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Rising inventory halts LED industry expansion

Posted: 21 Jul 2011 ?? ?Print Version ?Bookmark and Share

Keywords:LED? MOCVD? lighting market?

LED chip manufacturers will postpone expansion plans due to weak-end market demand, insufficient funds and lack of subsidy, according to a survey by LEDinside, a research arm of TrendForce Corp.

Although subsidy policies passed in 2010 opened opportunities for capacity expansion, Chinese LED firms saw inventory levels rise that resulted from indefinite end-market demand for LED products in 2011. The planned purchase of MOCVD equipment that was supposed to address led lighting market was pushed back.

MOCVD stands for metal-organic chemical vapour deposition. This is a technique for depositing thin layers of atoms onto a semiconductor wafer. More on MOCVD.

China also continues to raise the required bank reserve ratio and tighten monetary policy as a response to inflation. This makes it hard for local governments to carry out subsidy policies. All factors considered, Chinese chip makers remain conservative about their expansion plan. The new installment of MOCVD equipment in 2011 will total 711 units with 380 units of them in the Chinese market, LEDinside predicted.

Since the beginning of 2011, the consumer price index in China has continued to set record highs: the inflation rate in May reached 5.5 percent. As of June 20, The People's Bank of China has raised its required reserve ratio six times. Beginning July 7, the base rate was raised to 6.56 percentthe third time in 2011. The loan increment in May crashed from about $114 billion (RMB 740 billion) to about $85 billion (RMB 552 billion) with a 25 percent drop compared to that in Aprila 13.7 percent drop compared to the same time last year.

Such a setback indicates not only the severe financial trouble of local businesses and the continuously increasing labor cost, but also the challenges facing LED industry in terms of managing operating cost.

Moreover, the government's announcement of ending the subsidy policy for MOCVD purchases in 2H11 has created market fear that other local governments would also terminate their subsidy policies. As a result, LED chip makers in China and Taiwan have been purchasing MOCVD equipment since 1H11 in hope of taking advantage of the subsidies before the deadline.

However, the tightening monetary policy makes it difficult for Chinese LED manufacturers to benefit from the subsidy policy, impeding their expansion plans. In addition, the weak end-market demand and the drastic drop of chip price have lowered the capacity utilizations of several LED chip makers to 50 percent. Due to the market downturn, manufacturing equipment is being used for conducting researches and LED chip makers have decided to delay their expansion plans.

2010 MOCVD installation

According to the research by LEDinside, first tier Chinese LED chip manufacturers have begun the construction of their new sales centers on sites originally intended for production expansion. They have also asked MOCVD equipment makers to delay the delivery of their orders that adds uncertainty to the chip supply in China in 2H11.

On the other hand, as for the second tier Chinese LED chip makers, they may have to terminate their expansion plans and even face the possibility of going out of business due to the lack of professional experts and MOCVD equipment. LEDinside believes that with the end-market demand remaining weak, only manufacturers that possess advanced technology and cost competitiveness can manage through the turbulent times in 2H11.

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