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After the investment boom in 2009, the scale of LED chip production capacity in mainland China has continued to expand, and the demand for downstream application terminals has been sluggish. As a result, LED chips have gradually entered the era of low profit from the era of high gross profit, and some products are even lower than the cost.
According to a report released by the High-tech LED Industry Research Institute (GLII), the output value of LED chips in mainland China in 2012 was about 7.2 billion yuan. Affected by the sharp drop in chip prices last year, the output value only achieved a 20% increase in the case of a year-on-year increase in output of nearly 80%.
GLII statistics show that in 2012, the average price of domestic white LED low-power chips dropped by about 31%, the average price of high-power chips dropped by about 33%, and the average price of medium-power chips dropped the most, about 40%.
Recently, Silan Microelectronics Co., Ltd. (SH.600460) announced the "2012 Annual Report". The report shows that Silan's 2012 operating income was 134,902,200 yuan and net profit was 18.27 million yuan.
Among them, Shilan Mingxin, a subsidiary of the main LED chip business, achieved operating income of 155 million yuan, a decrease of 54.69% from 2011, and a net profit of -29.13 million yuan, a decrease of 152.93% from 2011.
According to the announcement, 2012 is the year in which Shilan Micro has been operating the most in the past three years. In the first three quarters of 2012, the company's operating income was lower than the same period last year. The main reasons for the decline in the company's operating income are:
Affected by the intensified competition in the industry, the price of the company's LED products has decreased significantly compared with the same period of last year, resulting in a significant reduction in LED operating income. As the market shrinks and competition intensifies, the gross margin of LED chips is reduced by about 30%.
Expansion project revenue is lower than expected
Recently, Silan Microelectronics Co., Ltd. (SH.600460) issued the "Attack Report on the Use of Previously Raised Funds". According to the report, the high-brightness chip production line expansion project implemented by Shilan Mingxin, a wholly-owned subsidiary of Silan Micro, has accumulated a total investment of 477,415,200 yuan as of the 31st of 2012, and has completed 95.51% of the committed investment.
According to the plan of “Hangzhou Silan Microelectronics Co., Ltd. Non-public Issuance of Stocksâ€, the planned construction period of this project is December, which should be completed on September 30, but the actual construction period has reached 27 months. The announcement stated that the extension of the construction period was mainly due to the extension of equipment delivery and commissioning cycles. As of December 31, 2012, a total of 15 MOCVD equipments were added to the project. Except for one MOCVD equipment, it was still under commission due to special process, and the rest were put into production, basically reaching the design capacity.
Due to the slow release of production capacity and the sharp drop in the price of epitaxial chips in the past two years, the sales volume of Shilan Mingxin high-brightness LED chip production line has reached 187.128 million yuan in the past three years, sales gross profit of 31.194 million yuan, and net profit loss of 2,567,200 yuan. The gross profit margin of the project is only 16.88%. By the end of 2012, the capacity utilization rate of the project was 78.67%.
Silan Micro said that the lower-than-expected revenue from the chip expansion project was mainly due to the sharp drop in the price of the LED chip market. In the calculation of the profit of the fund-raising investment project, Shilanwei estimated that the average price of LED chips in 2009 will drop by 30% according to the trend of product prices in previous years. The price of LED chips after the project is put into production is 0.049 yuan/piece, and on this basis. Project benefit predictions were made.
However, after several years of rapid development in the LED industry, the production capacity of the previous investment overheating was concentrated in the second half of 2011 to the first half of 2012, resulting in increased market competition and continued decline in LED chip prices. In 2012, the average selling price of Silan Mingxin LED chips decreased by 48.04% compared with the forecasted selling price of the previous fundraising projects.
"Our display screens used to use wafers and Silan chips. Export products basically use wafers because of the patent requirements. The domestic display screens are all used by Silan, and the display chips of Silan are more cost-effective. Feng Jinsong, vice president of Shenzhen Hengguan Technology Co., Ltd., the main LED display, told the reporter of "High-tech LED".
