The chip price has been stable this year, but with the increasing capacity of chip manufacturers, it remains to be seen whether the LED chip price will be falling in the second half of this year, but in the long term, only the quit of invalid production capacity in China can help LED industry to return to supply and demand balance.

The rise of LED lighting market has directly stimulated the upstream chip market to achieve rapid demand growth this year, the Chinese chip makers who have originally specialized in the production of display applications actively adjust product strategy and improve the ratio of lighting chips in the product segment.

HC SemiTek and Silan Azure used to have chip for LED display as core business, now they adjust production capacity in response to increasing market demand for LED lighting chips, all newly added MOCVD equipments are put into use for the production of lighting chips. Overall, the growth in display market has slowed down since 2012, more competitive, more difficult to make profit for manufacturers, which also is one the reasons why the chip manufacturers switched to produce LED chips for the lighting application.

Sanan Optoelectronics totally owns 149 units of MOCVD, currently, more than 90% of its MOCVD machines have completed the testing stage and have been put into operation, and utilization rate also exceeds 80%. ETI has 92 units of MOCVD as of 1H13, 45 units have been put into use for mass production, both its installation volume and mass production amount are the second in China. Due to less MOCVD machines, HC SemiTek's MOCVD machines and Silan Azure's MOCVD machines have already fully come into use. Other chip vendors also have achieved some growth in utilization rate of equipments.

The growth in utilization rate of MOCVD increases manufacturers' confidence to expand production; the manufacturers who delayed expansion plan because of poor market also restart the program. According to the statistics in LEDinside Gold membership report, The number of MOCVDs in China reached 1,013 in late 2012, and it is estimated China will be adding more than 100 new MOCVD equipments (calculated according to the number of chambers) in 2013.

LEDinside said that in view of the current total number of MOCVD equipment in mainland China, overcapacity still exists. But look carefully, many manufacturers have not put their newly added equipments into operation since the equipments were introduced, and most machines are old, performance and efficiency are far less than the new machines, these invalid capacities may exit the market after 2013, which is helpful for the market to return to supply and demand balance.