LED industry faces continued challenges in 2H11

LEDinside, the LED research division of TrendForce, estimates that LED chip supply volume in 2011 is about 100 billion units and demand volume is around 89 billion units; an oversupply ratio reaches 12%. In addition, after LED chip makers’ capacity expansion comes online in 2012, supply will increase rapidly. It is estimated that oversupply ratio will then rise to 21%. Mobile phone market: affected by suppression of copycat mobile phones The Chinese market, which is the main production base of copycat mobile phone in 2011, was affected greatly by the suppression of copycat mobile phones enforced by the Chinese government. Demand for LED chips used in mobile phone application did not show an obvious tendency to increase. In the mean time, broad-based decrease in LED chip price has led price of LED chip used in mobile phone application to a new low. Additionally, with an increasing number of MOCVD equipment installation plans in China, LED chip capacity will continue to increase. As a result, along with weak end market demand in 2011, LED prices have started to decline. TV market: peak season demand unexpectedly gloomy As for the TV application, it requires a lot of LED backlight units, which is why TV application is one of main application areas that LED manufacturers believe will most likely have a good prospect. Besides, LED makers also sharply increased capacity since 2010 in response to TV vendors’ LED backlight demand. However, affected by the slow economic recovery, LED backlit TV shipment is less than expected. In early 2011, TV brand vendors, such as Samsung and LG, aimed their LED penetration rate at well over 70%. However, since TV brand vendor put more emphasis on 3D TV and the price gap between LED backlight and CCFL backlight still exists, most TV vendors have downgraded their target LED penetration rate for TV to 50%. In addition, due to the weak demand on the end market, it is estimated that TV shipment in 2011 is adjusted down to 203 million units from 220 million. Therefore, LEDinside predicts that LED usage volume for the TV application is only 17.5 billion units, equal to USD 167 million, which has decreased by 26%, compared to TV brand vendors’ expectation. It also tells why the market pie is not large enough for LED manufacturers in the LED backlit TV business. Currently, many LED makers indicate that TV demand remains unclear until July. However, as demand from early inventory fulfillment for Christmas holiday season is going to end, many manufacturers take a pessimistic attitude toward the market condition of 2H11. Tablet PC releases crowding out traditional NB market The monitor and NB market, though attain high LED penetration rate, the weak demand continues to impact the LED industry. Notably, the NB market performance is worse than usual, and the Netbook market shows a stagnant trend. Only the tablet PCs market has a growth which can contribute to the LED backlight market. Supported by governments and enterprises, LED Lighting market continues to grow In addition to LED lighting market, the number and scale of projects for outdoor lighting and architectural lighting in Europe and the US continued to increase, especially LED street lighting projects in Eastern United States. In addition, LED lighting for buildings also generally increased, including from decorative lighting for exterior building to indoor lighting. The growth of LED lighting market has just started to take off slowly, especially evidenced in more mature markets. Except for a sharp growth in the project-based and high profit margin application areas, acceptance of LED light bulbs is still limited to the Japanese market. In addition, professional lighting areas, such as lighting for plant growing, agricultural lighting (UV curing technology), and lighting for freezers were the focus in 1H11. On the other hand, LED industry participants should be wary about Korean manufacturers’ development. For instance, Samsung and LG display launched their own branded LED lighting products that used resources from within, but also purchased LED chips from Taiwanese, Chinese, and other international makers. With existing channel and brand management advantages, they set the target for the worldwide lighting market. Therefore, it is not impossible for them to become one of top five LED makers in the future. Perspectives From LEDinside LEDinside indicates that if the weak demand continues, companies that produce high power LED as the mainstream product or own higher percentage of high power LED shipment will have relatively stable profit margin and shipment units. However, due to weak end market demand in 2011, doubt about oversupply surfaced. LEDinside believes that oversupply ratio will gradually increase.