According to industry insiders, the display chip of Silan Mingxin used to have a very high share in the industry. However, due to the problems of production capacity and price, the share in the past two years has been declining. After the expansion, how to recapture the original chip market and customers will be the primary problem facing the company.
Speed ​​up turning lighting chips
According to the statistics of the High-tech LED Industry Research Institute, the price of chips used for LED displays in 2012 has dropped by more than 50%.
The LED display industry has been caught in a fierce price war in the past two years. Generally, the gross profit margin of display chip companies is about 10%, and the manufacturers with smaller production lines are even less than 5%. There have been incidents of bank failures in display companies, including companies with revenues exceeding 100 million yuan, such as Yan Duoli, Haobo Optoelectronics, and Jiahao Optoelectronics.
"In the past two years, the domestic display industry has gradually matured. More and more small and medium power packaging companies have joined the market competition. The price of display chips has dropped to a critical point, which is very close to the cost." Hua Can Optoelectronics (300323.SZ) Vice President Bian Defei said that in 2012, the entire LED display chip industry was under a very high price pressure, and many chip manufacturers were extremely difficult.
Since the end of 2011, the domestic chip leader Sanan Optoelectronics has taken advantage of the cost scale, and has taken the lead in raising the “snake knife†in the LED chip market, madly smashing goods, and constantly squeezing the market share of other LED chip manufacturers.
According to the monitoring data of the High-tech LED Industry Research Institute, as of the end of 2012, the output value of the domestic LED display industry was about 24.1 billion yuan, an increase of about 10%. Overall, the growth rate and growth rate of the display market are slowing down, and will maintain an annual growth rate of 10%-20% in the next two or three years.
Under such circumstances, manufacturers such as Huacan Optoelectronics and Silan Mingxin, which are mainly based on LED display chips, have begun to turn to the development and production of lighting chips.
“At present, our production capacity is 1400kk/month, and the display chip accounts for 80%. This year, we will continue to expand production. By the end of the year, the production capacity will reach 2000kk/month. By that time, the proportion of lighting chips will rise to 30%-40%. "Shi Lanwei, director and general manager of Shilan Mingxin, Jiang Zhongyong told the reporter of "High-tech LED".
Some insiders said that although the current white LED chip for lighting is still relatively high, but with the expansion of the original chip manufacturers such as Dehao Runda, and the release of the capacity of the new chip manufacturers, how is the Silan Mingxin lighting chip? It remains to be seen how the market space will be squeezed by these manufacturers.
It is understood that Huacan Optoelectronics, which is similar to Silan Mingxin's business, has increased its efforts in the development of the white light chip market since last year. Huacan's total investment of 1.8 billion yuan in Suzhou Zhangjiagang is expected to be completed by the end of this year. % of production capacity will be released in the lighting white light chip business.
The High-Tech LED Industry Research Institute (GLII) believes that after a significant decline in the performance of the previous two years, Silan Mingxin's market position in the field of domestic LED epitaxial chips has declined, as the market competition has stabilized and product prices have declined. Slowly, the new equipment of the Shilan Mingxin is put into use, the production capacity is expanded, and the gross profit margin is expected to rebound.
Zhan Runzi, deputy general manager of Tongfang’s semiconductor and lighting industry, said that last year’s upstream chip companies suffered losses in the entire industry. In 2013, the gross profit of the chip industry will increase relative to 2012, which will mainly rely on reducing costs, improving light efficiency and launching new products. And the joint packaging factory to take the customized route and other measures to achieve.
Silan Micro executives said that in 2013, Silan Micro will continue to invest in the field of LED chips, and accelerate the development of LED chip business based on the industry that LED color screen chips have achieved good advantages; The finished product brand actively expands high-end customers at home and abroad to enhance product value. 
[Source: Gaogong LED 's " LED Research Review" magazine April issue reporter / Zhao Hui]