With the rapid growth of the global LED lighting market in recent years, the penetration rate of LED lighting has increased significantly from 11% in 2012 to over 30% today. On the contrary, international key enterprises such as Philips, Samsung and Osram have successively decided to sell or spin off the LED lighting business. On the surface, these international companies have abandoned LED lighting because of lower profits. However, the fundamentals are still under the enormous competitive pressure brought about by the rapid rise of China's LED lighting industry chain. Among them, the significant increase in industrial concentration is one of the decisive factors in achieving the overall competitiveness of China's LED industry.
The number of enterprises is small, the scale is small, the level is uneven, and the leading enterprises are scarce. It has always been the pain point of the development of China's LED industry. Now, this situation is gradually changing. As one of the most convenient and effective ways to rise, mergers and acquisitions are increasingly favored by LED companies.
Compared with previous years, the integration and mergers between the packaging and lighting application enterprises in the middle and lower reaches of the industry chain are more frequent, and the integration direction is also changed from the strong and the weak to the strong merger and acquisition. The purpose of the merger is to extend the industrial chain. In addition to diversified development, more is to consider the channel, brand and capacity to expand the strength and expand the scale. According to statistics, since the beginning of 2015, there have been more than 30 mergers and acquisitions in the LED field, and the scale of funds for mergers and acquisitions has exceeded 10 billion yuan.
From the perspective of the encapsulation of the midstream of the industry chain, the industry has officially entered the competition elimination period. In 2014, hundreds of packaging companies have been eliminated, and the trend of the larger Evergrande is more prominent. With the release of production capacity of listed companies and large-scale enterprises, traditional packaged devices will enter the era of low profit. Small-scale enterprises have limited production capacity and technical capabilities, and it is difficult to compete with large enterprises. The dilemma of not increasing revenues and increasing profits is further deepened in small enterprises. The number of LED packaging companies in China with a scale of over 1 billion yuan will continue to increase.
From the perspective of downstream lighting applications, as the performance of lighting products increases and costs are further reduced, the homogenization of products has intensified competition among enterprises. In order to build brand awareness and seize sales channels, lighting companies have ushered in a critical period of integration, integrated mergers and acquisitions more frequently, and superior resources are further concentrated in the industry. China's LED lighting companies have already prepared for the baton from the hands of international companies.
Unlike the M&A scene in the middle and lower reaches of the industry chain, the upstream epitaxial chip oligarchy competition is quietly taking shape. At present, the number of upstream enterprises has plummeted from more than 60 in 2009 to less than 20, and only 15 companies are actually operating normally. The market share of the top five chip companies has increased to over 67%.
So, why does the increase in concentration in the upstream chip market seem “simple� First, the acquisition of equipment to build a new chip manufacturing line requires a high level of sustained investment. In the early days, due to government subsidies, many LED companies purchased MOCVD equipment, built factories, and launched large-scale LED chip projects, forming a group of industry leaders. With the gradual withdrawal of government subsidies, new entrants will have difficulty to afford the equipment they need to compete with industry leaders.
At the same time, in order to expand the scale of efficiency, it is necessary to continuously invest funds to expand production or improve equipment performance, and to purchase equipment with a price of 4 inches or more. Some small LED chip companies with poor experience are difficult to make follow-up investment due to lack of cash flow, and lose subsidies. It will also be eliminated by the market. Second, increasing the competitiveness of products requires a lot of research and development investment. LED industry is in a high-speed development stage, LED technology is developing rapidly, domestic and foreign technical equipment and production processes are constantly updated, and chip light efficiency has risen by one step every quarter.
In order to reduce production costs in a short period of time to occupy the market, enterprises need to invest a lot of manpower and material resources for product development and technology investment, which puts pressure on the production and operation of smaller companies. Finally, the decline in chip prices has made it difficult to make a profit. With the further release of domestic chip production capacity, competition in the chip market has intensified, and prices have fallen too fast, further reducing the profits of upstream companies. Leading companies have further strengthened their control over the industry by stabilizing their customers and bargaining power, thus forming a stable industry competition.
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