China’s production capacity for LED wafer and die increased dramatically between 2010 and 2018, notes the report. The country has transformed itself from a small player in the LED market, to become the country with the biggest production capacity, larger than the rest of the world combined.
This planned growth by Chinese companies was more than an attempt to meet demand; the goal was to increase the country’s market share. Now San’an (China) is now clearly ahead of Epistar (Taiwan), as the world leader in wafer and die production capacity.
In a world of $0.01 packaged 2835 mid-power LEDs for general lighting in Asia, LED vendors from other countries are realizing they cannot compete with China’s subsidies and low costs. Vendors outside China are therefore now typically focusing on other LED categories for growth and profitability, including high power instead of low power, automotive instead of lighting, ultraviolet instead of visible, and light engines instead of packaged LED.
Another dynamic is that most non-Chinese companies have not expanded their capacity in recent years. In fact, many of them have not invested in MOCVD at all, which means capacity may even decline over time, as older machines go offline. These companies instead buy die from China and sell it as packaged LED or light engines. In some cases, they outsource to China their entire production of packaged LEDs. The current trend of expanding production capacity — along with further expansions in China — likely means this trend will continue.
LG Innotek revenue declined in its fourth quarter of 2017, and the company announced it would instead focus on higher-end products and ultraviolet LEDs. This is a direct response to the growth of Chinese capacity and the Chinese. Other companies have followed a similar strategy, but they have been able to avoid revenue declines by focusing more on the high-end market, along with automotive and signage, in addition to lighting.