As LED prices drop: packaged vertical integration is a winner, says Yole

As LED prices drop: packaged vertical integration is a winner, says Yole

Market news |
By Julien Happich

New relays of growth are required for LED players to survive and vertical integration, product, application and activity diversification are key options. From a packaging point of view, more and more packaged LED manufacturers selected the vertical integration strategy to move towards the module level and add more and more value in their LED components, highlights Yole’s latest report “LED Packaging 2016: Market, Technology and Industry Landscape report“.

According to Yole’s analysts, the packaged LED market represented a revenue of nearly US$15.7 billion in 2015 and this industry is expected to grow to nearly US$18.2 billion by 2020.

Following the overcapacity caused by the recent LED TV crisis and the entry of Chinese players, industry consolidation was expected to decrease competition and stabilize price erosion. This eventually happened in China during 2014 and 2015, but with unforeseen effects on the overall industry.

Indeed, several smaller players went bankrupt and many midsize players have since been acquired, leading to a situation where dozens of companies are having “going-out-of business” sales. This has triggered strong price decline and, naturally, other LED players had no choice but to match the price trend initiated by the Chinese industry, observes Yole.

ASP for low and mid power LEDs declined 30% – 40% in the second half of 2015. In parallel ASP for high power LEDs, though less affected, still declined 20% – 30%. Globally, 2015 was a rough year for the LED industry, with packaged LED revenue declining for the first time ever: from US$15.1 billion in 2014 to US$15 billion in 2015.
This decrease was emphasized by lower-than anticipated demand in the LED backlight and LED lighting markets. Moreover, strong evolution in currency exchange rates due to the US dollar’s rise contributed to many players’ declining revenue.

2016 has seen the industry begin recovering, and packaged LED ASPs have mostly stabilized for highly-commoditized stock keeping units like the low-power 2835 and mid-power 5630.
Higher power grades for lighting applications are seeing increasing demand, but also stiffer competition, which likely will lead to a significant ASP drop as competition intensifies.

“Thus we expect the packaged LED market to show moderate growth in the coming years, reaching US$18.5 billion in 2021 (CAGR 2016 – 2021: +3.4%)”, explains Pars Mukish, Business Unit Manager at Yole.

LED packaging market is still a strong opportunity for materials suppliers. Indeed, LED packaging requires specific materials in agreement with application requirements.
Regarding packaging substrates, the high power density of devices induces the use of ceramic substrates, a market that will grow from nearly US$684 million in 2015 to US$813 million in 2021, according to Yole’s LED packaging report.
Encapsulant/optic materials will follow the same trend: Yole’s analysts announce US$400 million in 2015 and US$526 million in 2021. This market segment is driven mostly by the increased use of silicone material offering better reliability/lifetime than traditional epoxy material.
In parallel, with major YAG IP expiring from 2017, the phosphor market will face strong commoditization and price pressure. Consequently, market will only grow from nearly US$339 million in 2015 to US$346 million in 2021.

Visit Yole Développement at

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