competition with heavy investments in recent years. China-based LED packaging house Jundoli Industrial recently shut down without warning. Jundoli had invested in manufacturing plants in both Shenzhen and Sichuan trying to capture the growing profits of the LED lighting market. However, the firm owes two months of pay to 200 employees and millions in loans to banks and suppliers. The owner disappeared before the October long holidays. The strong support from the government in China has been causing the industry to become over-invested, according to industry sources. There are around 90 LED chipmakers in China currently and about 90% of these firms are suffering losses. The number of downstream LED packaging houses in China is also significant. Due to low demand, 2011 orders for the 50 LED firms in Foshan, Guangdong alone decreased 10-30%. Nevertheless, total production costs for these firms increased 30% on average, making approximately 70% of the firms suffer from falling profits. In addition, the central bank in China increased bank deposit rates 12 times in 2011. The current rate of 21.5% is a record high, making banks more reluctant to lend money to firms that desperately need healthy cash flows. Even though some firms in the LED industry in China are suffering, government policies to promote the industry remain unchanged. In the 12th five-year plan, the government aims to make LED lighting to account for 20% of total lighting. There are also many subsidy programs for the LED firms. Industry observers pointed out the cost of LED lighting products decreases 20% per year on average. According to the US Department of Energy (DOE), the cost of LED white lights will fall from US$25/klm in 2009 to US$2/klm in 2015, an average decrease of 30%. The DOE also estimates the average decrease in costs in 2010-2012 will close to 40% per year. Hence the LED industry is currently experiencing a time of rapid narrowing of cost differences between LED lighting and traditional lighting. The LED industry has entered the merger and acquisition period. Source: www.digitimes.com