LED stands for Light Emitting Diode, a type of lighting technology that offers numerous advantages over traditional light sources, such as high energy efficiency, long lifespan, durability, fast response time, and high reliability. In our daily lives, we encounter LED technology in various forms, including energy-saving lamps, traffic lights, LCD TVs, outdoor large screens, and scrolling subtitle billboards. These are all common applications of LEDs.
Due to its energy-saving and low-emission characteristics, the LED industry has been recognized as a key sector in China’s national energy conservation and environmental protection strategy. Since 2009, the Chinese government has introduced multiple policies to support and promote the development of the LED industry. The "Twelfth Five-Year Plan" clearly outlined the development goals for the LED industry, aiming for LED lighting to occupy 30% of the domestic general lighting market by 2015, with an expected output value of 500 billion yuan. Under this favorable environment, the LED industry experienced a surge in investment, becoming a favorite among investors. However, this rapid expansion also led to overcapacity issues, which have become a major challenge for many companies.
**LED Industry: Swarming Four Years Ago, Now Many Companies Are Closing Down**
During an interview, reporters visited the factory of Shenzhen Daeyejie Optoelectronics Technology Co., Ltd., once a thriving hub with nearly 700 employees and an annual output value exceeding 100 million yuan. However, after the company closed in November of last year due to various reasons, the site has remained largely unused. A wall now divides the former factory into two parts, with half of it rented out to other businesses. This is just one example of how the LED industry has changed over the years. After 2009, many Chinese investors rushed into the LED sector, leading to a sharp increase in production capacity. This resulted in a surplus of low-end products, price wars, and even bankruptcy for some firms. Eventually, many companies were forced to exit the market due to overcapacity.
Gong Wen, General Manager of Shenzhen Jingtai Optoelectronics Co., Ltd., described the situation as similar to a marathon. “There are thousands of participants at the start, but not everyone will reach the finish line,†he said. “Currently, the first group of successful players in the LED industry hasn’t fully emerged yet. Many companies are competing fiercely, and some may fall behind or be pushed out of the race.â€
He also pointed out that the utilization rate across the LED industry chain is uneven, especially in the upstream segments like sapphire substrates and epitaxial chips. According to data from a recent LED research institute, the utilization rates in 2013 were 36% for sapphire substrates, 51% for epitaxial chips, 80% for packaging, and 61% for lighting applications. Overall, the industry still faces significant overcapacity.
**M&A Helps Improve Capacity Utilization for Some LED Firms**
Li Zhongcheng, Chairman of Shenzhen Kangshuo Exhibition Electronics Co., Ltd., noted that overcapacity is a widespread issue in the industry. With increasing automation, many enterprises struggle with underutilized production lines. Industry experts predict that there are currently more than 8,000 companies in China's LED supply chain, and only a fraction will survive in the long run.
Shenzhen Dehao Runda Ruituo Display Technology Co., Ltd., one of the earliest entrants into the LED industry, faced similar challenges. At one point, the company had 30% excess capacity, and production shifts were reduced from two to one. However, through mergers and acquisitions, the company expanded its operations along the entire industrial chain, gaining cost advantages and improving efficiency.
In 2012, Dehao Runda acquired a 20% stake in NVC Lighting, strengthening its position in the LED lighting market. According to insiders, the company has maintained a leading position in the display screen sector and remains optimistic about its performance this year.
Gong Wen of Jingtai Optoelectronics also mentioned that the company has established a new entity to integrate top customers, resources, and products, helping them secure orders and expand their market presence. Since its establishment, the company has already secured over 30 million yuan in orders for more than a dozen clients.
While overcapacity remains a challenge, the overall LED industry has seen improvement compared to 2012. Capacity utilization has increased, and some companies are now experiencing tight supply situations. An industry researcher in Shenzhen noted that larger companies are exploring integration or mergers with well-preserved but poorly managed firms, which could significantly improve equipment utilization and production efficiency.
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